TOPIC 3: FINANCE

Role

Influences

Processes

Strategies

​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 Investment Commission, company taxation
• global market influences - economic outlook, availability of funds, interest rates

Internal sources of finance

Retained profits – read Tutor2u's webpage about retained profits.

External sources of finance

Debt finance is funds borrowed by the business which must be repaid over a fixed period of time.  Debts are liabilities.  Debt holders do not have ownership rights to the business but they have the right to liquidate the assets of the business if it cannot meet its debt repayments.

Short-term borrowing

• overdrafts (tutor2u)
• commercial bills (ANZ)
• factoring (Forbes)

Long-term borrowing

• mortgage (Business Dictionary)
• debentures (ASIC MoneySmart)
• unsecured note (Investopedia)
• finance using leasing (tutor2u)

Equity finance is capital contributed to the business by its owners.  If the business is a company this is in the form of shares.

• ordinary shares (Investopedia)
• equity finance - new issues (tutor2u)
• equity finance - rights issues (tutor2u)
• placements (Investopedia)
• share purchase plans (9Finance)
• private equity (Investopedia)

Sources of finance from Shani Hartley

TASK:

1. Explain why short-term finance should not be used to finance the global expansion of a business.
2. A large publishing business is in the process of converting all its PCs to Macs.  Explain the sources of finance available to fund the new Macs.
3. Advise on the type of finance you would suggest for the following, providing reasons for your response.
   

• Payment of inventory
  
• Purchase of a new motor vehicle
  
• Diversification of the business over the next five years
  
• Interstate expansion to double the volume of sales

Financial institutions

TASK: Research the various financial institutions online.  Create a table summarising the financial instruments and the purpose they serve for the following financial institutions:

• banks
• investment banks
• finance companies
• superannuation funds
• life insurance companies
• unit trusts
• the Australian Securities Exchange
  

financial_institutions_-_table.docx
File Size:	11 kb
File Type:	docx

Download File

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Influence of government

TASK: 

1. Describe the role of ASIC and discuss its importance as a regulator of financial markets.
2. Read the article 'Australia cannot stand still': Business lobby reheats calls for company tax cuts (smh).  Discuss the arguments for dropping the company tax rate.

Global market influences

TASKS

1. Economic outlook: Research how China's economy is performing and how its performance will have an impact on Australian businesses.
2. Availability of funds: Read the smh article 'Local businesses to avoid credit crunch' - explain what the term 'credit crunch' means and how it could impact businesses.
3. Interest rates: Compare interest rates around the world and assess how differing interest rates around the world affects businesses.

Processes