HSC Finance Lecture Review

Comprehensive vocabulary flashcards covering the HSC Finance topic, including roles, influences, processes, and strategies of financial management.

Financial Management

The planning and monitoring of a business’s financial resources to enable the business to achieve its financial objectives.

Strategic Role of Financial Management

The long-term view of where a business is going, how it will get there, and a monitoring process to keep track of progress to ensure survival and growth.

Profitability

The ability of a business to maximize its profits, which is important for short-term owner satisfaction and long-term sustainability.

Growth

The ability of the business to increase its size in the longer term by developing its asset structure to increase sales, profits, and market share.

Liquidity

The extent to which a business can meet its financial commitments in the short-term, defined as a period of less than $12$ months.

Efficiency

The ability of a business to minimize its costs and manage its assets so that maximum profit is achieved with the lowest possible level of assets.

Solvency

The extent to which the business can meet its financial commitments in the longer term, defined as a period of more than $12$ months.

Short-term Financial Objectives

The tactical plans for one to two years and operational day-to-day plans of a business that are reviewed regularly to see if targets are met.

Long-term Financial Objectives

Strategic plans determined for a set period of time, generally more than $5$ years, consisting of broad goals like increasing market share.

Interdependence

The mutual dependence that key business functions (marketing, operations, human resources, and finance) have on one another to work toward common goals.

Retained Profits

A cheap and accessible internal source of finance where profits are not distributed but kept in the business; on average, $50\%$ of profits are reinvested this way.

Debt Finance

External finance provided by creditors or lenders, such as banks and other financial institutions.

Overdraft

A bank service allowing a business to overdraw its account up to an agreed limit for a specified time to help overcome temporary cash shortfalls.

Commercial Bills

Short-term loans issued by financial institutions for larger amounts, usually over $100,000, for a period between $30$ to $180$ days.

Factoring

Selling accounts receivable at a discount to a firm that specializes in collection, allowing the business to receive up to $90\%$ of the amount within $48$ hours.

Mortgage

A long-term loan secured by the property of the borrower that cannot be sold or used as security for further borrowing until the loan is repaid.

Debentures

Promises made by a company to repay money lent to the business for a fixed rate of interest and for a fixed period of time.

Unsecured Notes

Loans from investors for a set period of time not secured against assets, attracting a higher rate of interest due to increased risk to the lender.

Leasing

Payment of money for the use of equipment owned by another party, which saves the burden of one-off large cash payments and provides tax deductions.

Invoice Discounting

A cash flow finance method for established companies where the business collects payments from customers directly so they remain unaware of the lender's involvement.

Equity Finance

Internal or external funds raised by a company through inviting new owners or using retained earnings, acting as an alternative to debt funding.

Ordinary Shares

The most commonly traded shares in Australia, representing part-ownership in a publicly listed company and eligibility for dividends.

New Issue

A security sold for the first time on a public market, often through an Initial Public Offering (IPO) requiring a prospectus.

Rights Issue

The privilege granted to existing shareholders to buy new shares in the same company in proportion to the number of shares they currently own.

Placements

The allotment of shares made directly from a company to specific institutions or investors, often at a discount to the current trading price.

Share Purchase Plan

An offer allowing existing shareholders to purchase more shares (up to a maximum of $15,000) without brokerage fees and often at a discount.

Private Equity

Capital invested in a private company not listed on the Australian Securities Exchange (ASX) to finance future expansion.

Investment Banks

Financial institutions that trade in money and securities, arrange long-term finance for expansion, and advise on mergers and takeovers.

Life Insurance Companies

Non-bank financial intermediaries that provide lump sum payments upon death or disability, using regular premium payments to invest in business funds.

Superannuation Guarantee

The minimum percentage of an employee's earnings that employers must contribute to a fund, set to reach $12\%$ by July 2025.

Unit Trust

A fund where money is pooled from multiple investors and managed by a professional manager who invests it in various assets like property or shares.

Australian Securities Exchange (ASX)

A market operator that facilitates the primary market for new capital issues and the secondary market for trading pre-owned securities.

Australian Securities and Investments Commission (ASIC)

An independent federal body that ensures companies adhere to the law, reduces fraud, and protects consumers in financial markets.

Company Taxation

A flat-rate tax levied on profits of incorporated businesses, which was $30\%$ for all companies before being reduced to $27.5\%$ for those with turnover under $50 million.

Global Economic Outlook

The projected changes to world economic growth which impact demand for products and the interest rates on internationally borrowed funds.

Financial Risk

The possibility of financial loss to a business, including credit risk, market risk, liquidity risk, and operational risk.

Operating Budget

A plan relating to the main activities of a business, including sales, production, raw materials, direct labour, and cost of goods sold.

Project Budget

A plan relating to capital expenditure, research, and development, including the purpose and lifespan of major asset purchases.

Financial Budget

Predictions of operating and project budgets translated into standard financial statements like the income statement, balance sheet, and cash flow statement.

Financial Controls

Procedures and policies designed to monitor and control the allocation and usage of resources, particularly assets like accounts receivable and inventory.

Cash Flow Statement

A financial report showing the movement of cash in and out of a business, used to predict a firm's ability to pay debts as they fall due.

Income Statement

A summary of income earned and expenses incurred over a trading period, resulting in a calculation of gross and net profit.

Balance Sheet

A statement representing a business's assets, liabilities, and net worth (Owners Equity) at a particular point in time.

Normalised Earnings

Earnings adjusted to remove one-off or unusual items and take into account economic cycles to give a more accurate depiction of true profitability.

Capitalising Expenses

The accounting practice of recording a cost as an asset on the balance sheet because it has future economic value, rather than expensing it immediately.

Historical Cost

An accounting method where assets are listed on the balance sheet at the value at which they were originally purchased.

Intangible Assets

Items of value that do not physically exist, such as goodwill, trademarks, patents, and brand names, which are often difficult to value.

Gearing

A measure of solvency that shows the percentage of business assets funded by external sources; calculated as $\text{total liabilities} \div \text{total equity}$.

Working Capital

The funds available for the short-term financial commitments of a business, calculated as $\text{Current Assets} - \text{Current Liabilities}$.

Cost Centre

A department or assembly line within a business responsible for specific activities, used by management to track, budget, and control expenses.