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Business > Business Finance - influences on financial management > Flashcards

Business Finance - influences on financial management Flashcards

1
Q

what are the external sources of finance

A
  • short-term debt
  • factoring
  • long-term debt
  • unsecured notes
  • leasing
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2
Q

how are external finance funds provided

A

through;

  • banks
  • other financial institutions
  • government
  • suppliers
  • financial intermediaries
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3
Q

what are short-term debts (external sources of finance)

A

short-term debt are provided by financial institutions through;
- bank overdrafts
- commercial bills
- bank loans
- factoring
These debts are usually repaid within one - two years

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4
Q

What are bank overdrafts (external sources of finance)

A

the bank provides an overdraw on a bank account up to an agreed limit for a specific time
- assists with short-term liquidity
E.g. seasonal decrease in sales

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5
Q

what are commercial bills (external sources of finance)

A

a type of bill exchange with interest and where the bank acts as an agent to guarantee the money will be repaid when due

  • often larger amounts of money ($50,000)
  • lent for a period of 90-180 days
  • received immediately
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6
Q

what is factoring (external sources of finance)

A

a short-term source of borrowing that enables the business to raise funds immediately by selling accounts receivable at discount to a firm
- receives up to 90% of amount receivable within 48 hours after submitting an invoice

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7
Q

what are long-term debts (external sources of finance)

A

funds that are borrowed for longer than 2 years

  • mortgage
  • debentures
  • unsecured notes
  • leasing
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8
Q

what are mortgages (external sources of finance)

A

a loan secured by the property of the borrower

  • used to purchase land, equipment, motor vehicles and other large assets
  • often repaid through regular repayments over 15-20 years
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9
Q

what are debentures (external sources of finance)

A

money issued by a company for a fixed rate of interest for a period of time
- company offers security to the lender usually over the company’s assets

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10
Q

what is equity

A

it is when the business raises finance through selling ownership of the business
- usually generated through selling shares or part ownership in the business

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11
Q

What is private equity (equity)

A

when a business sells part ownership of the business to selected people or other business who they wish to sell to

can also refer to a large business who are involved in a takeover activity
- group who buys greater than 50% ownership in a public listed company

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12
Q

what are ordinary shares (equity)

A

shares issued to the public
- provides value to investors through increase in share price and when profits are distributed to shareholders (dividend)

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13
Q

Example of an ordinary share (equity)

A

Qantas has approx. 2.3 billion shares issued at about $1.60 each

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14
Q

What is a new issue (equity)

A

when a business first issue the share and receives money

  • aka Initial Public Offering (IPO)
  • these are traded on the Australian Securities Exchange (ASX)
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15
Q

what is right issues (equity)

A

when a business issues more shares to targeted investors or institutions

  • this can be up to 15%
  • fast and low cost way to raise finance
  • can create discontent between other investors
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16
Q

what is a share purchase plan (equity)

A

similar to placement but to an individual or smaller investors
- max. share purchase is $5,000
selling of small parcels can raiser larger amounts of money

17
Q

what financial institutions are there

A
  • banks
  • investment banks
  • finance and life insurance companies
  • superannuation funds
  • unit trusts
  • Australian Securities Exchange
18
Q

what are banks (financial institutions)

A

Major operators in financial markets and are the most important source of funds for businesses
Bank receive savings and turn them into investments + loans to borrowers

19
Q

What are investment banks (financial institutions)

A

trade money, securities and financial futures, arranging for long-term finance for company expansion

  • provides working capital
  • advises clients on foreign exchange covers
  • advise on mergers and takeover
20
Q

What are finance and life insurance companies (financial institutions)

A

non-bank financial intermediaries that specialise in smaller commercial finance
- regulated by the Australian Prudential Regulation Authority (APRA)

They provide loans through consumer hire-purchase loans, personal in factoring or cash flow financing + raises capital through debentures

Insurance companies provides loans to corporate sector through receipts of insurance premiums
- provides both equity and loan capital

21
Q

what are unit trusts (financial institutions)

A

funds taken from a large number of small investors and are invested in specific types of financial assets

22
Q

What is the Australian Securities Exchange (ASX) (financial institutions)

A

functions as market operators, clear house and payment system facilitator
- oversees compliance with its operating rule and promotes standards of corporate governance

it is a primary market that enables a company to raise new capital through the issue of charges and receipt of proceeds from the sale of securities

23
Q

what does the ASX offer (financial institutions)

A
  • shares
  • warrants
  • exchange traded funds
  • real estate investment trusts
  • listed investment companies
  • interest rate securities
24
Q

what are owners equity (internal sources of finance)

A

the funds contributed by the owner or partners to establish and build the business
- can also be raised by taking on another partner (venture capitalist) or seeking funds from an investor

25
Q

what are retained profits (internal sources of finance)

A

profit which are distributed but kept within the business as accessible sources of finance
- most common source of internal finance

26
Q

How does the government influence businesses

A

they influence a business’ financial management, decision making and economic policies that relate to the monetary and fiscal policy

  • the Australian securities and investment commissions (ASIC)
  • company taxation
27
Q

What is the Australian securities and investment commissions (influence of the government)

A

independent statutory commission accountable to the commonwealth

  • acts and protects consumers in investments, life + general insurance, superannuation and banking (except lending)
  • aims to reduce fraud and unfair practices
  • ensures companies adhere to the law + collects information of the company and makes it available to public
28
Q

what is company taxation (influence of the government)

A

tax is levied at a flat rate of 30%

- paid before profits are distributed to shareholders (dividends)

29
Q

What are the global market influences

A
  • global economic outlook
  • availability of funds
  • interest rates
30
Q

what is globalisation (global market influence)

A

providing opportunities for business investments and expansion throughout the world

  • enabled businesses to grow as TNC
  • spread idea + information which promotes democracy and awareness of human rights (business base)
  • free trade of goods + services –> economic wealth
31
Q

what is global economic outlook

A

the projected changes in the level of economic growth throughout the world
E.g. positive economic growth : increases demands for products/services results in an increase of production, staff, equipment and possible expansion

32
Q

what are the availability of funds (global market influence)

A

refers to the ease in which a business can access funds for borrowing on the international finance market

there are various rates that apply based on;

  • risk
  • supply and demand
  • domestic economic outlook
33
Q

What are placements (equity)

A

when a business issues more shares targeted at specific investors or institutions

  • this can be up to 15% of its current shares
  • fast and low cost way to raise finance
34
Q

what is an example of availability of funds (global market influence)

A

the global financial crisis in 2008/2009 had a major impact on funds as countries experienced a decrease in them
–> businesses were not investing more and relocating facilities

this impacts value of shares, see debts wiped from businesses and causes a sharp increase in interest rates due to the high risk of borrowing

35
Q

what are interest rates

A

higher levels of risk involved –> higher interest rate
if it is high in a country;
- exchange rate movement + an adverse currency fluctuation
- cheaper overseas interest rates

Business (12 decks)

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