Finance Revision Questions & Summary

1 What four main areas does financial information cover?

2 List some of the factors which may be taken into account when one
business deciding whether or not to provide a line of credit.

3 For what purpose might a manager use financial information?

4 List at least four characteristics of useful information.

5 List at least five users of financial information.

6 Using the users of financial information that you have just listed, suggest a
reason for each of them to be using the information.

7 Why might an organisation be interested in calculating accounting rations?

8 Name and describe the purpose of four accounting rations.

At the end of this unit you should be able to:

 The role of the finance function in an organisation including:

a) payment of wages
b) payment of accounts
c) maintenance of financial records

 the purpose and use of:

a) profit and loss account
b) balance sheet
c) cashflow statement

 the main uses of financial information

 the main users of financial information and the reasons for use

 ratio analysis

 budgets are statements showing future expenditure; a management tool;

useful for monitoring and controlling business operations

 they are also useful for gaining information, setting targets and
delegating authority

 a cash budget is a good example of a budget

 budgets are most easily used when created using a piece of appropriate
computer software

 accounting ratios can be calculated for any business that produces

financial reports

Higher Grade Business Management Knox Academy

 ratios are normally calculated to highlight the areas of profitability,
liquidity and efficiency

 the use of accounting ratios has limitations

 the main profitability ratios are:

a) gross profit as a percentage of sales
b) gross profit as a percentage of cost of goods sold
c) net profit as a percentage of sales

 the main liquidity ratios are:

a) current ratio
b) acid test ratio

 the main efficiency ratio is:

a) return on capital employed

 calculation of ratios is not enough; analysis must also take place

 analysis of ratios may include comparisons over a number of years or

comparisons with other businesses in the same sector

 useful financial information should cover the areas of profitability,

liquidity, efficiency and capital structure

 financial information becomes more useful when it is used as a

comparator

 useful financial information has certain characteristics

 the users of financial information are a varied group

 users of financial information have many reasons for showing an interest

in a company’s financial statements

Keep studying for your NAB and final exam.

Remember to practise past paper questions and ask for help in difficult
areas.

Higher Grade Business Management Knox Academy