Processes of Financial Management

EasyBiz > Finance > Processes of Financial Management

• 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
• 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
• 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

Extract from Business Studies Stage 6 Syllabus. © 2010 Board of Studies NSW.