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Influences on financial management - Coggle Diagram
Influences on financial management
External sources of finance
external finance refers to the funds provided by sources outside the business, invluding banks, financial institutions, government, suppliers, financial intermediaries
debt
Short term borrowing
(business will repay in short term for a short term need)
overdraft: banks agree on limit for where businesses can overdraw (borrow money) up to and business pays interest - often unexpected
commercial bill: banks - often in advance - fixed amount to be paid on fixed date
factoring: financial insitutions - sale of accounts receivable (debtors, unpaid invoices) sold to a factoring business
Long term borrowing
(funds borrowed longer than 12 months)
mortgage: a type of loan - mortgage loans are used to finance property purchases e.g new office, factory
debentures: a document creating a long term loan sold to investors who want a rate of return from interest payments (investors and general public)
unsecured notes: loan to the business from investors for set period of time, more insecure
leasing: source finance companies, under a lease the business is being the lessee
equity
ordinary shares
ordinary shares are the most commonly traded shares in Australia - the person becomes part owners of publicly listed company
new issue: security sold for the first time on a public market
rights issue: privledge granted to shareholders to buy new shares in the same company
placements: allotment of shares directly from company to investors
share purchase plan: an offer to existing shareholders to purchase more shares without brokerage fees
private equity
this is the money invested in a private company not listed on ASX
the aim of the private company is to raise capital to finance the future expansion of the business
money not listed on the ASX
Financial institutions
banks
are a source of short term and long term finance
retail banking
whoelsale banking (large transaction services)
investment banks
these deal with businesses and governments in raising large amounts of capital - generally want equity in business borrowing funds and assist in merges
finance companies
act as intermediaries in financial markets - provide loans to businesses and individuals through consumer loans - provide lease finance
life insurance companies
provide loans to the corporate sector through receipts of insurance premiums which provide funds for investment
Unit trusts
are funds that fund managers run on behalf of investors for a fee - known as mutual funds
superannuation funds
after banks these are the next largest financial institutions in terms of financial assets - major holders of shares and gov securities
ASX
does not provide finances to businesses - is a market for subsequent resale between investors of shares issued by the company
Influences of government
In Aus the federal government participates in the financial market to influence the economy
Reserve Bank of Australia (RBA)
in charge of monetary policy --> determines the cash rate meets every Tuesday to set it
atm it is very low which makes lending easier and people want to borrow money
it stimulates the economy
banks have to buy and sell commonwealth securities to stay safe and if they don't have the money to pay their liabilities the RBA steps in
the financial impact of the government imposed lockdowns has impacted Qantas considerably promoting the Federal and State governments to establish a series of measures to support businesses like Qantas. Qantas has benefited from a number of these programs including: - the refunding and waiving of government imposed charges is fuel excise - the job keeper payment paid to Qantas employees who have been stood down and to subsidize the wages of Qantas staff still working
Aus Securities and Investments Commission (ASIC)
- enforces laws relating to the financing of businesses - set up in 1998 to regulate corporations, markets and provision of financial services under the Corporations Act 2001
aim is to protect consumers in areas of investments, life insurance, superannuation
ASIC alerts investors about fake Qantas corporate bonds
Company taxation
under the tax income assesment act 1936 there is a different treatment of payments of interest on debt by finance and payments of dividends associated with equity finance
Global market influences
to reduce risks and minimise losses, financial managers must be aware of the influences on the Aus financial market, from within Aus and overseas
a significant impact has been globalisation --> created more interdependence between economies and the businesses sector relying on trade for expansion and increased profits
if economic outlook globally is favourable than investors expect company profits to increase as consumers purchase their products - economic outlook influenced availability of funds for investors to purchase debentures, unsecured notes and ordinary shares
interest rates in relation to debt funding will influence the selection of funding source by the finance manager
COVID impacted Qantas resulting in sharp decline of global demand and 91% fall in profit
Internal sources
funds from within the business
retained profits (non-distributed dividends)
owners equity (assets, savings of owner)
Qantas uses equity finance such as retained earnings