Task 1

Classify the following items as either a current asset, non-current asset, current liability, non-current liability, owner's equity or on an income statement:

Gross profit

Accounts receivable

Mortgage

Sales

Inventory/stock

Overdraft

COGS

Car

Equipment

Drawings

Land

Selling expenses

Retained profits

Buildings

Administrative expenses

Cash

Accounts payable

Net profit

Goodwill

MCQ

1. Which objective of financial management is concerned with the ability of a business to efficiently manage its revenue and expenses?

a) Profitability
b) Liquidity
c) Efficiency
d) Growth

2. What is liquidity used to determine?

a) The profitability of the business
b) The ability of the business to repay its short-term debts
c) The return to shareholders on their investment
d) The ability of a business to maximise revenue

3. What does efficiency refer to in the financial management of a business?

a) Increasing the sales of a business
b) Ensuring there is enough cash in the business
c) Keeping spending to a minimum
d) Reducing expenses while increasing profits

4. Why is the effective management of a business's financial resources important in the long term?

a) It encourages a business to develop expensive marketing strategies
b) It is through the effective use of financial resources that a business is able to achieve its financial objectives
c) It s through the use of financial resources that a business is able to obtain the best inputs
d) It allows the business to acquire highly skilled and motivated employees

5. During the establishment stage of the business cycle, what is the most likely financial objective?

a) Profitability
b) Forecasting
c) Efficiency
d) Solvency

6. What are the internal sources of finance available to a business?

a) Shares, retained profits, loans
b) Leasing, factoring, venture capital
c) Retained profits, owners equity, new partner
d) Commercial bills, shares, leasing

7. What is the advantage of a bank overdraft for a small business?

a) Higher costs than a loan
b) Lower costs than a loan
c) High level of flexibility
d) Low level of flexibility

8. Which of the following best describes factoring?

a) Selling accounts receivable
b) Selling accounts payable
c) Selling inventory
d) Selling current assets

9. What is a disadvantage of raising capital through a share issue?

a) Only certain people can buy shares
b) The high cost of issuing shares
c) The shares can be bought and sold on the stock exchange
d) The ownership of the business can become diluted

10. What source of finance is most appropriate for a large expansion?

a) Mortgage
b) Overdraft
c) Factoring
d) Debentures

Short Answer

Calculate COGS, gross profit and net profit for each year using the following information. Suggest reasons for any changes in the net profit from 2012 to 2013.

            2012                                       2013

Purchases                                            $50 000                                 $70 000

Revenue                                              $230 000                               $180 000

Admin expenses                                   $30 000                                 $50 000

Operational expenses                            $40 000                                 $50 000

Opening stock                                      $20 000                                 $50 000

Financial expenses                                $30 000                                 $40 000

Closing stock                                        $60 000                                 $60 000

Using the following information calculate:

·         Total current assets

·         Total non-current assets

·         Total assets

·         Total liabilities

·         Owners equity

Plant and equipment                      $68 000

Cash                                            $30 400

Accounts payable                         $82 000

Inventory                                      $4 100

Sales                                            $150 000

Mortgage                                      $75 500

Land and buildings                         $85 000

Accounts receivable                      $58 000

Task 2

	Income Statement for ABC Box Co Year Ending June 2014	Income Statement for XYZ Box Co Year Ending June 2014
Income	250 000	300 000
Admin Expenses	75 000	80 000
Selling Expenses	35 000	50 000
Purchases	60 000	80 000
Opening Stock	80 000	80 000
Closing Stock	40 000	20 000
Overdraft	10 000	50 000

1.       Calculate the following for each company:

a.       Gross profit for ABC Box Co

b.      Gross Profit for XYZ Box Co

c.       Net Profit for ABC Box Co

d.      Net Profit for XYZ Box Co

e.      Gross Profit ratio for ABC Box Co (show working)

f.        Gross Profit ratio for XYZ Box Co (show working)

g.       Comment on the Gross Profit ratio for each company

h.      Net Profit ratio for ABC Box Co (show working)

i.         Net Profit ratio for XYZ Box Co (show working)

j.        Comment on the Net Profit ratio for each company

k.       If the Net Profit ratio for XYZ Box Co was 5% for the year ending 2015, give two possible reasons for this change.

Balance Sheet for ABC Box Co

As at 30/6/2012

Current Assets	Current Liabilities
Cash                                  $10 000	Overdraft                           $10 000
Acc Receivable                  $30 000	Acc Payable                       $30 000
Inventory                            $40 000	Non-current Assets
Non-current Assets	Mortgage                            $100 000
Mortgage                            $250 000
	Owner’s Equity                 $190 000
Total                                  $330 000	Total                                  $330 000

 Additional information:

-          Industry average current ratio 2.2:1

-          Industry average debt-to-equity ratio 50%

-          Net profit for year ending 2012 is $30 000

-          Sales for year ending 2012 $210 000

1.       Calculate the following for ABC Box Co

a.         The Current ratio (show working)

b.      Comment on the Current ratio for ABC Box Co

c.       Suggest TWO strategies to improve the Current ratio

d.      Calculate the Debt-to-Equity ratio for ABC Box Co (show working)

e.      Comment on the Debt-to-Equity ratio for ABC Box Co

f.        Suggest TWO strategies to improve the Debt-to-Equity ratio

g.       Calculate the Return on Equity ratio (show working)
h.   Calculate the Accounts Receivable Turnover ratio (show working)

MCQ

1. What are the internal sources of finance available to a business? 
a) Shares, retained profits, loans 
b) Leasing, factoring, venture capital 
c) Retained profits, owners equity, new partner 
d) Commercial bills, shares, leasing 

2. What is the advantage of a bank overdraft for a small business? 

a) Higher costs than a loan 
b) Lower costs than a loan 
c) High level of flexibility 
d) Low level of flexibility 

3. Which of the following best describes factoring? 

a) Selling accounts receivable 
b) Selling accounts payable 
c) Selling inventory 
d) Selling current assets 

4. What is a disadvantage of raising capital through a share issue? 

a) Only certain people can buy shares 
b) The high cost of issuing shares 
c) The shares can be bought and sold on the stock exchange 
d) The ownership of the business can become diluted 

5. What source of finance is most appropriate for a large expansion? 

a) Mortgage 
b) Overdraft 
c) Factoring 
d) Debentures

Practice Exam MCQ

1 What is ONE benefit of global branding?

(A) It can be recognised in many markets.
(B) It better suits a production approach to marketing.
(C) It is a marketing strategy designed for every market.
(D) It is a customised product that can be used in many markets.

2 Which government institution would investigate a claim that a company has falsified its accounting records?

(A) Australian Securities Exchange

(B) NSW Department of Fair Trading
(C) Australian Securities and Investment Commission
(D) Australian Competition and Consumer Commission

3 Data related to a small manufacturing business is shown in the table. What possible conclusion can be drawn from the data?

(A) Job dissatisfaction is being demonstrated in a different way.

(B) The staff turnover levels reflect increased job dissatisfaction.
(C) The days lost to disputes reflect increased job satisfaction.
(D) Absenteeism levels indicate increased job satisfaction.

	2010	2011
Number of employees	20	20
Number of days lost to disputes	25	10
Absenteeism	5	20
Staff turnover	10%	10%

4 How can a business improve its working capital management?

(A) By increasing cost centres

(B) By reducing variable costs
(C) By leasing rather than buying assets
(D) By extending credit terms to 60 days

5 A business is relocated to a new manufacturing plant that recycles all water and reduces energy usage considerably. What are the likely impacts of the relocation for the business?

(A) An increase in both environmental impacts and operating costs

(B) A decrease in both environmental impacts and operating costs
(C) A decrease in environmental impacts and an increase in operating costs
(D) An increase in environmental impacts and a decrease in operating costs

6 A business has a range of products across the product life cycle. Which marketing strategy could be adopted to increase profits for this business in the short term?

(A) Eliminate non-performing products

(B) Research new distribution channels
(C) Increase the product research and development budget
(D) Use a discount pricing policy on the full range of products

7 An employee has made a complaint to his manager regarding the small number of shifts he is being given per fortnight. Which strategy should the manager use first to manage the situation effectively?

(A) Mediation

(B) Negotiation
(C) Monetary rewards
(D) Non-monetary rewards

8 A manufacturing business has recently changed its marketing strategy to include e-marketing.

What external influence may have led to this?

(A) Increased staffing costs

(B) Underperforming retail sales
(C) The recent employment of a computer expert
(D) The inability to differentiate its brand from competitors

Use the following information to answer Questions 9–10.

Fnancial statement for a school canteen

	Feb	Mar	Apr	May
Cash Sales	$1000	$1000	$1000	$1800
Cash Expenses	$500	$2500	$600	$1000

9 What is the closing cash balance at the end of May?

(A) –$1200

(B) –$600
(C) $200
(D) $1000

10 Which strategy could the canteen manager have adopted to improve cash flow in March?

(A) Pay all the expenses in February

(B) Delay paying debtors on time
(C) Collect receivables quarterly
(D) Obtain an overdraft

11 Which of the following is an output from the operations processes of a business?

(A) Gantt charts

(B) Customer service
(C) Human resources
(D) Sequencing and scheduling

12 A restaurant has changed its menu because a large number of migrants have moved into the area. Which influence on marketing led to the change?

(A) Economic

(B) Government
(C) Psychological
(D) Sociocultural

13 Which strategy could an Australian exporter adopt to reduce the risk of non-payment?

(A) Factoring

(B) Hedging
(C) Letter of credit
(D) Unsecured note

14 A manufacturer operating in Australia is having legal proceedings brought against it by its employees. The case concerns serious health issues resulting from long term exposure to fumes from the production process. Which legal and ethical responsibilities might this manufacturer have failed to fulfil?

(A) Workers compensation requirements and providing a duty of care

(B) Occupational health and safety requirements and providing a duty of care
(C) Workers compensation requirements and providing fair working conditions
(D) Occupational health and safety requirements and providing fair working conditions

15 Which strategy should an exporting business implement to increase profits and respond to an appreciating Australian dollar?

(A) Sell off assets and lease them back

(B) Offer debtors a discount for early payments
(C) Review marketing objectives to focus on domestic sales
(D) Identify cost centres and work to improve their efficiency

16 What information can a business use to monitor and control its marketing plan?

(A) SWOT analysis

(B) Cash flow statement
(C) Market share analysis
(D) Balance sheet figures

17 An international clothing manufacturer has closed its Australian manufacturing plant and relocated to Indonesia. What are the likely effects of this decision on the business?

(A) Increased wage costs and increased employment in Australia

(B) Decreased wage costs and decreased employment in Australia
(C) Decreased wage costs and increased employment in Australia
(D) Increased wage costs and decreased employment in Australia

18 Many Australian businesses have expanded overseas in the last 20 years. What marketing role does this best represent?

(A) Mass

(B) Positioning
(C) Social
(D) Strategic

19 What is the benefit to shareholders of debt financing over equity financing?

(A) It minimises risk.

(B) Return on shareholders equity is likely to be higher.
(C) Repayments can be postponed in economic recessions.
(D) Loans are guaranteed by the Australian Securities Exchange.

20 What is human resource management?

(A) The communication of goals and the provision of resources to employees

(B) The daily supervision, allocation of duties and evaluation of employees
(C) The use of domestic and global contractors
(D) The organisational hierarchy of a business