Financial Management

These cards are Int 2 level and are based on Financial Managment.

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  • Created by: Laura
  • Created on: 17-01-11 15:40

Identify 3 main tasks which are the responsibility

  • To control cost and expenditure – Financial information allows managers to identify where costs/expenses have increased in order to help them take corrective action.
  • To forecast trends – Managers analyse the firm’s annual accounts over several years to help them plan likely future costs, revenue and profits.
  •  To inform decision making – Financial information allows budgets to be prepared for internal uses. Budgets assist with decision-making and planning. Using ratio analysis allows an organisation to decide where improvements need to be made
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Show 6 different types of stakeholders who would b

  • Managers - Managers use profitability ratios to check on the organisations performance in comparision to previous years and competitors. They seek ways to improve profitability of their organisation for the future. They attempt to identify areas where savings could be made and costs could be reduced.
  • Owners - Owners are intrested in the profitability ratiors, especially the return on capital employment. They compare the return from their investment with other investment opportunities. They can then decide whether to remain as an investor, increase or reduce their investment.
  • Creditors - Creditors are interested in the overall profitability of an organisation. They are especially intrested in the liquidity ratior to assess the likelihood of receiving payment for goods they have supplied or intend to suppy to an organisation.
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Suggest one reason why each of the following might

  • Employees - They may be intrested in the liquidity and sales evenue of the organisation to access their own and their members job security.
  • Managers - They want to seek information on ways to improve the profitability of their organisation for the future. They attempt to identify areas where savings could be made and costs could be reduced.
  • Governemnt - The inland revrnue department is espically intrested in the profit made by an organisation. This allows the inland revenues to calculate tax due from the organisation.
  • Shareholders - To see if the business is worth investing in or if they should sell the stock.
  • Creditors - They are instrested in the liqudity ratiots to assess the likelihood of receiving payment for goods they have supplied or intend to supply to an organisation.
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Many firms experience difficulties due to cash flo

Cash flow - is the movement of money being put into or out of a business. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on the companies' value and situation. Cash flow can e.g. be used for calculating parameters.

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Explain what is meant by the following terms in re

  • Opening balance - The amount of money in the bank or in the cash at the beginning of the peroid.
  • Expemditure - Money which is paid out by the firm.
  • Forecast - A prediction in advance of a firms expected financial activity for a speciffic peroid.
  • Budget - Financial forward planning - A statement showing what an organisation hopes to earn and/or expects to spend during a set peroid of time.
  • Liquidity - Ease with which assets can be converted into cash.
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The cash flow forecast of Rons Rugs us shown below

 

Sept

Oct

Nov

Dec

 

£

£

£

£

 

-7,000

-9,000

2,000

11,000

Receipts

 

 

 

 

Income

40,000

45,000

43,000

47,000

TOTAL REVENUE

33,000

34,000

45,000

58,000

Payments

 

 

 

 

Rent

9,000

-

-

9,000

Wages

17,000

17,000

17,000

26,000

Overheads

11,000

10,000

12,000

13,000

Loan Repayments

5,000

5,000

5,000

5,000

TOTAL PAYMENTS

42.000

32,000

34,000

53,000

Closing balance

-9,000

2,000

11,000

5,000

a) Explain the opening balance? - Negative opening balance means the firm started september minue £7,000 eg.owed to bank.

b) Suggest one reason why the forecast for wages is expected to be higher in december? - Busy month for retail - may have been necessary to pay staff overtime or employ temporary staff. Perhaps bonuses are paid.

c) Suggest 2 items which could be included in overheads - Rent/rates and insurance

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Business can take steps to avoid cash flow probelm

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