Finance

• The main sources of finance are equity, debt, and lease financing.
• strategic role of financial management
• objectives of financial management
• profitability, growth, efficiency, liquidity, solvency
• short-term and long-term
• interdependence with other key business functions
• internal sources of finance – retained profits
• external sources of finance
• debt – short-term borrowing (overdraft, commercial bills, factoring), long-term borrowing (mortgage, debentures, unsecured notes, leasing)
• equity – ordinary shares (new issues, rights issues, placements, share purchase plans), private equity
• financial institutions – banks, investment banks, finance companies, superannuation funds, life insurance companies, unit trusts and the Australian Securities Exchange
• influence of government – Australian Securities and Investments Commission, company taxation
• global market influences – economic outlook, availability of funds, interest rates
• planning and implementing – financial needs, budgets, record systems, financial risks, financial controls
• debt and equity financing – advantages and disadvantages of each
• matching the terms and source of finance to business purpose
• monitoring and controlling – cash flow statement, income statement, balance sheet
• liquidity – current ratio (current assets ÷ current liabilities)
• gearing – debt to equity ratio (total liabilities ÷ total equity)
• profitability – gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷ sales); return on equity ratio (net profit ÷ total equity)
• efficiency – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio (sales ÷ accounts receivable)
• comparative ratio analysis – over different time periods, against standards, with similar businesses
• limitations of financial reports – normalised earnings, capitalising expenses, valuing assets, timing issues, debt repayments, notes to the financial statements
• ethical issues related to financial reports
• cash flow management
• cash flow statements
• distribution of payments, discounts for early payment, factoring
• working capital management
• control of current assets – cash, receivables, inventories
• control of current liabilities – payables, loans, overdrafts
• strategies – leasing, sale and lease back
• profitability management
• cost controls – fixed and variable, cost centres, expense minimisation
• revenue controls – marketing objectives
• global financial management
• exchange rates
• interest rates
• Financial resources: those resources in a business that have monetary value.
• Financial management: the planning and monitoring of a business’ financial resources to enable businesses to achieve its financial objectives
• The overarching aim of financial management is to provide adequate financial resources to all the business functions in order to achieve all the business’ goals.