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