Business Studies Easy Memorisation
ROLE OF FINANCIAL MANAGEMENT
strategic role of financial management — using financial decisions to help the business achieve its long term goals
e.g. a business deciding to invest profits back into buying new equipment to grow production capacity
objectives of financial management — the goals a business aims to achieve through managing its finances
profitability — ensuring the business earns more money than it spends
e.g. a café increasing its profit by reducing ingredient costs while keeping menu prices the same
growth — increasing the size and value of the business over time
e.g. a small clothing brand reinvesting profits to open new stores across Australia
efficiency — using resources as productively as possible to minimize time and costs
e.g. a manufacturer reducing the time it takes to produce each unit by reorganising its production line
liquidity — having enough cash available to pay short term debts and expenses
e.g. a business making sure it has enough cash in the bank to pay this week's wages and supplier bills
solvency — having enough assets to pay all debts including long term ones
e.g. a business ensuring its total assets are greater than its total liabilities so it doesn't go bankrupt
short term and long term objectives
short term — financial goals focused on immediate needs usually within one year
e.g. a business aiming to improve its cash flow this month by chasing unpaid invoices
long term — financial goals focused on future growth and sustainability over many years
e.g. a business planning to double its revenue over the next 5 years through expansion
interdependence with other key business functions — financial management works together with marketing, operations and HR to achieve business goals
e.g. marketing needs a budget from finance to run campaigns, operations needs finance to buy equipment, HR needs finance to pay wages
without finance none of the other functions can operate effectively
INFLUENCES ON FINANCIAL MANAGEMENT
internal sources of finance — money raised from within the business itself
retained profits — profits the business keeps and reinvests instead of paying out to owners
e.g. a café using last year's profits to buy a new coffee machine instead of taking out a loan
external sources of finance — money raised from outside the business
DEBT
short term borrowing — money borrowed that must be repaid within one year
overdraft — when a business spends more than it has in its bank account, the bank covers the difference
e.g. a small business using an overdraft to pay staff wages while waiting for customer payments to come in
commercial bills — a short term loan issued by a bank that the business agrees to repay with interest on a set date
e.g. a business borrowing $50,000 for 90 days to cover a temporary cash shortage
factoring — selling your unpaid invoices to a third party at a discount to get cash immediately
e.g. a business owed $10,000 by customers sells those invoices to a factoring company for $9,000 to get cash now
long term borrowing — money borrowed that is repaid over many years
mortgage — a long term loan secured against property
e.g. a business borrowing money from a bank to buy a warehouse, using the warehouse as security
debentures — a long term loan issued to the public that pays regular interest
e.g. a large company borrowing money from investors and promising to pay them 5% interest per year
unsecured notes — similar to debentures but not backed by any assets, higher risk for lenders
e.g. a company borrowing money from investors without offering any assets as security
leasing — paying to use an asset over time without owning it
e.g. a business leasing a delivery truck for 3 years instead of buying it outright
EQUITY
ordinary shares — new issues — selling new shares to the public to raise money
e.g. a company listing on the stock exchange for the first time to raise $1 million
rights issues — offering existing shareholders the right to buy additional shares at a discounted price
e.g. a company offering its current shareholders the chance to buy extra shares at $8 when the market price is $10
placements — selling shares directly to selected investors rather than the general public
e.g. a company selling shares directly to a superannuation fund to raise capital quickly
share purchase plans — allowing existing shareholders to buy a set number of new shares at a fixed price
e.g. a company offering shareholders the chance to buy up to $15,000 worth of new shares at a set price
private equity — investment from private individuals or firms who are not listed on a stock exchange
e.g. a wealthy investor buying a 30% stake in a small tech startup to help it grow
FINANCIAL INSTITUTIONS
banks — provide everyday financial services like loans, savings accounts and overdrafts
e.g. Commonwealth Bank lending a business money to expand
investment banks — help businesses raise large amounts of capital and manage complex financial transactions
e.g. helping a company list on the stock exchange or arrange a merger
finance companies — provide loans and credit to businesses and consumers
e.g. a business getting a car fleet on finance through a finance company
superannuation funds — manage retirement savings and invest large amounts of money into businesses
e.g. a super fund investing billions into Australian infrastructure projects
life insurance companies — collect premiums and invest the money into financial markets
e.g. an insurance company investing policyholder funds into shares and bonds
unit trusts — pool money from many investors to invest in a diversified portfolio
e.g. an investor buying units in a managed fund that invests across multiple industries
Australian Securities Exchange (ASX) — the marketplace where shares in Australian companies are bought and sold
e.g. a business listing on the ASX to allow the public to buy and sell its shares
INFLUENCE OF GOVERNMENT
Australian Securities and Investments Commission (ASIC) — the government body that regulates companies and financial markets to ensure fairness and transparency
e.g. ASIC investigating a company for misleading investors about its financial performance
company taxation — businesses must pay tax on their profits to the government
e.g. an Australian company paying 30% corporate tax on its annual profits
GLOBAL MARKET INFLUENCES
economic outlook — the expected state of the economy affects business confidence and spending
e.g. during a recession businesses reduce investment because they expect lower consumer spending
availability of funds — how easy or difficult it is to access money in financial markets
e.g. during a financial crisis banks tighten lending making it harder for businesses to borrow
interest rates — the cost of borrowing money, set by the Reserve Bank of Australia
e.g. when interest rates rise a business's loan repayments increase, reducing its profits which may lead to cutbacks in investment or operational expenses.