FINANCE EXAM PREP | COMPLETE STUDY
GUIDE & PRACTICE QUESTIONS
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep
,What is the strategic role of finance management? effectively plan and monitor financial resources to enable the business to achieve
its financial objectives in the long term
What are four aspects of finance management - preparing budgets and determining financial needs
- setting financial objectives and working to support the achievement of these
objectives
- sourcing funding
- accurately recording financial transactions, and preparing financial statements
What is the objective of financial management? to optimise the business's profitability, growth, efficiency, liquidity, and solvency
What acronym can be used to remember these PLEGS
objectives
What is the profitability objective? ability of a business to maximise its profits
What is the growth objective? ability of the business to increase its size in the longer term
What is the efficiency objective? ability of a business to minimise its costs and manage its assets so that
maximum profit is achieved with the lowest possible level of assets.
,What is the solvency objective? the extent to which the business can meet its financial commitments in the longer
term (more than 12 months).
What is the liquidity objective? the extent to which a business can meet its financial commitments in the short
term (less than 12 months).
What are short term financial objectives? tactical (one to two years) and operational (day-to-day) plans of a business.
What are long term financial objectives? set the strategic direction for a business over periods usually beyond five years.
What does the internal source of finance mean? refers to funds sourced from within the business
What does the external sources of finance mean? refers to funds provided by the sources outside the business
What is debt funding? refers to borrowing from creditors (external sources). Debt includes both short-
term and long-term borrowing.
, What is equity funding? Internal - funds contributed by the owners of a business
External - funds raised by a business through the sale of new shares
What are the debt advantages? -funds are readily available and can be acquired at short notice from lenders to
grow the business
-investing funds in projects generally leads to increased earnings and profits.
What are the debt disadvantages? -interest can be expensive, impacting on efficiency and profitability
-debt usually involves a commitment to regular repayments, impacting cash flow
What are the equity advantages? -improves solvency and is therefore less risky than debt
-no interest expense, so it is cheaper than debt, improving expense efficiency
and profitability
What are equity disadvantages? -Owners expect a return on investment. For a company, there will be an
expectation of dividends and an increase in the value of the shares
-External equity funding can result in a decrease in existing shareholders'
ownership percentage of that company (i.e. ownership is diluted)
What type of source is retained profit and define. Internal. earnings/profits that have been generated by the business but have not
been distributed to the owners or shareholders.
What is short term borrowing? refers to those funds that will be repaid within 12 months.
GUIDE & PRACTICE QUESTIONS
| GRADED A+ | GUARANTEED SUCCESS
Updated 2026 Questions and Answers
100% Verified Exam Prep
,What is the strategic role of finance management? effectively plan and monitor financial resources to enable the business to achieve
its financial objectives in the long term
What are four aspects of finance management - preparing budgets and determining financial needs
- setting financial objectives and working to support the achievement of these
objectives
- sourcing funding
- accurately recording financial transactions, and preparing financial statements
What is the objective of financial management? to optimise the business's profitability, growth, efficiency, liquidity, and solvency
What acronym can be used to remember these PLEGS
objectives
What is the profitability objective? ability of a business to maximise its profits
What is the growth objective? ability of the business to increase its size in the longer term
What is the efficiency objective? ability of a business to minimise its costs and manage its assets so that
maximum profit is achieved with the lowest possible level of assets.
,What is the solvency objective? the extent to which the business can meet its financial commitments in the longer
term (more than 12 months).
What is the liquidity objective? the extent to which a business can meet its financial commitments in the short
term (less than 12 months).
What are short term financial objectives? tactical (one to two years) and operational (day-to-day) plans of a business.
What are long term financial objectives? set the strategic direction for a business over periods usually beyond five years.
What does the internal source of finance mean? refers to funds sourced from within the business
What does the external sources of finance mean? refers to funds provided by the sources outside the business
What is debt funding? refers to borrowing from creditors (external sources). Debt includes both short-
term and long-term borrowing.
, What is equity funding? Internal - funds contributed by the owners of a business
External - funds raised by a business through the sale of new shares
What are the debt advantages? -funds are readily available and can be acquired at short notice from lenders to
grow the business
-investing funds in projects generally leads to increased earnings and profits.
What are the debt disadvantages? -interest can be expensive, impacting on efficiency and profitability
-debt usually involves a commitment to regular repayments, impacting cash flow
What are the equity advantages? -improves solvency and is therefore less risky than debt
-no interest expense, so it is cheaper than debt, improving expense efficiency
and profitability
What are equity disadvantages? -Owners expect a return on investment. For a company, there will be an
expectation of dividends and an increase in the value of the shares
-External equity funding can result in a decrease in existing shareholders'
ownership percentage of that company (i.e. ownership is diluted)
What type of source is retained profit and define. Internal. earnings/profits that have been generated by the business but have not
been distributed to the owners or shareholders.
What is short term borrowing? refers to those funds that will be repaid within 12 months.
