Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Yr12 Business Studies > Influences of Financial Management > Flashcards

Influences of Financial Management Flashcards

1
Q

What are sections of Influnces on financial management

A
  • Internal sources of finance
  • External sources of finance
  • Financial institutions
  • Influences of government
  • Global market influences
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Who contribute funds in the establsihment stage of a business

A

Owners and/or shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are internal sources of finance

A

Funds generate from inside the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is most common source of internal finance

A

Retained profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are external sources of finance

A

External finance refers to funds provided by sources outside the business, including banks, other financial institutions, government or suppliers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are two types of external source of finance

A

Debt and equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are two types of debt borrowing

A

Short-term borrowing and long-term borrowing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are examples of short-term borrowing

A
  • Overdraft
  • Commercial Bills
  • Factoring
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are examples of long-term borrowing

A
  • Mortgage
  • Debentures
  • Unsecured notes
  • Leasing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are two types of equity

A

Ordinary shares and private equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are different types of ordinary shares

A
  • New issues
  • Rights issues
  • Placements
  • Share purchase plan
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is short-term borrowing

A

Refers to funds that will be repaid within 1-2 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is purpose of short-term borrowing

A

Finance temporary shortages in cash-flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is a overdraft

A

Arrangement between the business and its bank that allows business to overdraw its account to an agreed limit and for a specified time to help overcome a temporary cash shortfall

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Whats purpose of overdraft

A

To improve liquidity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Can overdrat be secured or unsecured

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are commercial bills

A

Primarily short-term loans issued by financial institutions (non-bank) for larger amounts (usually over $100,000) for a period of generally between 30 and 180 days

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are commercial bills secured against

A

The business’s assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What does ‘rolled over’ mean in relation to commercial bills

A

When repayment period is extended until borrower has funds to repay the loan in full

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is Factoring

A

The selling of ‘accounts receivable’ for a discounted price to a finance or factoring company (i.e. a firm that specialises in collecting accounts receivable)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What percentage of accounts receivable is business expected to recieve up front from factoring firm

A

90%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Why do businesses do factoring

A
  1. Improve liquidity
  2. Minimise risk of debtors not paying accounts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What are two types of factoring

A
  1. With recourse
  2. Without recourse
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is long-term debt borrwoing

A

Funds borrowed for more than 2 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Where is long-term borrwoing recorded on balance sheet

A

Non-current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Where is short-term borrowing recorded on the balance sheet

A

Current liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is purpose of long-term borrowing

A

To finance major assets such as real estate, plant (factory/office) and equipment and these assets often serve as security on the loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is a mortage

A

This is a loan secured by the property of the borrower (business).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is purpose of mortage

A

Used to finance property purchases, such as new premises, a factory or office

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What is a debenture

A

A promise made by a company to repay money that has been lent to the business at a fixed rate of interest for a fixed period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is security of debenture

A

Company’s assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is the person who lends the money to the business called

A

Creditor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is a unsecured note

A

A loan from investors (referred to as the issuer) for a set period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What must accompany a debenture

A

A prospectus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What is a prospectus

A

Something that tells investor everything they need to know about the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Why is it called a ‘unsecured’ note

A

Because loan is not secured against business’s assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What is interest on unsecured note compared to other sources of long-term borrowing

A

Higher interest due to lower security

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What is leasing

A

Usually long-term source of borrowing that enables an enterprise to use an asset in return for payments over a set-time period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

What are two types of leases

A
  1. Financial lease
  2. Operating leaase
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

What is a financial lease

A

Financial lease is for a set period of time and set payments cover interest and eventual purchase of the asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

What is a operating lease

A

Similar to financial lease but business does not gain ownership of asset at the end of the lease

42
Q

Who carries out maintennace on asset for a operating lease

A

The owner or lessor

43
Q

Can leases be cancelled

A
  • Some leases can be cancelled some can’t
  • Agreement on lease will specify this
44
Q

What is equity as an external source of funds

A

The finance raised by a company through inviting new owners

45
Q

What are ordinary shares and features

A
  • The most commonly traded shares in Australia and are traded on the ASX
  • The purchase of ordinary shares by individuals means they have become part-owners of a publicly listed company
  • In return for their holding in the company, shareholders are paid a dividend (share of the profit calculated as the number of cents per share)
46
Q

How is value of share determined

A

By businesses current or future performance

47
Q

What are new issue shares

A

A security that has been issued and sold for the first time on a public market

48
Q

What is a Initial public offering (IPO)

A

When a company issues shares to the public for the first time

49
Q

Other words for new issues

A

Primary offerings and new offerings

50
Q

What are rights issues

A

Privilege granted to shareholders to buy new shares in the same company

51
Q

When does rights issue occur

A

Occurs after the IPO and provides existing shareholders with the opportunity to purchase more shares

52
Q

What are placements

A

Allotment of shares made directly from the company to investors

53
Q

What does ‘placements’ involve

A

Additional shares are offered at a discount to their current trading price to special institutions or investors

54
Q

What are share purchase plans

A

Offer to existing shareholders in a listed company to purchase more shares in that company without brokerage fees and may also be offered at a discount price

55
Q

What does share purcahse plans allow companies to do

A

Issue new shares to current shareholders without issuing a prospectus

56
Q

What is limit per shareholder for share purchase plans

A

$15000

57
Q

What is private equity

A

The money invested in a (private) company (Pty Ltd) not listed on the Australian Securities Exchange (ASX)

58
Q

Aim of companies using private equity

A

(like the publicly listed companies who sell ordinary shares) is to raise capital to finance future expansion/investment of the business

59
Q

What do financial institutions do

A

Collect funds and invest them in financial assets such as investments, loans and deposits as well as provide financial services

60
Q

What are the different financial institutions

A
  • Bank
  • Investment banks
  • finance companies
  • superannuation funds
  • llife insurance companies
  • trusts
  • the asx
61
Q

How do banks operate

A

Banks receive savings as deposits from individuals and businesses and in turn make investments and loans to borrowers (the difference in the interest paid to depositors and the interest paid by borrowers is how the banks make money).

62
Q

Who supervises the banks

A

The RBA

63
Q

What financial products do banks offer

A
  • Deposit accounts
  • Overdrafts
  • Credit cards
  • short-/long-term loans
  • Mortgages
  • Leases
  • Services such as advice
64
Q

What do investment banks do

A

Provide services in both borrowing and lending primarily to the business sector

65
Q

What are main fucntions of investment banks

A
  • Private equity activities
  • International finance
  • Funds management and advisory services (including advice related to mergers and acquisitions)
66
Q

What are financial products offered by investment banks

A
  • Commercial bills
  • Loans
  • Private and project equity raising
  • Investment funds
  • Financial market trading
67
Q

What are finance companies

A

Non-bank financial institutions and act primarily as financial intermediaries that specialise in smaller commercial finance

68
Q

How do finance companies function

A

Raise capital through share issue or debenture issue to the public and then lends capital to businesses and retains security over the assets of the business to whom they lend money should they default in payment.

69
Q

What are financial products offered by finance companies

A
  • Loans (short and long term)
  • Credit cards
  • Leasing
  • Factoring
70
Q

Who oversees finance companies, superannuation funds and life insurance companies

A
71
Q

What is superannuation

A

The financial contributions that individuals and their employers make to a fund for use in retirement

72
Q

Who contributes to a superannuation funds

A

Employers on behalf of their employees

73
Q

How is money in superannuation used

A

The funds is invested into a range of short- and long-term investments with the aim of maximising a return

74
Q

What are financial products offered by superannuation funds

A
  • Equity capital
  • Debt securities
75
Q

How do life insurance companies operate in the financial market

A

Life insurance companies raise capital through insurance premiums they charge customers and they invest this money by providing large amounts of both equity and loan capital to businesses

76
Q

What are financial products offered by life insurance companies

A
  • Premiums
  • Equity capital
77
Q

How do unit trusts operate

A

Also known as mutual funds – these take funds from a large number of small investors and invest them in specific types of financial assets e.g. shares, commercial property, government bonds, gold, silver, oil and gas

78
Q

What are financial products offered by unit trusts

A
  • Mortgage funds
  • Cash management trusts
  • Share market funds
79
Q

How does ASX operate as a source of funds

A

Acts as both a primary and secondary market for the sale shares to the public

80
Q

What are financial products offered by ASX

A
  • Shares
  • Futures
  • Options
  • Exchange traded funds
  • Real estate investment trusts
  • Interest rate securities
81
Q

How does ASX act as a primary market

A

It enables a company to raise new capital through the issue of shares

82
Q

How does ASX act as a secondary market

A

ASX also operates as a secondary market where pre-owned or second-hand shares are traded between investors

83
Q

In what ways does government influence business

A
  • Legislation
  • Monetary policy
  • Fiscal policy
  • Various Government bodies
84
Q

How do company taxation laws

A

Provide that companies (private or public), pay company tax at a flat rate of 30% of net profits (which must be set aside by financial managers and not distributed to shareholders or reinvested in the business to purchase more assets).

85
Q

What is tax rate for small businesses

A

27.5%

86
Q

What is monetary policy

A

Concerned with the level of interest rates and these are set by the Reserve Bank of Australia (RBA)

87
Q

In relation to monetary policy what does it mean if RBA sets interest rates low

A
  • Spendning will increase
  • Unemployment will decrease
88
Q

What is fiscal policy

A

Concerned with taxation (revenue) and government expenditure plans

89
Q

What does ASIC do

A

Concerned with taxation (revenue) and government expenditure plans

90
Q

What are the roles of ASIC

A
  • Maintain facilitate and improve the financial performance of the financial system and entities in it
  • Promote investment
  • Administer and enforce the law
  • Receive and store information and make it available to the public
91
Q

Are global market influences an part of internal or external business environment

A

External

92
Q

What are the three main global market influences

A
  • Economic
  • Availabiltiy of funds
  • Interest rates
93
Q

What does global economic outlook refer to

A

Projected changes to level of economic growth throughout the world

94
Q

What does positive economic outlook mean

A

Increasing demand for goods and services and businesses will want to increase production to meet demand and will require funds to purchase equipment, bigger premises etc

95
Q

IMF world economic outlook April 2020

A
  • As a result of the pandemic, the global economy is projected to contract sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis
  • Global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support
96
Q

What does availiablity of funds refer to

A

The ease with which a business can access funds (for borrowing) on the international financial markets if they need to expand

97
Q

What are conditions and rates based upon in relation to availiability of funds

A
  • Risk
  • Demand and supply
  • domestic economic condition
98
Q

How is level of interest rate determined

A

The higher the level of risk involved in lending to a business, the higher the interest rates

99
Q

What may businesses choose to do if Australia’s interest rates are higher than other countries

A

Borrow from overseas

100
Q

What is risk of overseas borrowing

A

Changing exchange rates

Yr12 Business Studies (17 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions