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FINANCE – BOOKLET 3
TRACK YOUR PROGRESS
Students learn about:
 planning and implementing financial needs, budgets,
record systems, financial risks,
financial controls
processes of financial management
– debt and equity
financing – advantages
and disadvantages of
each
– matching the terms and
source of finance to
business purpose
 monitoring and controlling –
cash flow statement, income
statement, balance sheet
 financial ratios
– liquidity – current ratio
(current assets ÷ current
liabilities)
– gearing – debt to equity
ratio (total liabilities ÷
total equity)
– profitability – gross profit
ratio (gross profit ÷
sales); net profit ratio
(net profit ÷ sales);
return on equity ratio
(net profit ÷ total equity)
– efficiency – expense
ratio (total expenses ÷
sales), accounts
receivable turnover ratio
(sales ÷ accounts
receivable)
Covered
Unsure
Getting
there
Understand
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– comparative ratio
analysis – over different
time periods, against
standards, with similar
businesses
 limitations of financial reports –
normalised earnings,
capitalising expenses, valuing
assets, timing issues, debt
repayments, notes to the
financial statements
 ethical issues related to
financial reports
 cash flow management
– cash flow statements
financial management strategies
– distribution of payments,
discounts for early
payment, factoring
 working capital management
– control of current assets
– cash, receivables,
inventories
– control of current
liabilities – payables,
loans, overdrafts
– strategies – leasing, sale
and lease back
• profitability management
– cost controls – fixed and
variable, cost centres,
expense minimisation
– revenue controls –
marketing objectives
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PROCESSES OF FINANCIAL MANAGEMENT: Planning and Implementing
Processes of financial management
 planning and implementing - financial needs, budgets, record systems,
financial risks, financial controls
Addressing
present financial
position
Establishing
financial
controls
Determining
financial needs
Identifying
financial risks
Developing
budgets
Maintaing
record systems
Instructions
Read the information on P288-293.
Make notes
Answer the questions that follow.
1. Identify the factors that determine businesses’ financial needs (2 marks)
2. Explain why the preparation of financial information is essential as part of the business plan (2 marks)
3. Identify the financial information that should be collected by a business when determining its future
financial needs (3 marks)
4. Summarise the different types of budgets and their importance in financial planning
5. Outline the importance of record keeping to a business’s financial success (2 marks)
6. Identify SIX financial control a business can use (6 marks)
7. Recommend reasons for implementing TWO financial controls (4 marks)
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PROCESSES OF FINANCIAL MANAGEMENT: Monitoring and Controlling
Processes of financial management
 monitoring and controlling – cash flow statement, income statement, balance
sheet
Instructions
 Use your own knowledge and the text to complete the following table
 Answer the short answer question below
 This is a revision task
Definition
Monitoring
and
Controlling
Balance
Sheet
Cash Flow
Statement
Revenue
Statement
Use - purpose
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SHORT ANSWER QUESTIONS:
1. Identify the THREE key statements used to monitor and control a business (2 marks)
2. Identify TWO stakeholders who would most likely view a cash flow statement. Outline the key
information they would be looking for. (4 marks)
3. Create a list of questions to which the following groups of people might seek answers from a
business. The first one is done for you.
Group
Questions
Creditors
Is your cash flow sufficient to pay your account on time?
Bank
Employee
Owner
Investor
Customer
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FINANCIAL RATIOS – LIQUIDITY AND GEARING
Processes of financial management

financial ratios
– liquidity – current ratio (current assets ÷ current liabilities)
– gearing – debt to equity ratio (total liabilities ÷ total equity)
Financial management strategies
 working capital management
- control of current assets – cash, receivables, inventories
- control of current liabilities – payables, loans, overdrafts
- strategies – leasing, sale and lease back
1. Recap - THE BALANCE SHEET 1
Instructions:
- classify the following Balance Sheet
ASSETS
LIABILITIES
Current assets
Current Liabilities
Non-Current Assets
Non-Current Liabilities
Intangible Assets
OWNERS EQUITY
Total Assets
Total Liabilities
Cash
82943
Equipment
1 200
Capital
5 000
Accounts payable
30 217
Fixtures and fittings
20 000
Accounts receivable
330
Mortgage ANZ
25 000
Net profit
44256
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2. Recap - THE BALANCE SHEET 2
Instructions:
- classify the following Balance Sheet
- pls note the narrative style
ASSETS
Current assets
Non-Current Assets
Intangible assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Non-Current liabilities
OWNERS EQUITY
TOTAL LIABILITIES
$
$
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3. Recap – THE BALANCE SHEET – KEY TERMS
Balance Sheet, Assets, Accounts Receivables, Liabilities, Capital, Overdraft, Intangibles, Drawings,
Mortgage, Stock/Inventory
Description
1. A summary of a business’s assets, liabilities and owners
equity over a specific period of time
2. A short-term facility, which allows a business to overdraw its
bank account up to an agreed limit
3. A long-term loan from a financial institution
4. The money that is owing by a business to its owner
5. The accumulated value or worth of resources for a business
6. The merchandise that is available for sale in a business or in
storage
7. The money that will be paid to a business by its debtors within
a short-period of time
8. The debts that are owing by a business to individuals or
groups other than the owners
9. Type of assets that a business may own that include things
such as copyrights, patents or goodwill
10. Owner’s funds/capital withdrawn by the owner to be used for
other purposes
Matching Term
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FINANCIAL RATIOS – LIQUIDITY AND GEARING (ANSWERS)
Processes of financial management

financial ratios
– liquidity – current ratio (current assets ÷ current liabilities)
– gearing – debt to equity ratio (total liabilities ÷ total equity)
Financial management strategies
 working capital management
- control of current assets – cash, receivables, inventories
- control of current liabilities – payables, loans, overdrafts
- strategies – leasing, sale and lease back
1. Recap - THE BALANCE SHEET 1
Instructions:
- classify the following Balance Sheet
ASSETS
LIABILITIES
Current assets
CASH
Accounts receivable
82 943
330
Non-Current Assets
Fixtures and fittings
Equipment
20 000
1 200
Intangible Assets
Total Assets
104 473
Current Liabilities
Accounts Payable
30 217
Non-Current Liabilities
Mortgage ANZ
25 000
OWNERS EQUITY
Capital
Net Profit
5 000
44 256
Total Liabilities
104 473
Cash
82943
Equipment
1 200
Capital
5 000
Accounts payable
30 217
Fixtures and fittings
20 000
Accounts receivable
330
Mortgage ANZ
25 000
Net profit
44256
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2. Recap - THE BALANCE SHEET 2 (answers)
Instructions:
- classify the following Balance Sheet
ASSETS
$
Current assets
Cash at Bank
Accounts Receivables
Stock
65 000
15 000
36 000
Non-Current Assets
Motor Vehicles
Buildings
Property
Plant and Equip
75 000
740 000
120 000
84 000
Intangible assets
Intangibles
175 000
TOTAL ASSETS
1 310 000
LIABILITIES
Current liabilities
Overdraft
Accounts Payable
20 000
22 000
Non-Current liabilities
Mortgage
220 000
OWNERS EQUITY
Capital
Retained Profits
900 000
148 000
TOTAL LIABILITIES
1 310 000
$
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3. Recap – THE BALANCE SHEET – KEY TERMS (answers)
Description
Matching Term
2. A summary of a business’s assets, liabilities and owners
equity over a specific period of time
Balance Sheet,
3. A short-term facility, which allows a business to overdraw its
bank account up to an agreed limit
Overdraft
4. A long-term loan from a financial institution
Mortgage
5. The money that is owing by a business to its owner
Capital
6. The accumulated value or worth of resources for a business
Assets
7. The merchandise that is available for sale in a business or in
storage
Stock/Inventory
8. The money that will be paid to a business by its debtors within
a short-period of time
Accounts Receivables
9. The debts that are owing by a business to individuals or
groups other than the owners
Liabilities
10. Type of assets that a business may own that include things
such as copyrights, patents or goodwill
Intangibles
11. Owner’s funds/capital withdrawn by the owner to be used for
other purposes
Drawings
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PROCESSES OF FINANCIAL MANAGEMENT:
Financial Ratios – Liquidity: Current Ratio
Wiki
Liquidity Ratios.pdf
2007 HSC Questions and Liquidity Ratio (ANSWERS BELOW)
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