Professional Documents
Culture Documents
Strategic role of financial management is to ensure that a business achieves its goals and objective.
This can only be accomplished if the business’s finances are managed effectively.
- Setting financial objectives and ensuring the business is able to achieve these goals
- Sourcing finance
- Preparing budgets and forecasting future finances
- Preparing financial statements
- Maintaining sufficient cash flow
- Distributing funds to other parts of the business
PLEGS
Profitability
Liquidity
Efficiency
Growth
Solvency
- Equity:
Ordinary shares = new issues, rights issues, placements, share purchase plans
Private equity
o Financial institutions
Know some general information on the following and what they do/provide:
- Banks
- Investment banks
- Finance companies
- Superannuation funds
- Life insurance companies
- Unit trusts
- Australia Securities Exchange (ASX)
o Influence of Government
What’s happening in the rest of the world that could influence BIZ in AUS?
Availability of funds
Interest rates
Financial needs?
Budgets
Financial controls
Looking at Planned vs Actual performance of the following, then taking corrective action (strategies)
A ratio shows whats on the TOP of the formula on the LEFT in terms of whats on the BOTTOM of the
formula of the on the RIGHT
= 2:1
- Liquidity:
1. CURRENT RATIO
How many dollars of CURRENT ASSETS does the business have for every $1 of CURRENT LIABILITIES
- Gearing (solvency)
1. DEBT-TO-EQUITY RATIO
Shows the extent to which the firm is relying on debt or outside sources to finance the BIZ.
No optimal ratio. Higher ratio shows less solvency and more risk BUT potential for greater return.
- Profitbaility
1. GROSS PROFIT RATIO
Gross profit/sales
Since gross prof is revenue- - COGS, the only ways to improve the ratio are to:
Net profit/sales
Aim for a HIGH ratio.
Since net prof is gross prof – expenses, BIZ must look at minimizing expenses to improve the ratio.
- Efficiency
1. Expense ratio
Total expenses/sales
Sales/accounts receivable
To turn the ratio into a number of days, divide 365 by the ratio. E,g, ratio 0.1:1 means 365 divided by 0.1
= 36.5 days