Assessment I - Financial Management (AINI).docx

The purpose of the matching concept is to avoid

This preview shows page 6 - 8 out of 32 pages.

The purpose of the matching concept is to avoid misstating earnings for a period. Reporting revenues for a period without reporting all the expenses that brought them could result in overstated profits. Full Disclosure Concept You should include in an entity’s financial statements all information that would affect a reader’s understanding of those statement. The interpretation of this principle is highly judgemental, since the amount of information that can be provided is potentially massive. To reduce the amount of disclosure, it is customary to only disclose information about events that are likely to have a material impact on the entity’s financial position or financial results. 7. Provide four (4) examples of investment decisions ( 1 mark) Investment in Plant and Machinery Investment in Research and Development The decision to enter a new market Taking over a company 8. Provide five (5) examples of financing decisions ( 1 mark) Financial planning Financial Controlling Acquisition of funds Deciding Financial Policy Budging 9. Provide three (3) examples of financial management decisions. (1 mark) There are three types of financial management decisions: 1. Capital budgeting (investment decisions) Example: if your company should open another store or not 2. Capital structure Example: deciding whether to issue new credit to pay off old debts. 3. Working capital management Example: seeing if we should extend credit to customer. 10. Explain the difference between financial accounting and management accounting. (1 mark) Management accounting is more concerned with operational reports which are only distributed within a company standard. Financial Management, Assessment No.1 Page 6 v1.1, Last updated on 10/04/2017
Image of page 6
T-1.8.1 Financial accounting must comply with various accounting standards, whereas management accounting does not have to comply with any standards when it complies information for internal consumption. 11. Provide five (5) examples of ratios that can be used for analysis and what they mean ( 1 marks) 1. Cross Profit Ratio A profitability ratio that shows the relationship between gross profit and total net sales revenue. 2. Inventory Turnover / Stock Turnover Ratio The inventory turnover formula measures the rate at which inventory is used over a measurement period. 3. Net Profit Ratio Indicates how much net income a company makes with total sales achieved. A higher net profit margin means that a company is more efficient at converting sales into actual profit. 4. Return on Assets Calculates the ability of management to efficiently use assets to generate profits. A lowe return indicates a bloated investment in assets. 5. Current Ratio Compares current assets to current liabilities, to see if a business has enough cash to pay its immediate liabilities.
Image of page 7

Want to read all 32 pages?

Image of page 8

Want to read all 32 pages?

You've reached the end of your free preview.

Want to read all 32 pages?

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern