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TOPIC 3 - FINANCE

Role
Influences
Processes
Strategies

Role of financial management

  • 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 

Influences on 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)
– 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 

Processes of financial management

  • 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 
  • financial ratios 
– 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 

Financial management strategies

  • 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 
– methods of international payment – payment in advance, letter of credit, clean payment, bill of exchange 
– hedging 
​– derivatives 
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  • Home
  • About
    • About
    • Education Blog
    • Writing Blog
  • Case Studies
  • Courses
  • HSIE Resources
    • HSC Business Studies >
      • Operations >
        • Role of operations management
        • Influences
        • Processes (overview) >
          • Inputs
          • Transformation processes
          • Outputs
        • Strategies
      • Marketing >
        • Role of marketing
        • Influences
        • Process
        • Strategies
      • Finance >
        • Role of Financial Management
        • Influences
        • Processes
        • Strategies
      • Human Resources >
        • Role of human resource management
        • Influences
        • Processes
        • Strategies
        • Effectiveness
    • Preliminary Business Studies >
      • Nature of Business >
        • Role of business
        • Types of businesses
        • Influences
        • Business growth and decline
      • Business Management >
        • Nature of management
        • Management approaches
        • Management process
        • Management and change
      • Business Planning >
        • SMEs
        • Influences
        • Business Planning Process
        • Critical Issues
    • Economics >
      • Introduction to Economics >
        • The nature of economics
        • The operation of an economy
      • Consumers and Businesses >
        • Businesses
      • Markets >
        • Demand
        • Supply
        • Market equilibrium
        • Market structures
      • Labour Market >
        • Demand and supply of labour
        • Labour market trends
      • Economic Issues >
        • Economic growth
        • Unemployment
        • Inflation
        • External Stability
        • Distribution of Income and Wealth
        • Environmental Sustainability
    • Society and Culture >
      • Course Framework
      • Research Methods
      • P1: Social and Cultural World
      • P2 Personal and Social Identity
      • P3: Intercultural Communication
      • PIP
      • H1: Social and Cultural Continuity and Change
      • H2: Popular Culture - Social Media
      • H3: Equality and Difference
    • Geography (old syllabus) >
      • Coastal Management
      • Urban Growth and Decline
      • Human Rights
  • Contact