Finance

• Financial resources


  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 objective
• The overarching aim of financial management is to effectively provide adequate financial resources to all the business functions in order to achieve all the business' goals
• This provides the link to the interdependence with other key business functions
• Creditor


  Owed money/ accounts receivable - Liability
• Debtor


  Owe money/ accounts payable - Assets
• The responsibility of financial management is to make decisions about the best way to achieve its goals and objectives
• Successful financial management involves identifying and evaluating alternative courses of action and making recommendations
• Profitability


  The earning performance of the business and indicates its capacity to use is resources to maximise profits
• Profits satisfy shareholders in the short term; however, long term sustainability is the most important consideration for any business
• To ensure profit maximisation, financial management must monitor revenue, pricing policies, costs, expenses
• Profitability at Qantas and the airline industry is relatively poor. In 2014, due to high fuel prices and weaknesses in the domestic airline industry, Qantas suffered a major loss of $646 million
• However, in 2017 Qantas turned it around and reported a $1.4 billion profit
• Growth


  The ability of a business to increase its size in the long term
• Growth depends on the ability of the business to develop and use its assets effectively to increase sales, profits, and market share
• Growth is measured through the number of stores the business operates
• In 2014, Qantas had to cut costs and orders for new planes, specifically in Asia
• However, with recent bounce backs in profitability, Qantas has been expanding with new routes such as its direct flight from Perth to London
• The main aim of efficiency is to monitor levels of inventory, cash and the collection of receivables so the businesses are able to pay their debts when they are due
• Qantas efficiency has increased in recent years due to a decreasing total expense ratio that shows its strategies have been successful
• This has been driven by the introduction of new and efficient aircrafts such as the Dreamliner, new IT systems, and faster maintenance turnaround times
• Liquidity


  The extent to which a business can meet its financial obligations in the short term
• Businesses must have sufficient cash flow to meet their financial obligations or be able to convert current assets into cash
• By controlling the flow of cash in and out of the business, financial managers will ensure they have adequate funds when needed
• Qantas operates on a negative working capital position meaning they hold very little reserves and use the cash received to pay long term debts and reduce interest repayments
• Qantas has a standby facility of $300 million to draw cash when needed to pay creditors
• Solvency


  The extent to which a business can meet its financial obligations in the long term
• Gearing


  The proportion of debt and the proportion of equity that is used to finance the activities of a business
• Solvency indicates whether a business is able to repay the amounts they borrowed for investments in capital
• Businesses measure solvency through gearing, which is the percentage of assets of the business that are funded by external resources
• In 2014 Qantas' gearing rapidly increased due to its falling profitability
• However, their recent turnaround in profitability enabled them to reduce their debt by $1 billion in 2015, $750 million in 2016 and a further $434 million in 2017
• As a result, Qantas has reduced its gearing making the airline more financially stable, evident in their improved credit rating
• Short term goals


  Tactical goals (1-2 years) and operational goals (day to day) of a business
• Short term goals are reviewed quite regularly to see if targets are being met and resources are being efficiently used
• Long term goals


  Strategic goals of the business (5+ years)
• Long term goals tend to be quite broad goals in which each broad goal requires a series of short term goals to assist in meeting the long term goal
• Long term goals and their progress are reviewed annually to determine if any changes are needed
• Marketing, operations and human resources rely on finance to provide and allocate them within the adequate funds needed to carry out their activities and processes
• Internal sources of finance


  • Owners equity
  • Retained profit