Financial Management Flashcards

What is the primary purpose of financial management?

Answer: To balance expenditures with income.

Financial management ensures the efficient use of resources to achieve business goals.

Which financial statement reflects a company's financial performance over a period?

Answer: Income statement.

The income statement provides insights into a company's profitability over a specific period.

Why is cash flow management crucial for businesses?

Answer: To ensure enough cash is available for daily operations.

Proper cash flow management ensures that a business can meet its obligations and continue operations.

What is the purpose of budgeting in financial management?

Answer: To track and control financial resources.

Budgeting helps in allocating resources effectively and controlling spending.

What is the relationship between assets and liabilities in financial management?

Answer: Assets minus liabilities equal equity.

Assets are what the company owns, while liabilities are what it owes, and the balance affects equity.

What is break-even analysis used for?

Answer: To determine the sales level needed to cover costs.

Break-even analysis helps determine when a business will cover its costs and start making a profit.

How does financial reporting contribute to decision-making?

Answer: By giving an accurate overview of financial performance.

Financial reports provide insights into the financial health of the business, guiding future decisions.

What is ROI (Return on Investment) used to measure?

Answer: The financial return from an investment relative to its cost.

ROI is used to measure the profitability or efficiency of an investment.

What is working capital?

Answer: Current assets minus current liabilities.

Working capital measures a company's ability to cover short-term obligations with its available assets.