Financial Strategies; Unit 3 - Notes

Notes made from a combination of resources including the Malcolm Surridge text book and Philip Allan revision guide.

Covers the financial quarter of the course; Financial Objectives, Using Financial Data, Interpreting Published Accounts, Financial Strategies, Investment Decisions

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Financial Objectives
A goal or target pursued by the finance department
Contributes to achieving the corporate objective
Financial Aim: The broad, general goals for the finance function

Return on Capital Employed Target:
Calculated by expressing the net profits made by a firm as a percentage of the value of the…

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Availability of external finance
State of the market




Using Financial Data to Measure and Asses Performance

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Balance Sheets:
Financial statement recording the amount of assets and liabilities of a firm on a particular day at the
end of an accounting period
A `snap shot' of the financial position of a firm
Always contains the date of the evaluation
Sets out the ways a firm has raised…

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Interpreting the Balance Sheet:
The short term interpretation shows the firm's ability to pay its bills over the next 12 months; if its
current assets are greater than its current liabilities it is liquid and able to pay
The long term interpretation shows the movement of non-current assets, how the…

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4) Revenue is used to settle the firms liabilities

Depreciation:
Reduction in value of an asset of a period of time
Provides an accurate value of a firms assets through their useful life
Amount of annual depreciation will affect the overall values and profits of a firm
Firms have to…

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Required by law to publish their accounts so they are open to scrutiny by owners, potential investors
and bankers but also competitors so therefore contains as little information as possible
Provides information on earnings per share (Firms profit after tax divided per share including all
possible shares that could be…

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Importance: Provides a measure of the value or worth of the firm by using snap shot of the sources
of capital used by the firm that illustrates the liquidity to see if the firm is able to pay its current
liabilities and how it is paying for its non-current assets…

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Limitations:
Only includes financial information; doesn't give information on:
Leadership
Skills and experience
Workforce and absenteeism and labour
turnover
Market position
Product portfolio
Developments and research
Motivation
Productivity

Comparisons:
Compare performance in previous years
Compare performance to other similar firms
Judge performance against stated objectives

Bad Debts: Money owed to…

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Liquidity Radio's:
Measures the firm's ability to settle short term debts
Monitors a firms cash position
Based on balance sheet figures from one moment in time
They are vulnerable to window dressing and sudden changes in trading departments

Current Ratio:
Ability of a firm to meet its liabilities or debts…

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Expressly as a number of times a year
A low figure could be due to obsolete inventories and a high figure can indicate an effective firm
To improve this ratio a firm should hold less stock and increase sales

Receivables Days:
Calculates the time typically taken by a firm to…

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