business finance impact

terminology

profitability case study

overall- 340 bill

net profit- $97.29 billion

gross profit-$186.7 billion

reducing cost of capital

increasing revenue

liquidity case study

• cash reserves of 300 mill

• current ratio decreased

• 9.2 bill in available funds

growth case study

• 50 % market share in apple

• 60% domestic airline market share

• revuene increase

solvency case study

• debt to equity ratio

• increased profit- pay of long term debt quicker.

AOF

positive

• international funding as interest rates are lower

• lending conditions are more favourable

• access to global markets- issuing bonds- attracting foreign investors - FO OF GROWT

  negative

• must consider exchange rate fluctuations, economic instability

Asic

• monitors misleading conduct enforcing Australia regulatory laws

• promotes transparency and accountability in financial management

• following law- good reputation- more sales- more profit

• penalise businesses that fail to adhere to the law

cash flow management

• reduce financial dependency on loans

• support faster decision making

• to much protection on short term stability will harm long term profitability (increase of costs) and supplier trust

working capital management

• improves businesses cash position and flexibility

• helps business stay technologically current and in line with customer expectations

• leasing is a long term debt finance- and recorded as liability on business balance sheet, increase gearing( debt: equity) and financial instability

profitability management

• maintain strong profit margin, even in tough economic conditions

• invest in innovation, staff and customer service

• decrease in costs leads to dissatisfaction within customers

company taxiation

• ensures Qantas operates ethically, and within the bounds of Australian law

• influences how mangers finance in Australia

DFEP

• improves accounts receivable turnover ratio

• improved cash flow- more funds to re-invest

• businesses receive less money/ offer discounts

unsecured notes

• improves liquidity

ASX

• allowing business to access capital from wider investor base

• they set rules for disclosure, cooperate guidance

investment bank

• related to growth/ issuing bonds to new shareholders

super fund

• drives ethical and sustainable FM practices

• contributing to capital avalible for growth and expansion

unit trust

• access to diversified investor capital

• influence market valuation & FS

banks

• influence cash flow management and short and long term financing

F & I companies

• provide alternate source of funding, for business with less access to traditional bank finances

commercial bills

affect liquidity and short term financing

MOIP

used to overcome failure to pay

short term borrowing

used to fund temporary shortages in cash flow and finance working capital (1-2 years)

leasing

• improves liquidity

• tax deductible- save on profits

• leasing is a long term finance - increase the gearing of a business, increasing overall financial risk.

mortgage

• if repayment is unsuccessful, assets can be repossed and resold by bank

exchange rate

• can fluctuate over time- creating risk for business

• a&d impacts price of imports and exports

external sources of finance

• increase funds and earnings for business- increases profit

• having to rely on external source to fund business instead of financial managers

DOP

• improves liquidity- now have enough funds to repay debt- and meet short term commitments in timely manner

• creates stable and predictable financial base

• can only be used to control cash flow up until a certain point, business must also use other strategy’s

rights issue

not an obligation

overdraft

• allow business to overdraw to meet short term liquidity problems (seasonal decrease in sales)

• high financial risk if business cant generate enough cash flow to repay debt

long term borrowing

used to fund equipment and property (5+)

retained profit

• can accumulate interest on profits and re-invest

• cheapest and most accessible source of finance

• unhappy shareholders- as they are allocated less dividends, as business keeps them to re-ivest

debentures

helps long term profitabilty

factoring

• provides instant working capital - liquidity

• loss of money as discounts are given - profitability

Fixed and varible costs

• cheaper raw materials/ eos - save costs- improve profit

• increase of profit with minimal costs- competitive advantage

• lower cost materials- lower quality product - customer dissatisfaction

expense minimisation

• automating tasks

• reducing energy usage

• switching suppliers

• impacts quality

• only improves net profit

sale and leaseback

• tax deductible

• value of assets is no longer on business balance sheet

• improves liquidity - funds from assets are now readily available capital

private equity

investments to help business raise funds to finance future expansion

SPP

• encourage participation

• maintain equity

interest rates

• cheaper to borrow globally- save money- profitability

• increase of global competition- rising interest rates- increase in debt servicing cost- use other stat to stay competitive

placements

• help raise capital quickly

• faster and less of a burden in comparison to other equity finances

GFM

• uncontrollable risks

• greater than those domestically

GMI

• part of external business environment- can only control to a certain point

• globalisation- creates more interdependence between companies and finance sector which dictates expansion- growth

revenue control

improves growth

cost control

improves profitability

derivatives

• used to lessen the risk associated with currency fluctuations

ordinary shares

gain voting rights in proportion to shares you own

cost centres

• identify business areas of weakness - enabling decision making and informed budgeting

• increased expenses of the centres- reduce profit

• only improves gross profit

marketing objectives

• increase market share- increasing and decreasing prices

• increasing product awareness- more appealing to shareholders

• more short term/ in comparison to long term