Business Studies- FINANCE

year 12 HSC course, includes definitions, role, strategies, processes and influences (+examples)

what is the strategic role of finance?

to effectively plan and monitor financial resources to enable the business to achieve its financial objectives in the long term.

what is the acronym to remember the financial objectives?

PLEGS

what does PLEGS stand for?

profitability, liquidity, efficiency, growth and solvency

what is profitability? (financial objective)

ability of a business to maximise profits (gross/net)

what is liquidity? (financial objective)

if a business can meet financial commitments in the short-term

what is efficiency? (financial objective)

minimising expenses and using assets efficiently

what is growth? (financial objective)

increase in size in the long-term (revenue, market share etc.)

what is solvency? (financial objective)

if business can meet financial obligations in the long-term

what is an example of a conflict between short-term and long-term objectives?

long-term growth & short-term profitability

what is interdependence?

the mutal reliance between two key business functions

what is a balance sheet?

document that represents a business’s assets and liabilities at a particular point in time and represents the net worth (equity) of the business

what equation does a balance sheet use?

assets = liabilities + owner’s equity

what are assets? (balance sheet)

current or non-current items of value owned by a business

what are liabilities? (balance sheet)

current or non-current debts owed by the business to others

what is equity? (balance sheet)

the value of the business to the owners, including capital which is money the owner has directly invested, or retained profits

what is an income statement?

a summary of the income earned (revenue), expenses incurred and profit over a period of trading (usually the financial year)

what are some other names for an income statement?

• Profit and Loss Statement (P&L)

• Revenue Statement

• Statement of Financial Performance.