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25 Cards in this Set
- Front
- Back
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what are financial obj?
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-monetary goals a business sets itself to achieve in a given time period, often a financial year.
-provide target for business to aim for aswell as a mechanism against which to measure performance. |
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what are cash flow targets
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-maintaining a healthy cash balance
-a firm that does not set this may struggle to survive due to liquidty problems -must consider that there is an opportunity cost of holding to much cash. |
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what is cost minimisation
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business attempt to maximise profits by keeping costs low.
-if they can achieve this without having a negative effect on revenue, then the profit margins achieved will be improved -make costs savings where without effecting either their ability to operate or the customers opnion of their goods and services -relocate abroad=strategic -change suppliers= tactical |
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what is ROCE?
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-Return achieved by a business
-a measure of firms profitability and performance. -stating minimum % return it deems appropriate on its total investments -set above rate of interest that could be achieved if the captial employed were simply placed in a bank account. |
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what is shareholders return
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-ultimately they own the business
-if dissatisfied can sell shares freely on the market= vulnerable to takeovers. -power to reappoint members of the board of directors. has two distinct components *the market value of the share itself (how much from selling) *the dividend paid (how much do they recieve from profits as a reward for their investment) |
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what are the internal influences on financial obj
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*characteristics of the firm= size/ status/ age
*owners *sectors=public- provide service to community |
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what are the external influences
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*competitors actions=cost minimsation
*economic conditions= directors aware of effecy, prepare before hand in order to tackle with care. |
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what is the annual report
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a formal report which outlines the companys performance in the previous year
*how company has performed financially *businesses mission and management philosoppy *produced and distributed to shareholders *it consists of an income statement and balance sheet |
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what is a income statement
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summary of a firms trading activites and its expenditure over a period of time.
*gross profit= profit after cost of sales has been deducted. (raw materials and direct labour) *operating profit= profit after other expenses have been deducted *profit quality= degree to which the profit figure is sustaianble in the future *profit utilisation= the way in which profit is used (shareholders/reinvested) |
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what is a balance sheet
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the net worth of a business at a set point in time by looking at what the business owns.
*working capital= firms ability to meet day to day expenses hence survive in the short run. *depreciation= an expense in the income statement to ensure that the cost of the asset is being spread over its useful life. *gearing= indication of how reliant a firm is on borrowing and hence how at risk it is from an increase in interest rates (heavily geared=x) debtor= someone who owns the business money (a customer who has not paid) creditor= someone the business owns money to (supplier who has not yet paid) *trade receivables= if from debtors are high, it may be becasue of fierce competition in the market and a need to offer favourable credit terms in order to achieve a comp adv/sign of internal weakness *trade payables= from creditors are low business may wish to consider whether it could improve its cash flow and working capital by negotiating more favourable payment terms with its suppliers. |
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what is inter firm comparisons
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comparison with competitor or similiar sized firms. look at one another to set targets for future performance. (benchmarking)
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what is intra firm
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comparisons between branches, divisions, geographical locations or product ranges
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what is trend analysis
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track their performace over time in order to assess whether they are operating efficiently or not and also to help extrapolation
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what are the strengths and weaknesses of financial data
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balance sheet will be true of the firms woths at the time at which it is drawn up
publsihed accounts are window dressed-manipulating accounts to make them look favourable (altering methods of inventory valuation, valution of intangible assests and depreciation calculations) |
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what are the value and limitations of ratio analysis
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value= provide structure and put figures into context/provide frameowrk from which we can make meanigful comparisons between firms performance form one year to the next/branches and same industries. Performance and set targets
shows firm to be liquid , profitable, finanacially effcient limitations= may have been manipulated to improve picture. balance sheet is a snapshot. not inform potential investor, suplliers or cutomer about their ethical behaviour, future plans or green credentials. |
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what are financial strategies
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the long term financial plan of action to achieve the financial obj of the business.
-to maintain competitive |
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what are the two main external sources of long term finance
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equity share captial & debt
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what are profit centres
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identify the performance of individual subsections within a business.
=involves devolving responsibility for revenues and costs, and hence profits, to identifiable subsections within a business -easier to monitor financial performance -allows for greater delegation of responsibility -acts to motivate managers identified by product, department or geographical location -only appropriate when a subsection of a business can take responsility for its own revenues as well as costs. |
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cost minimisation
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-compete on price
-business that has high market share or is a market leader will be in a position of power when it comes to negotiating terms and conditions with suppliers. -just in time= reduce cost of managinf resources (holding costs= less) although pressure on production staff that have production targets to meet and are relying upon an excellent relationship with, and service from, suppliers. |
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what is captial expenditure
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purchase of assets that will remain within the business for a long period of time (in the balance sheet allowing them to spread the cost of the asset over its useful life.
revenue expenditure - on dady to day items =raw materials large org have sign off chain -to maintain shareholder wealth + increase it -difficult to measure as achived over a long period of time -closely monitored to ensure benefits are achieved -opportunity cost less money on training |
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what is the importance of investment
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-inolve spending substantial sums of money
-important as through this they will strive to achieve their obj |
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what is investment appraisal
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scientific decesion making toolss used to analyse whether a captial investment is worthwhile.
-quantitative and qualitative =payback =average rate of return =net present value |
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what is invest criteria
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before carrying out investment decesions managers will have a pre determined set of investment criteria = to judge the investment.
-these are minimum targetsthat it must reach to before acception -prevents bias in decesion making |
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risk and uncertainties
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-sum of money to be invested as well as the source of that money
-the length of time the business must commit to the project -the impact of the investment on other aspects of the business, for example day to day funding -the ease or difficulty with which an investment can be reversed -the impact of the decesion on other future strategic choices. uncertainty -the stability of the market and associated likely accuracy of sales forecasts -the credibility of the source of the estimated costs and revnues -the stability of the eco enviro in which the business operates -the potential comptitors reactions to the investment -the overall time period of future projections |
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what are the qualitative factors
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impact on the image of the firm, the workers, ethical considerations, consumer perceptions and the impact on the wider society
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