Chapter 5: Selecting Financial Strategies

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  • Selecting Financial Strategies
    • Cost Minimisation
      • if it is to be pursued, all departments should be liaised with, as it will have an impact on them
      • reducing overheads will allow profit margin to increase
      • change in costs, may lead to decrease in quality or efficiency may fall
      • if a company can cut its direct costs, then profit margin will increase
    • Internal Sources of Finance
      • Trading (Retained) Profit
      • Sale of Assets
      • Sale and Leaseback
    • External Sources of Finance
      • Ordinary Share Capital
      • Bank Loan
      • Loan Capital
      • Debenture
      • Bank Overdraft
    • Profit Centres
      • Advantages
        • allow more focused study of a firm's finances
        • benchmarking can take place
        • finances may be run more efficiently
        • responsibility of profit centre may motivate individual responsible
      • Disadvantages
        • diseconomies of scale
        • allocating costs
        • demotivation of staff
        • setting targets
        • external changes
      • an identifiable part of an organisation for which costs and revenue can be calculated


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