Finance: Practice Questions

Which of the following financial objectives is primarily concerned with ensuring a business has enough liquid assets to pay its debts as they fall due?

A retail business reports a high operating profit for the year but is currently experiencing a liquidity crisis (a severe shortage of cash). Which of the following is the most likely cause?

A business decides to reduce its credit terms for customers from 45 days to 30 days and simultaneously negotiates an extension of credit terms from its suppliers from 30 days to 60 days. What is the most likely impact on the business?

Which of the following is considered a long-term external source of finance that would be most appropriate for a large public limited company (PLC) looking to fund a major capital expansion?

A business sells its outstanding customer invoices to a third party at a discount to improve its immediate liquidity. Which source of finance is being used?

Identify one internal source of finance available to a limited company and state one advantage of using it compared to a bank loan.

Briefly describe the likely impact on a business's working capital if it decides to increase its credit period offered to customers from 30 days to 60 days.

A firm's Gross Profit Margin increased from \( 30\% \) to \( 35\% \), while its Operating Profit Margin fell from \( 15\% \) to \( 10\% \). Explain the most likely cause for these diverging trends.

A small entrepreneur is looking to expand their local bakery and requires \( \$10,000 \) for new equipment.
(a) State the primary difference between an internal and an external source of finance.
(b) Provide one example of an internal source of finance suitable for this business and briefly explain one disadvantage of using it.