INFLUENCES Flashcards
What is internal finance
Internal finance refers to funds generated from inside the business. For example, profits can be retained to finance expansion.
- RETAINED PROFITS
- OWNERS EQUITY
What is the definition of source of finance
A source of finance refers to where a business gets money from to fund their business activities
What is external finance
External finance refers to funds provided by sources from outside the business
- DEBT
- EQUITY
What are the external sources of finance for debt
- ## Short term borrowing
What is owners equity
The money and capital an owner contributes to establish and build the business. The Owners original capital
What are retained profits
Retained profits are profits that are not redistributed, but are kept in the business as cheap and accessible sources of finance for future activities.
What is external finance
Capital and funding received from sources outside the business
What is debt as an external source of finance, and what are the types of external sources of debt
debt is received through receiving capital from outside the business with expectations of this money to be paid back with interest on top as a payment for lending the money.
TYPES
- Short-term borrowing
* Overdraft, commercial bills, factoring
- Long term borrowing
* Mortgage, debentures, unsecured notes, leasing
what is short term borrowing
Capital borrowed over short periods of time lasting no longer than 12 months. (Used to finance temporary shortages in cash flow or finance for working capital)
What is overdraft
Overdraft is an account with a bank allowing a business to overdraw (Take out more money that they don’t have) money to an agreed figure. IT IS INSTANTANEOUS UNLIKE A LOAN
what are commercial bills
A commercial bill is a short-term debt instrument, like an IOU note, used by businesses to finance their operations, often issued with a specified term, typically less than a year, and sold at a discount. (LARGE AMOUNTS OF MONEY, e.g. $100,000 or upwards)
what is Factoring
selling accounts receivable for a discounted price to a finance or factoring company. Results in receiving instant funds but selling your accounts receivable at a discount to these companies as they still have to chase up these debts.
What is a mortgage
a loan secured by the property of the borrower. where the property itself acts as collateral for the loan. The borrower agrees to repay the loan amount (principal) plus interest over a fixed period, typically 15 to 30 years. IF they don’t comply and pay this mortgage than the bank can take the property and sell it foreclosure
what is a Debenture
A debenture is a written loan agreement at a fixed rate between a borrower and a lender,
DIFFERENCE FROM LOAN
Unsecured Debt: Unlike bonds, most debentures are not backed by specific assets, meaning investors rely on the issuer’s creditworthiness. (STILL CAN BE THO)
Long-Term Borrowing: Typically issued for a period of 5 to 30 years.
Tradable: Can be bought and sold in the secondary market.
what are unsecured notes
An unsecured note is a type of debt security issued by a company to raise funds, but unlike secured debt (such as bonds or secured debentures), it is not backed by any collateral. This means that investors rely solely on the company’s creditworthiness and ability to repay.
what is leasing
Leasing is usually a long-term source of borrowing for businesses. It involves the payment of money for the use of equipment that is owned by another party. A variety of business assets are suitable for leasing, including business cars, plant and machinery, equipment, computers and software.
what is equity
the finance raised by a company by issuing shares to the public through the ASX (Australian Security Exchange).
what are ordinary shares
individuals become part owners of a publicly listed company
and may receive dividends (distribution of the company’s profits as cents per share).
what are, New issues
a security – generally equity or debt – that is registered in a publicly-traded market for the first time
what are rights issue
a company offers existing shareholders the opportunity to buy additional shares, usually at a discounted price, in PROPORTION to their current holdings, to raise capital
What are placement
a company raising capital by directly issuing new shares to a limited number of investors, typically institutional or sophisticated investors, without a full public offering (EXCLUSIVE ACCESS FOR BEING A BIG INVESTOR).
what is a Share purchase plan
an offer to existing shareholders in a listed company the opportunity to purchase more shares without brokerage fees. It’s not proportionate to their shares, but the fixed limit on the amount of shares per person, non-tradeable.
What is private equity
money invested in a private company (not listed on the ASX). Aim is to raise capital to finance future expansion/investment)
