Finance Notes Flashcards
Define Finance
Finance refering to money managment and the process of acquiring funds
What is the role of finance managment
- Strategic role of finance
- Objectives of finance managment
- Interdependence with key functions
What are the objective of finance managment
- Profitability, growth, effeicency, liquidity, solvency
- Short and long term goals
What are the influences of financial managment
- Internal sources of finance
- External sources of finance
- finincial institutions
- Influence of the government
- Global market influences
what are the internal sources of finance
Retained profits
External sources of finance
Can be seperated into Debt and equity sources
Debt Short term
- Overdraft, commercial bills, factoring
Debt long term
- Mortgage, debentures, unsecured notes, leasing)
External sources of finance for equity
Ordinary share
- New issues
-Right issues
-placements
-share purchase
Private equity
Influence institutions
- Banks
- Investment banks
- Finance companies
-Superannuation funds - Life insurance compaines
- Unit trusts
- Australian Securities Exchange
Influence of the government
- Australian Securities and Investments commission
company taxation
Global market influences
- Economic Outlook
- Availibility of funds
-Intrests rates
Processes of financial managment
- Planning and implementing
- Monitoring and controlling
- Financial ratios
- Limitations of financial reports
-Ethical issues related to financial reports.
In the Process of fincancial managment, what is the planning and implementing
- Financial needs
- Budgets
-Record systems - Financial risks
-Financial controls
Regarding the process of financial managment what is in monitoring and controlling
-Cash flow statements
- Income statements
-Balance sheets
Define Cash flow statements
Indicates the movement of cash reciepts and cash payments resulting from transactions over a period of time. It can identify trends. It mainly shows the business’s ability to meet its short term loans or account payable.
Define income statements
Summary of income earned, and the expenses incurred over a given time period. Helps to see how much money is coming in as revenue and how much is gone out as expensive.
Balance sheet
Represents the businesses assets and liabilities at a specific time period. Shows the financail stabability of the business
Adv and Dis of Debt finance
Adv
- Funds are readily available
- Acquired on short notice
-Existing ownership
Dis
-Intrest rates
-Security is required by the buisness
Adv and Dis equity Finance
adv
- Does not have to be repaid
- No intrest
- Less risk for business owner
Dis
- Ownership is diluted
- Long+ expensive process to obtain funds
-Expectations from shareholders ROI
What financial ratio make reference Liquidity
Currnet ratio
What financial ratio are used to determine the solvency
Debt to equity ratio
What financial ratios are used to determine the effeciency of the business
Expense ratio
- Indicates amounts of sales that are allocated to expenses
- Accounts Receivable Ratio
- How quickly the business collects Debt, it measures how quickly debetors pay their accounts.
Limitations of financial reports
Normilised earnings, capitalising expenses, valuing assests,
Timing issues
Debt repayments
What are ethical issues related to financial reports
- Record keeping( Refering to how honest they are recording their data. E.g people may daim their profit with cash and therefore doesnt come up on the income statement
- Audited notes
What are some Financial managment strategies
Cash flow Strategies
- Distribution of payments, Discounts for early payments, factoring
Working Capital managment
- Control of current assets
- Control of current liabilities
Profitability managment
- Cost of controls
- Revenue controls
Global financial managment
Strategies to imrpove cash flow
- Distribution of payments
- Discounts for early payments
- Facotring
Strategies to improve working capital
- Control of current Assets
- Receivables, Inventories
-Control of current liabilities
- Payables, loans, overdrafts
Main strategy is
- Leasing and lease back
Strategies to imrpove profitability managment
- Cost Controls
- Fixed and variable
- Cost centres
-Expensive minimisation - Revenue controls
- Marketing objectives
Strategies to imrpove Global financial managment
- Exhancge rates
- Intrests rates
Methods of international payments - Payments in advance, Letter of credit, clean payment, bill of exchange
-Hedging
- Derivatives
Define Hedging
Hedging is when two parties agree to exchange currency and finalise a deal immeadiatly, the transaction is reffered to as a spot exchange. The spot exchange is the value one currency to another at a specific time.
What is Derivatives
Derivatives is a form of Hedging. This are simple financial instruments that may be used to lesson the exporting risk. e.g Forward exchange contract
