finance

• Role of financial management

  Strategic role of financial management
• Objectives of financial management


  • Profitability
  • Growth
  • Efficiency
  • Liquidity
  • Solvency
• Short-term and long-term


  Objectives of financial management
• 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)
• External sources of finance - Equity

  • Ordinary shares (new issues, rights issues, placements, share purchase plans)
  • Private equity
• Financial institutionsBIFSLUA

  • Banks
  • Investment banks
  • Finance companies
  • Superannuation funds
  • Life insurance companies
  • Unit trusts
  • Australian Securities Exchange
• Influences on financial management - Government

  • Australian Securities and Investments Commission
  • Company taxation
• Influences on financial management - Global market

  • Economic outlook
  • Availability of funds
  • Interest rates
• Planning and implementing


  1. Financial needs

  2. Budgets

  3. Record systems

  4. Financial risks

  5. Financial controls
• Monitoring and controlling


  1. Cash flow statement

  2. Income statement

  3. Balance sheet
• Financial ratios - Liquidity


  • Current ratio (current assets ÷ current liabilities)
• Financial ratios - Gearing


  • Debt to equity ratio (total liabilities ÷ total equity)
• Financial ratios - Profitability

  • Gross profit ratio (gross profit ÷ sales)
  • Net profit ratio (net profit ÷ sales)
  • Return on equity ratio (net profit ÷ total equity)
• Financial ratios - 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
• Cash flow management


  1. Cash flow statements

  2. Distribution of payments

  3. Discounts for early payment

  4. Factoring
• Working capital management


  1. Control of current assets (cash, receivables, inventories)

  2. Control of current liabilities (payables, loans, overdrafts)

  3. Strategies (leasing, sale and lease back)
• Profitability management

  1. Cost controls (fixed and variable, cost centres, expense minimisation)

  2. Revenue controls (marketing objectives)
• Determining financial needs


  • Size
  • Plans
  • Skills etc.
• Budgets

  • Operating budget: main activities of the business: sales, production, raw materials, direct labour
  • Project budgets: capital expenditures (assets), research and development (r&d)
  • Financial budget: financial data: income statement, balance sheet, cash flow statement
• Record systems


  • Accurate
  • Reliable
  • Efficient
  • Accessible
• Risks

  • Credit risk: risk of borrowing money. Businesses always need to ensure they have enough money to cover their debts. Also interest rate risks
  • Market risk: risk of changing conditions in the specific marketplace.
  • Liquidity risk: a businesses cash flow and how easily a business can convert their assets into cash if needed.
  • Operational risks: dangers faced in day to day management of a business. May include legal problems, fraud problems, HR issues.
• Controls: Control policies

  • Clear authorisation for tasks
  • Separation of duties e.g. one person for each role
  • Qualification restrictions and employing only certified and qualified staff
  • Control of cash e.g. the use of cash registers, no money kept on premises overnight
  • Protection of assets e.g. buildings are kept locked, and security surveillance systems are installed
  • Control of credit procedures, such as following up overdue accounts and customer credit checks
• global financial management


  – exchange rates

  – interest rates

  – methods of international payment

  – hedging

  – derivatives
• methods of international payment 


  payment in advance

  letter of credit

  clean payment

  bill of exchange

  Bill against payment

  Bill against acceptance
• derivatives


  Forward exchange contract

  Options contract

  Swap contract