Please enable JavaScript.
Coggle requires JavaScript to display documents.
FINANCE - Coggle Diagram
FINANCE
PROCESSES
monitoring and controlling
- cash flow statement
- income statement
- balance sheet
financial ratios
- liquidity
- gearing
- profitability
- effiecency
- comaritive ratio analysis
ethical issues related to financial reports
Audited Accounts, Accounting Ethically
limitations of financial reports
- normalised earnings: removing one-time influences from the balance sheet
- capitalising expenses: expenses into assets that may not represent true financial condition, new software
- valuing assets: estimated market value of an asset on the balance sheet
- timing issues: • Manipulating timing of transactions to mislead businesses about financial position
- debt repayments: Reporting debt finance on the balance sheet as a historic cost (amount initially borrowed) & not presenting the debt repayments on the revenue statement (as expenses)
- notes to financial statements: includes additional details & info ) such as the methodology used
planning and implementing cycle:
- financial needs: Management must understand where the business is headed and how it will get there.
- developing budgets: Includes developing financial budgets and forecasts that allow the business to budget for production, employment of human resources, raising appropriate funds from appropriate sources as well as developing budgets for all the other operations conducted by the business.
- record systems: Includes developing accounting systems and mechanisms to record the expenses/revenues of the business in a way that is reliable, accurate and legally compliant.
- financial risks: Financial risk is the possibility of the business being unable to cover its financial obligations. Factors such as theft of goods, non-payment of accounts receivable and interest raises must also be considered.
- financial controls: Tools that provide feedback on the financial performance of a business. They can include budgets, cash flow statements, income statements & balance sheets. These controls are vital for the continual and future planning and success of the business.
INFLUENCES
internal sources of finance
owners equity: funds contributed by owners or partners to establish and grow the business
retained profits: earnings that have been made in previous years that have been retained under owners equity section of the balance sheet
external sources of finance DEBT:short term:
- bank overdraft: overdrawing from account to an agreed limit, flexible for borrowing at short notice- commercial bills: usually for over $100,000 (30 to 180 days )- factoring: selling accounts receivable for discounted price to a finance or factoring company, businesses will receive 90% of accounts receivable, leading to large cash injection. long term:
- mortgage: loan secured by the property of the borrower- debentures: issued by the company for a fixed rate of interest and for fixed time period
- unsecured notes: loan for set period of time but is not secured by the assets of a company, interest rates tend to be higher due to the risk
leasing: payment of money for the use of equipment, that is owned by another party for certain period of time
EQUITY: Ordinary (public) shares:
- new issue - the first time a company offers its shares to the public, initial public offering (IPO)
- rights issue - involves offering the opportunity to a companies existing shareholders to buy a proportional number of shares at a given price within a fixed period of time
- placements - (non public offering)
- share purchase plan - allows companies to issue a max of $30,000 in new shares to each existing shareholder without having to issue a prospectus
private equity: The money invested in a private company . The aim of the private company is to raise capital to finance future expansion/investment of the business
financial institutions
Banks
- Main providers of finance to businesses and consumers. They receive savings and deposits which is then invested in the form of loans to borrowers
investment banks
- provide deposit and lending primarily to big business clients. arrange finance from overseas to business clients
finance banks
- Non - bank financial intermediaries that specialise in smaller commercial finance. They do not take deposits from customers, only provide loans
- finance companies raise capital through debentures. Key products include leases and factoring.
superanuuation funds
- compulsory payments are made at the rate of 10.5% of your salary into super funds. You can choose what assets you want the funds to
life insurance companies
- provide loans to the corporate sector through receipts of insurance premiums
- provide a lump sum payment in the event of a death
unit trusts
- take money off investors and invest in specific financial assets
ASX
- as a primary market: deal with the original issue of debt and equity to the public
- as a secondary market: allows the sale of existing securities between investors
influence of government
ASIC
- protects consumers, investors and creditors by ensuring companies adhere to law and conduct fair transactions
- reduces fraud and unfair financial practises
- collects information about Australian companies and provides it to the public
Company taxation:
- Australian businesses pay 30% (flat rate) of net profit to the government
global market influences
- global economic outlook: affects demand for products and interest rates, negative economic outlook = discouraged risk taking and decreased demand, positive economic outlook = increased demand, production levels and international investment
- availability of funds: the ease with which business can access funds on international markets, Australia is considered low risk country for investment
- interest rates: cost of borrowing money, the higher the risk the higher the rate
STRATEGIES
cash flow management: the movement of cash in and out of a business over a period of time. must be effectively managed to ensure payments are made without creating cash flow problems cash flow statement:
- predicts monthly inflows and outflows of cash that are directly linked to liquidity
- enables managers to keep track of cash flow and identity problems
distribution of payments:
- paying bills at latest possible time in order to maximise interest earned on bank savings
- pay large instalments (paying monthly)
discounts for early payments:
- offering creditors, a discount for paying cash on the spot or earlier than statement due date
- beneficial as businesses get their
factoring:
- Selling accounts receivable to a factoring business & receiving a proportion of its value
working capital management
- funds available for short term financial commitments of a business
-
-
ROLE
strategic role
to ensure the business continues to operate, grow and provide substantial profits to the owners
• Financial managers need strong accounting knowledge/skills to interpret and analyse financial data
-
objectives
profitability: ability to maximise profits, profits satisfy owners or shareholders
growth: ability of a business to increase its size in the long term, business sustainability
efficiency: the ability of a business to minimise its costs and manage its assets so that maximum profit is achieved with the lowest possible level of assets
liquidity: ability of a business to pay its debts when they are due, firm must have sufficient cash flow
solvency: can meet their financial commitments in the longer term, ability to repay debts, indication of risk to shareholder investment