3.2 Influences on financial management

Question 1

What is internal sources of finance and name of internal source?

Answer 1

• Are finance source from inside the business, a name of internal source is retained profit (profit gain from sales )

Question 2

Differences between short and long term debt?

Answer 2

Short term debt (current liabilities ) are paid within 12 months, long term debt (non- current liabilities) are paid over longer period than 12 months.

Question 3

What are 3 types of short term external debt business can use and its characteristic?

Answer 3

• Overdraft : Agreement with bank for negative balance in account and repay over a short period of time
• Commercial bill: Debt that business must repay at a certain agreement time with bank (30 to 180 days)
• Factoring: Business sell its account receivable asset to a specialist factoring company, immediate cash of asset but less value due to fees.

Question 4

What are 4 types of long term external debt business can use and its characteristic?

Answer 4

• Mortgages : Repay after 15 - 20 years , > $100,000 to fund land, factory site.
• Debentures: Large loans from investors
• Unsecured notes : Unsecured debt with high interest rate from investors.
• Leasing: Rent assets instead of buy, save money

Question 5

What are 2 external source of finance through equity and its characteristic?

Answer 5

• Private equity : business invite specific people to become part owner of company, share payments but diluted ownership.(Called private because not offer to public through ASX)
• Ordinary shares: Offer business ‘s share through Australian security exchange (ASX) to public

Question 6

What are 4 ways of issuing business shares through ordinary shares and its characteristic?

Answer 6

• New issues: Share through Initial Public Offering to new investors
• Right issues: Offer existing shareholders to buy more shares at a special price
• Placements: Offer shares to specific shareholders or institutions
• Share purchase plans: Give more share to investors instead of dividends (money).

Question 7

What are 5 financial institutions and their characteristics?

Answer 7

• Bank : offer debt loans
• Investment banks: Provide debt and equity to business
• Finance companies: Provide debt to business
• Superannuation funds, life insurance and unit trusts: Gather money and invest into business
• Australian Securities Exchange: Put shares of business to public investors for purchase

Question 8

What are 2 influences of government on financial management and what they do?

Answer 8

• Australian Securities and Investment Commission (ASIC): Regulate and monitor companies to make sure they do right things otherwise get punishments such as fines, fees, prison.
• Tax: Tax money from profit (around 30% of profits)

Question 9

What are 3 global market influences and what it does?

Answer 9

• Economic outlook: look at economy of different area to determine whether or not raise fund or invest in that area.
• Interest rates: Business can borrow loans from oversea due to lower interest rate.
• Availability of funds: Business need money funds from oversea, it affect business if they not fund business