financial function

• FINANCIAL FUNCTION:

  ·  The role of the financial is to maximize profits and make sure that there’s enough capital that is available in a business to carry out operations.

  ·   Financial controls matter like income, investments, sourcing, etc.
• Feasibility studies:

  1. Preliminary investigations that are into the potential benefits of undertaking specific activities.
  2. Main purpose is to consider all factors associated with that activity.
  3. Main aim is to ensure that there's a reasonable understanding of what will be needed to create a new product for a profit.
• Factors in feasibility studies

  • Technology & system feasibility
  • Economic feasibility (cost/benefit analysis)
  • Legal feasibility
  • Operational feasibility
  • Schedule feasibility
  • Market feasibility
  • Resource feasibility
  • Environmental feasibility
  • Financial feasibility
• Technology & system feasibility

  Determining whether the company can handle completion of projects in terms of software
• Economic feasibility (cost/benefit analysis)


  Used to determine benefits and savings that are expected from the proposed project to compare with costs
• Legal feasibility


  Determine whether proposed projects meet legal requirements
• Operational feasibility


  Measures of how well-proposed projects solve problems + take advantage of opportunities during SWOT
• Schedule feasibility

  Measures of how important project timetables are and estimates how long the system takes to develop
• Market feasibility

  Testing geographic locations
• Resource feasibility

  Answering questions regarding issues like time to implement a new project
• Financial feasibility

  Total estimated cost of projects, processed cash flow profitability existing investments by promoter in other businesses
• What is Revenue?

  §  The income that must have interest on the fixed deposit

  §  Cost includes operational expenses and production costs.  

  §  Operational costs include expenses incurred in the normal activity of running a business. (e.g. Salaries, advertising)

  §  Production costs are sustained by manufacturing businesses + made up of material costs, labour costs, and overheads (not directly involved in many products)
• Different types of costs:

  Fixed: remain constant (rent, management salary, and insurance)

  Variables: can change the level of production change (factory labour, raw material used, etc.)

  Controllable: Businesses can influence costs through decisions (salaries)

  Non-controllable: business can’t influence the cost (rates/ taxes)
• Break-even analysis:

  Relationship between the size of investment and sales required to achieve profitability

  (sales above become profit sales below become loss)

  Break even points= fixed costs/(selling price per unit – variable cost per unit)

  (fixed costs +target profit)/(selling price per unit – variable cost per unit)
• Budgets:

  ¯ financial tool that forecasts both the financial needs and results of a business.

  ¯ Capital budget looks at how money we spend on assets

  ¯ Cash budget looks at how much money the business has at any time. They are split into a weekly thing.

  ¯ Important for efficiency purposes that the financial department checks to see budgets are adhered to.

  ¯ Sales budget allows the business to estimate the revenue that is expected in a company to make in a specific period. They also help to improve targets.
• Pricing objectives

  • Income or profit motive
  • Sales volume
  • Market share
  • Status quo
  • Survival
• Income or profit motive

  Interest that increases the level of income or profitability for the business
• Sales volume

  Pricing goods in a way to increase the number of goods sold
• Market share

  Focuses towards increasing business shares of the market and goods are mainly priced below both market value and competitor price
• Status quo

  Maintains what the business has in a market share
• Survival

  Finding out when the business struggles and trying to keep costs reasonable so customers can still buy
• Pricing technique:

  K Cost-based pricing (cost+profit=selling price)

  K Demand-based pricing​

  Buyers’ willingness to pay​

  K Competition-based pricing​

            Comparing prices to competitors’ prices.​

  K Combination pricing​

  Combining all of the above factors to determine​

  sales prices​
• Price discrimination


  Different prices for different customers
• Psychological pricing

  Odd-even pricing
• Prestige/status pricing

  Customary pricing
• Perceived value pricing

  Pricing varies according to the environment
• Promotional pricing

  Sales and special events
• Penetration pricing

  Artificially low price to grow market share
• Bait pricing


  • Illegal practice
  • Draw customers with unrealistically low prices
  • Sell the customer something more expensive
• Loss leaders

  • Goods sold at very low prices (below cost)
  • Draw new customers into the store
• Investment:

  ®  Money that is saved so it can grow.
• Major asset classes

  • Cash
  • Property
  • Bonds
  • Shares
• Cash

  • No guarantee that capital sum is protected against inflation
  • Cash investors offer assurance of regular interest income
• Property

  • Moderate to high risk because it depends on the location of the property and whether it's political and economic environment
  • Property keeps up with inflation and can be effective in the way of gearing investments, meaning that they use external financing
• Bonds

  • Defined as interest-bearing securities issued by the government
  • Offer moderate risk
  • Capital sum that is invested can fluctuate
  • You can receive interest but it doesn't have to be dividends
• Shares

  • Shares increase over time
  • If the company goes bankrupt then they are the last people to get their shares
  • The company has to determine how many shares are needed to be sold to raise capital
• Diversification Benefits:

  ®   Refers to spreading investment risks between the various asset classes

  ®  Combining the growth potential of equities bonds stand a good chance of higher returns over the long term than those who invest in investments like cash.

  
  

  Risk Profiling:

  ®creates an understanding of investors' tolerance for risk
• Insurance:

  ª   Insurance is a contract between an insurance company and the individual where the company promises to repay the insured for any loss.

  ª    Assurance is taken over to cover certain risks.
• Types of assurance:

  o   Life assurance is taking a contract life for your life or someone else's life

  o   Term assurance is assurance only for a specified time

  o   Endowment is an investment policy that you start at a set amount of time and many parents do it for their kids to pay uni funds.

  o   Disability cover which isn’t certain but can take assurance and pay for permanent trauma

  o   Funeral costs used to pay for funeral cost
• Compulsory Insurance:

  Unemployment insurance(UIF):

  L Covers employees against loss of income in case of job loss.

   

  Compensation for Occupational Injuries and Diseases Act

  (COIDA):

  L Covers the expenses for someone who is injured.

  L Companies can be obligated to do this and state the revenue and calculates the amount and pays for it.

  Road Accident Fund(RAF)

  L Contribute through fuel

  L Applies to motor vehicles