TACN2

What is working captital? How is it classified?

Answer explanation

Working capital includes inventories and working resources needed by a company to carry business or production.

There are 2 types:

• - permanent working capital: is tied up in keeping the business flowing throughout the year.

• - temporary working capital: is needed from time to take account of seasonal, cyclical or unexpected fluctuation in the business.

What are the tasks of financial manager in managing inventories?

Answer explanation

-Inventories include raw materials, work in progress and finished goods.

-Tasks: to minimize the stocks of raw material, the level of the work in progress and the quantity of finished goods.

What are the tasks of financial manager in managing debtors?

Answer explanation

Tasks:

• - negotiate the generous credit terms with supplier

• - offer minimal credit to customers

• - achieve a balance between credit term with suppliers and customers

• - minimize cash outlay

What are the tasks of financial manager in managing cash?

Answer explanation

Cash is needed for normal and abnormal requirements.

Tasks:

• - ensure that adequate cash is available for meeting day-to-day debts

• - there is also a small reserve on hand to meet contigences.

What are common mistakes in setting prices?

Answer explanation

Mistakes in setting prices:

• - pricing is too cost-oriented

• - price is not revised often enough to capitalize on market changes

• - price is set independently of the rest of marketing mix

• - price is not varied enough for different product items and market segments.

How are product prices set in different types of companies?

(What are the different ways in setting prices?)

Answer explanation

Prices are set in different ways in different types of companies:

• - in small companies: prices are set by top management.

• - in large companies: prices are handled by divisional and product-line managers.

• - in industries: prices are determined by a pricing department.

What are 3 important financial statements? And what information do they provide?

Answer explanation

• - Balance sheet:

• + shows the company's financial situation on a particular date.

• + Lists the company's assets, its liabilities and shareholders funds.

• - Income statement:

• + shows earnings and expenditures.

• + gives figures for total sales or turnover and cost and overhead.

• - Cash flow statement:

• + shows the flow of cash in and out of the business between balance sheet dates.

What is financial analysis? Its importance?

Answer explanation

Financial analysis is the selection, evaluation and interpretation of financial data, along with other pertinent information, to assist in investment and financial decision-making.

For what purposes are financial annalysis's results used internally and externally?

Answer explanation

• - it is used internally to evaluate issues such as: employee performance, efficiency of operations and credit policies.

• - it is used externally to evaluate potential investments and the credit-worthiness of borrowers, among other things.

What are the sources of data available for financial analysis?

Answer explanation

• - Primary sources: the data provided by company itself

• + annual reports: income statement, balance sheet,...

• + required disclosures: securities laws to add more information.

• - Market data: is found in financial press and electronic media daily: the market price of securities, stock price,...

• - Economic data: from government or private sources: GDP, CPI,...

• - Company economic events: we need to examine current economic events that may help explain company's present condition.