Topic 3 | Finance
Sub topic 3: Processes of financial management
Lesson 1 | Processes of financial management
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planning and implementing – financial needs, budgets, record systems, financial risks, financial controls
– 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
Lesson 2 | Financial ratios
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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)
– comparative ratio analysis – over different time periods, against standards, with similar businesses
Lesson 3 | Limitations of financial reports
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limitations of financial reports – normalised earnings, capitalising expenses, valuing assets, timing issues, debt repayments, notes to the financial statements
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ethical issues related to financial reports