Business & Financial Profit – Finance & Accounting

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Business & Financial Profit – Finance & Accounting

This quiz is about business and financial profit of finance and accounting.


Profitability

ability of a business to maximise its profits


Growth

ability of a business to increase its size in the longer term


Efficiency

ability of a business to use its resources effectively in ensuring financial stability and profitability


Liquidity

extent to which a business can meet its financial commitments in the short term


Solvency

extent to which the business can meet its financial commitments in the longer term


Short term objectives

1-2 years tactical plans


Long term objectives

strategic plans 5+ years


Internal finance

funds provided by the owners of the business or from the outcomes of business activities (retained earnings)


Owners’ equity

funds contributed by owners or partners to establish and build the business


External finance

funds provided by sources outside of the business, including banks, other financial institutions, government, suppliers or financial intermediaries


Bank overdraft (ST) `

bank allows a business or individual to overdraw their account up to an agreed limit and for a specified time, to help overcome a temporary cash shortfall


Commercial bills (ST)

type of bill of exchange (loan) issued by institutions other than banks


Bill of exchange

document ordering the payment of a certain amount of money at some fixed future date


Factoring (ST)

selling of accounts receivable for a discounted price to a finance or factoring company


mortgage (LT)

loan secured by the property of the borrower


Debentures (LT)

issued by a company for a fixed rate of interest and for a fixed period of time


Unsecured note (LT)

loan for set period of time but is not backed by any collateral or assets


Leasing (LT)

payment of money for the use of equipment that is owned by another party


Equity

finance (cash) raised by a company by issuing shares


dividend

distribution of a company’s profits to shareholders and is calculated as a number of cents per share


Australian securities exchange (ASX)

primary stock exchange group in Australia


Primary markets

deal with the new issue of debt instruments by the borrower of funds


Secondary markets

deal with the purchase and sale of existing securities


Global economic outlook

projected changes to the level of economic growth throughout the world


Availability of funds

ease with which a business can access funds on the international financial markets


Interest rates

cost of borrowing money


Capital expenditure

what is spent on business’s non current or fixed assets


Budgets

provide information in quantitative terms about requirements to achieve a particular purpose


Operating budgets

main activities of a business – sales, production, raw materials, expenses


Project budgets

capital expenditure and R&D


Financial budgets

financial data of a business – income statement, balance sheet and cash flows


Record systems

mechanisms employed by a business to ensure that data are recorded and the information provided by record systems is accurate, reliable, efficient and accessible


Financial risk

risk to a business of being unable to cover its financial obligations


Financial controls

policies and procedures that ensure that the plans of a business will be achieved in the most efficient way


Debt finance

Short and long term borrowing from external sources by a business


Equity finance

internal sources of finance in the business


Cash flow statement

financial statement that indicates the movement of cash receipts and cash payments resulting from transactions over period of time

Cash Flows. Business & Financial Profit - Finance & Accounting

Income statements

shows the operating results for a period. It shows revenue earned and expenses incurred over the accounting period with the resultant profit or loss

Income Statements

Balance sheet

business’s assets and liabilities at a particular point in time, and represents net worth of the business

Balance Sheet. Business & Financial Profit - Finance & Accounting

Assets

items of value owned by the business.


Current assets

turned into cash within 12 months


Financial resources

resources in a business that have a monetary or money value


Financial management

planning and monitoring of a business’s financial resources to enable the business to achieve its financial goals


Assets

property and other items such as machinery, vehicles and cash (tangible assets) and patents, trademarks and goodwill (intangible assets)


Objectives of Financial management (5)

1. Profitability
2. efficiency
3. growth
4. liquidity
5. solvency


Non-current assets

not expected to be turned into cash within 12 months


Liabilities

claims by people other than owners of against assets, and represent what is owed by the business.


Current liabilities

must be repaid within 12 months


Non-current liabilities

met some time after the next 12 months


Accounting equation

Assets = Liabilities + OE

or

Assets = liabilities + capital + revenue – expenses


Analysis

working the financial information into significant and acceptable forms that make it more meaningful, and highlighting relationships between different aspects of a business


interpretation

making judgements and decisions using the data gathered from analysis


Liquidity: current ratio

current assets/current liabilities


Gearing

proportion of debt and the proportion of equity that is used to finance the activities of a business.


Gearing: Debt to Equity Ratio

total liabilities / OE


Profitability: Gross profit ratio

gross profit/ sales


Profitability: Net profit ratio

net profit/ sales


Profitability: Return on equity ratio

net profit/total equity


efficiency: expense ratio

total expenses/sales


efficiency: Accounts receivable turnover ratio

sales/accounts receivable


Debt repayments

either money owed to the business or by the business


audit

independent check of the accuracy of financial records and accounting procedures


Cash flow

movement of cash in and out of a business over a period of time


Working capital

funds available for the short-term financial commitments of a business


Net working capital

current assets – current liabilities


Working capital management

determining the best mix of current assets and current liabilities needed to achieve the objectives of the business


Receivables

sums of money due to a business from customers to whom it has supplied goods or services


Payables

sums of money owed by the business to other businesses from whom it has purchased goods and services


Sale and lease-back

selling of an owned asset to a lessor and leasing the asset back through fixed payments for a specified number of years


forward exchange contract

contract to exchange one currency for another currency at an agreed exchange rate on a future date


currency swap

agreement to exchange currency in the spot market with an agreement to reverse the transaction in the future


Profitability management

control of both the business’s costs and its revenue


cost centres

particular areas, departments or sections of a business to which costs can be directly attributed


direct costs

those that can be allocated to a particular product


indirect costs

those that are shared by more than one product


foreign exchange market

determines the price of one currency relative to another


foreign exchange rate

ratio of one currency to another


appreciation

upward movement of the AUD against another currency


payment in advance

allows the exporter to receive payment and then arrange for the goods to be sent


letter of credit

commitment by the importer’s bank, which promises to pay the exporter a specified amount when the documents proving shipment of the goods are presented


clean payment/remittance

occurs when payment is sent to, but not received by, the exporter before the goods are transported


spot exchange rate

value of one currency in another currency on a particular day


hedging

process of minimising the risk of currency fluctuations


derivatives

financial instruments that may be used to lessen the exporting risks associated with currency fluctuations


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