Influences on Financial Management Flashcards
What are the 5 major influences on financial management?
- Internal Sources
- External Sources
- Financial Institutions
- Government
- Global Market
What are internal sources of finance and examples?
Funds contributed by the owners or from business activities.
1. Owners Equity
2. Retained Profits
What are the benefits of sourcing finance internally?
- No interest
-No need to pay back funds
-Unlimited access to funds
What are the disadvantages of sourcing finance internally?
Owners have the potential to dissolve their funds
What are examples of short term debt?
Commercial Bills, Overdraft and Factoring
What is a commercial bill?
A short term loan for 30-180 days of a large amount usually above $100K. Business assets are secured by the bank until fully repaid
What is factoring?
The selling of ‘Accounts Receivable’ to a finance company at a discounted price
What are examples of long term debt?
Mortgage, Unit Trusts, Debentures and Leasing
What are advantages of leasing?
-Low costs
-Better cash flow
-Tax deductible
-Payment includes insurance and maintenance costs
What are the different types of shares?
-Ordinary
-New Issue
-Rights Placement
-Purchase Plan
What are the different financial instituitions?
(7)
-Banks
-Investment Banks
-Finance Companies
-Superannuation
-Life Insurance
-Unit Trusts
-ASX
What do financial institutions do?
Accumulate funds and invest them
What Act does ASIC administer and what does it do ?
Corporations Act 2001
Attempts to protect consumers and investors in banking, superannuation and insurance. Aim to reduce fraud and unfair practices
How does Company Tax influence a business?
It influences the way they choose to spend money and report profits.
How does the global market influence a business?
Unexpected changes can change the active system of supply and demand abruptly. It may be harder to gain funding if in negative conditions. Interest repayments will be affected
What happens if ASIC discovers a business may not be complying with the law?
The business will be investigated and if breached, they will be penalised and this can possibly disrepute a business
How does the government influence a business?
(4 Ways)
- Taxation regulations require sound financial managemt so the business can have adequate funds
- Some decisions may be better for taxation regualtions
- Ensures compliance
- Influences of a legal structure as different legal structures come with different obilagtions
A statement of cash flows can show whether a business can….
- Generate favourable cash flow
- Pay its finanacial commitments as they fall due
- Have suffcient funds for future expansion
- Pay drawings to owners or dividends for shareholders
What do cash flow statements do in general?
Show how effectively finance is being used in a business and show whether the business has enough funds to meet unforseen circumstances
What does a balance sheet do?
Statment of finanacial position
Represents a business’s assets and liabilities in a particular pointi in time and represents the net worth of a business.
What does an income statement show?
Statement of finanacial performance
How much money has come into the business as revenue, how much has gone out as expenditure and how much has been derived as profit.
What does a balance sheet show?
Whether:
* A business has enough assets to cover its debt
* The interest and money borrowed can be repaid
* The assets of the business are being used to maximise profits
What is a Mortgage?
Long term loan secured by the property of a business. Usually to purchase non-current assets
What is a Debenture
Loan issued by company for a fixed interest over a fixed period of time against an asset.
