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Business - Finance > Influences of Financial Management > Flashcards

Influences of Financial Management Flashcards

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1
Q

Finance

A

Businesses require funds to perform many of their business activities

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2
Q

Internal Finance

A

Funds provided by the owners of the business

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3
Q

Examples of Internal Finance

A

Owner’s Equity & Retained Profits

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4
Q

Owner’s Equity

A

The funds contributed by the business owners to establish & build the business

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5
Q

Retained Profits

A

Using the profits of a business to fund activities or to keep as spare cash for unforeseen circumstances

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6
Q

External Finance

A

Funds provided outside a business

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7
Q

Examples of External Finance

A

Banks, Investors, Government

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8
Q

Debt Financing

A

Obtaining funds through lenders & creditors

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9
Q

Advantages of Debt Financing

A

Quick Access to Cash

Ownership is retained

Increased Credit Score

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10
Q

Short-term Borrowing

A

Finance smaller matters such as stock, borrowed for periods less than 12 months

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11
Q

Examples of Short-term borrowing

A

Bank Overdraft

Commercial Bills

Factoring

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12
Q

Overdraft

A

withdrawing more money than a business/individual has for a specific time, to overcome a temporary cash shortfall

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13
Q

Commercial Bills

A

a type of short-term loan that is used for large amounts (+$100,000), that is to be repaid within 30-180 days

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14
Q

Factoring

A

The selling of accounts receivable for a discounted price to a finance company, in return, the business will receive cash immediately

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15
Q

Long-term Borrowing

A

Finance larger matters such as equipment and plants, borrowed for periods longer than 12 months

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16
Q

Examples of Long-term borrowing

A

Mortgage

Debentures

Unsecured Notes

Leasing

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17
Q

Mortgage

A

A loan secured by the property of the borrower

regular payments over a period of time including principal

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18
Q

Debentures

A

A promise to repay the money w/ regular interest for a defined term

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19
Q

Unsecured Notes

A

a loan for a set period of time, not secured by collateral or assets

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20
Q

Leasing

A

Payment of money for the use of equipment, that is owed by another party

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21
Q

What are the two different types of leasing?

A

Operating Lease & Financial Lease

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22
Q

What are the Advantages of Leasing?

A

Tax deductible

Payments incl. maintenance, insurance and financial costs

23
Q

What are the Disadvantages of Leasing?

A

Increased interest rate

A business may pay more than what the asset is valued (when not bought outright)

24
Q

Operating Lease

A

A contract that allows the use of an asset, but does not pass on the ownership rights to the business using the assets

25
Q

Financing Lease

A

A contract where the business is the legal owner of the asset for the duration of the lease

26
Q

Features of Operating Leases

A

Short Periods

The owner carries out maintenance

Can be cancelled

(Example: Delivery Vehicles for busier seasons
-> ice-cream trucks)

27
Q

Features of Financial Leases

A

The lessor purchases assets for the lessee

Penalties for breaking agreement

Cheaper than operating leases

The lease is usually the life of the asset

28
Q

Equity Finance

A

The finance raised by a company issuing shares

29
Q

Ordinary Shares

A

Shares that are issued & sold through the Australian Securities/Stock Exchange (ASX)

30
Q

Dividends

A

A distribution of a company’s profit to shareholders, calculated as a number of percent per share

31
Q

What are the four variations of shares?

A

New issues

Rights issue

Placements

Share purchase plan

32
Q

New Issue / Initial Public Offering (IPO)

A

Shares that have been issued and sold for the first time on the public market (ASX)

  • also known as primary shares / new offerings
33
Q

Rights Issue

A

Privilege granted to shareholders to buy more shares in the same company at a special price

34
Q

Placements

A

Allotment of shares that are offered at a special discount to their usual trading value to persuade special institutions and investors

35
Q

Share Purchase Plan

A

An offer to existing shareholders in a listed company the opportunity to purchase more sales (max. of $500) in that company WITHOUT fees

36
Q

Private Equity

A

The sales of shares to raise finance for a private company, that is not listed in the ASX

37
Q

Financial Institutes

A

Sources of finance for businesses

38
Q

Banks

A

Main source of funds for businesses in Australia

39
Q

Investment Banks

A

Dealing with the business sector -> purchase of stocks in the financial market

40
Q

Finance Companies

A

Provide short/medium-term loans to businesses by:

personal loans
secured loans

41
Q

Life Insurance Companies

A

Provide cover & lump sum payment in the event of a person’s death in exchange for regular payments

42
Q

Superannuation Funds

A

Government scheme where employers have to make a financial contribution towards the retirement funds of their employees

Aged between 18-69 & make +$450/month before tax

43
Q

Unit Trusts

A

Funds are taken from a large # of small investors to be invested in financial assets such as property, shares and commodities

44
Q

Australian Securities Exchange (ASX)

A

A market where shares are bought and sold in Australia

45
Q

What are the two markets the ASX operates at?

A

Primary & Secondary Market

46
Q

Primary Market (ASX)

A

Enables companies to raise capital through an initial offering of shares

47
Q

Secondary Market (ASX)

A

Where second-hand shares are traded between investors

48
Q

Australian Securities & Investments Commission (ASIC)

A

Independent federal government body that regulates and monitors activities to ensure that relevant corporate laws are being followed

Corporation Act 2001

49
Q

Company Taxation

A

Tax paid on profits made by private or public companies -> 30% of net profit

Decreased overtime for incentive for economic growth

50
Q

Global Economic Outlook

A

The projected changes to the level of economic growth throughout the world

51
Q

Positive Economic Outlook

A

Increase in demand for products and services
Decrease in interest rates on funds borrowed

52
Q

Negative Economic Outlook

A

Decrease in demand for products and services
Increase in interest rates on funds borrowed

53
Q

Availability of Funds

A

The ease with which businesses can access funds from the international financial markets

54
Q

Interest Rates

A

The cost of borrowing money

Business - Finance (4 decks)

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