Business Studies - Finance

Descrição

Role of, influences, processes, strats
Ahmad Joumaa
FlashCards por Ahmad Joumaa, atualizado more than 1 year ago
Ahmad Joumaa
Criado por Ahmad Joumaa quase 10 anos atrás
136
9

Resumo de Recurso

Questão Responda
Role of Financial Management First Heading
Strategic Role of Financial Management –crucial –business may fail more many reasons, often financial – Its strategic role is to give the business specific strategies needed to reach its long-term, big-picture goals
Objectives of Financial Management –maximise the returns on the funds that the owners have invested into the business –objectives are used to generate SMART goals
Profitability earnings after expenses are paid
Growth size of the business compared to competitors in the same market
Efficiency the amount of revenue spent on resources
Liquidity Ability to pay short term liabilities with current assets
Solvency Ability to pay short term and long term liabilities as they fall due
Short term with the year eg. Bills, credit cards
long term longer than a year eg. Mortgage
Interdependence with other key business functions finance department needs marketing to be successful to gain profit which can be passed on to HRM to employ new staff required to produce the product -> all departmenets work together to achieve financil/bus goals
Influences on financial management title
Internal sources of finance comes from within the business’s owners (equity or capital) or from outcomes of the business activities (retained profits)
Retained profits –cheap and accessible –in Aust. 50% profits are retained + re-invested (on average)
External sources of finance outside the business
Debt- Short term borrowing –used for temporary shortages of cash flow –repaid within 1-2yrs
Overdraft ability to overdraw an account up to a certain amount –most common
Commercial Bills –bill exchange (loan) from financial institution other than a bank –represents business’s acknowledgement of a debt to another business,
Factoring –selling of accounts receivable for a discounted price *credit cards -> expenses, pay stock from banks, immediate, cost = interest *leasing* can be used for long and short term –loan repayments are tax deductible, cash isn’t tied up in assets
Long term borrowing –funds borrowed for longer than 2yrs
Mortgage loan secured by the property of the borrower
Debentures - issued by a company for a fixed rate of interest for a fixed time,
Unsecured notes -loan for a set period –not backed by a collateral/asset –highest risk for investors = high interest, mostly public companies,
Leasing -long-term source of borrowing –payment for equipment owned by another business)
Equity finance raised by a company issuing shares via ASX - A security is an exchangeable, negotiable instrument representing financial value. –cost = dividend payed out
Ordinary Shares -most commonly traded-individuals become part owners (new issues-a security issued & sold for the first time AKA –primary shares/new offerings,
New issues a security issued & sold for the first time AKA –primary shares/new offerings,
Rights issues privilege granted to shareholders to buy new shares in the same company,
Placements allotment of shares directly from company to investors,
Share purchase plans –offer for current shareholders to purchase more shares without brokerage or at a discount
Private equity – money invested into a private company not listed on the ASX
Financial institutions - banks –most important –receive savings as deposits and makes investments and loans to borrowers,
Investment Banks –provide services in borrowing and lending primarily in the business sector
Finance & Life insurance companies –specialise in smaller commercial finance –finance to business + individuals through cosumer hire-purchase loans personal loans and securred loans
Superannuation funds provide funds to the corporate sector via inverstment of funds received from superannuation contributors
Unit trust take funds from a large number of small investors and inverst them into specific types of financial assets e.g. gold
THE Australian Securities Exchange primary stock exchange group in Australia
• influence of government -through implementation of economic policies and current and chnaging legislation
Australian Securities and Investments Commission aims to reduce fraud and unfair practices,
Company taxation companies/corroporations in Australia pay company tax on profits
Global market influences globalisation has created more interdependence between business sectors + their economies relying on trade for expansion + increased profits
Economic Outlook relate specifically to changes in economic growth rates of individual economies throughout the world,
Availability of funds wider availability of funds when trading in a global market,
interest rates when sourcing funds overseas this needs to be considered along with risks
Role of Financial Management financial planning is the continual process that all business must go through to manage their finances efficiently and achieve their financial goals.
Planning and Implementing - fiancnail needs -essential to determine where a bus. is headed and how it will get there -Drawing up a business plan ensures that the organisation knows what it aims to achieve,
Budgets reflect strategic planning decisions on resources/their use –provide financial information for bus. goals - used for strategic, tactical and operational planning,
Record Systems ensure recorded info. Is accurate, reliable, efficient and accessible –e.g. budgets/cash flow,
Financial risks should be planned –aware of what may cause them to be unable to cover obligations
Financial Controls ensure plans will lead to achievement of bus. goals - Financial controls are the policies and procedures which will lead to the achievement of the organisation’s goals in the most efficient way.
Debt and Equity Finance advantages and disadvantages of each
matching the terms and source of finance to business purpose matching principle = current liabilities fund current assets & non-current liabilities fund non-current assets
Financial consideration Factors - 1 - Costs, including set-up costs and interest rates – must also consider fluctuations in cost due to market and economic conditions.
Financial Consideration Factors - 2 - Size and stability of business earning capacity.
Financial Considerations Factors - 3 - Flexibility, so that businesses can pay off at certain time or increase/renew their borrowing
Financial Consideration Factors - 4 - Availability of finance and ease of access to finance
Financial Consideration Factors - 5 - Level of control – if the lender requires security over an asset and other conditions of lending are imposed, a business’s ability to consider future financing possibilities is reduced.
Monitoring and Controlling - Cash flow statements inflows/ outflows
Income Statement revenue, expenses, net income,
Balance Sheet assets = liabilities + owner’s equity (accounting equation) ensures the balance sheet balances
Financial ratios calculations that help managers examine bus. performance –allow comparison over time w/ industry averages + competitors and prediction of trends/assist in planning
Liquidity - current ratio (current assets / current liabilities) short term stability –should have more current assets than liabilities IA= 2:1 -> working capital
Gearing - debt to equity ratio (total liabilits/ total equity solvency –long term stability –IA=50% small 100% big
Profitability - gross profit ratio (gross profit / sales) - higher the percentage the better
Net Profit ratio (net profit / sales) takes expenses into account -13-20% good for a retail bus
; return on equity ratio (net profit ÷ total equity)- how much the owner’s investment/risk in the bus. is earning –a figure below 10% would be a concern
Efficient - expense ratio (total expenses ÷ sales) -- relationship between sales and expenses - as low as possible
Accounts receivable turnover ratio (sales ÷ accounts receivable) OR AR ÷ (sales ÷ days) –how long it takes to collect owed $ IA=14-60days
Comparative ratio nalysis over different time periods, against standards, with similar businesses *covered be exercises in class,* the ability to understand meaning of ratios. E.g. high GP is good but doesn’t mean much if the bus. has high expenses or the better bus may have a lower ROOE but greater stability (solvency)
limitations of financial reports – normalised earnings Reviving of one time or unusual influences (to add to accuracy) e.g. land sale,
Captialising Expenses –adding a capital expense to the balance sheet that is regarded as an asset e.g. R&D,
Value assets the process of estimating the value –may be inaccurate
Timing Issue reporting is over a year but –may not be accurate due to seasonal flutuations e.g rain for ice cream business
Debt Repayments infomation On how long the bus. has been recovering debt e.g. debt unlikely to be paid creating an inaccuracy
ethical issues related to financial reports failing to report or providing incorrect information in reporting statements is unethical
Financial Management Strategies Title
Cash flow statments inflows/outflows to give net profit or loss from the period
Distribution of payments organizing expenses to match monthly/yearly inflows/outflows –can be aided by cash projection
Discount for early payments offering creditors a discount for early payments –most effective when targeting creditors owing large amounts –improves cash flow,
Factoring selling accounts receivable for a discounted price to a finance/specialist factoring company
– control of current assets – cash problem = too much/too little -> could be better invested or can’t pay debts solution = can be managed with: budgets, cash reserves/overdrafts and investment options,
Receivables -*problem = poor credit policies, clerical problems, high acc/rec turnover ratio, aged accounts -> not sending out bills, *solution = needs to encourage debtors to pay account quickly: monthly statements, discounts, factoring, charges on late payment
Inventories problem = storage, transport, insurance *solution = J.I.T, stock takes -monitored –too much stock=cash shortage and not enough=customer loss/lost sales
– control of current liabilities – payables control of AP/ periodic reviews, consider: discounted periods avoid late payment fees, extended terms for payment
Loans management is important –interest rates/ongoing charges -positive relationships w/ financial institutions to insure the most appropriate loans,
Overdrafts fees/interest payments need to be monitored –overdraft policy should be in place –better cash flow management –budgets
Strategies - Leasing hiring of an asset –‘frees up cash’ within the business
Sale and Lease back selling of an owned asset to a lessor/leasing the asset back –increase liquidity
Profitability Management - Cost controls –monitoring of fixed and variable costs, using cost centres
Fixed not directly impacted by sales
Cost Centres areas/departments of a bus. costs can be directly attributed –good for inventory management,
Expense Minimization –reducing costs and expenses to maximize profits and be competitive e.g. outsourcing, sale & lease back, replacing labor w/ technology, improving budgeting and accountability
Revenue Controls - Sales objectives, pricing policy to balance sales with profits
Marketing objectives –meeting marketing/sales targets to grow sales = increase in profit
Global Financial Management --
Exchange Rates –ratio of one currency to another –to find what a currency is worth divide by 1 –impact of fluctuations in rates
Interest Rates may be cheaper to borrow overseas due to low interest rates –major risk is fluctuation exchange rates
Methods of international payment payment in advance-most secure/low risk exporter
Letter of Credit importer is confirmed from a letter by the bank,
Clean Payment Paid at point of sales
Bill of Exchange written order from the seller requesting the importer pay a certain amount at a specified time
Hedging Process of minimizing risk natural hedging –insisting both import/export contracts are paid in AUS $ -marketing strategies that reduce price sensitivity of exported goods –establishing off shore subsidiaries
Derivatives special contracts between global business’s/suppliers that help manage the risk of currency fluctuations *forward exchange contract –contract to exchange one currency for another currency an agreed exchanged rate on a future date, usually after 30//90/180 days

Semelhante

Finance- Break even
cesleviciutek
Finance - Balance sheets
cesleviciutek
Finance sources of Finance
cesleviciutek
Impairment of assets
meyer cohn
Share-based payments
meyer cohn
Earnings per share (EPS)
meyer cohn
Revenue from contracts with customers
meyer cohn
BUSS2 - Finance
Sophie Davis
Unit 3 Business Studies
Lauren Thrower
Forms of Business Ownership Quiz
Noah Swanson
Contract Law
sherhui94