Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Syndicated loan wikipedia , lookup
Private equity wikipedia , lookup
Household debt wikipedia , lookup
Private equity secondary market wikipedia , lookup
Systemic risk wikipedia , lookup
Global financial system wikipedia , lookup
Financial economics wikipedia , lookup
Investment management wikipedia , lookup
Financial literacy wikipedia , lookup
Financial crisis wikipedia , lookup
Systemically important financial institution wikipedia , lookup
Business Studies HSC Lectures Len Nixon – Finance © 1 Len Nixon – Finance © 2 What How Len Nixon – Finance © 3 The role of Financial Management – Plan and control to ensure there is sufficient finance to meet the financial needs of the business Profits and Losses Surplus or deficit generated from business activities Financial objective: Profitability Financing decision- INFLOW of FUNDS Vision Source of finance-Debt and or Equity Financial objective: Solvency Mission Statement Long term Goals The perimeter of the cycle is the flow of funds. These are funds to finance strategies such as marketing, HR and operations. Objectives Minimisation of costs and an indicator of how assets are contributing to generating revenue and profits OUTFLOW of funds Financial objective: Efficiency Len Nixon – Finance © Strategies Marketing, HR Operations OUTFLOW of funds Current assets and current liabilities Ability to pay short debts Financial objective: Liquidity 4 Role of financial management Objectives of financial management Interdependence with other key business functions Financial Objectives. Profitability___________________________________________________ Liquidity _____________________________________________________ Solvency _____________________________________________________ Profits Expense Accidents Disputation Decreasing Increasing Increasing Increasing Efficiency ____________________________________________________ Growth _____________________________________________________ 2016- HSC Sue is a sole trader whose business is growing rapidly as sales are increasing. As a result of the growth, she needs to purchase stock worth $10 000. Explain a potential conflict between a short-term and a long-term financial objective for Sue. Using the above information, Explain the interdependent relationship between finance and human resource management _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ Len Nixon – Finance © 5 Finance – Internal and external sources of funds and financial objectives HSC 2012 Section 4 Extended response How can different sources of funds help a business achieve its financial objectives? Answers could include: • Objectives of financial management • profitability, growth, efficiency, liquidity, solvency • short-term and long-term • • Sources of funds • internal sources of finance – retained profits • external sources of finance • debt – short-term borrowing (overdraft, commercial bills, factoring), long-term borrowing (mortgage, debentures, unsecured notes, leasing) • equity – ordinary shares (new issues, rights issues, placements, share purchase plans), private equity Issues in answering the question Directive term use- what does it mean? How means How to, how might, how would, how can and why are and why is? – explain – show cause and effect Processes Fin Statements Ratios Know the syllabus- Learn about – Roles + Influences + Processes • Make the link from influences and to the role. • But sources of funds will affect the financial statements such as Balance Sheet, Income sand cashflow statements and have implications for solvency and efficiency ratios Case study material – they require depth not just acknowledgement Len Nixon – Finance © 6 Answering the question 1. What type of finance is use? Sources of finance Internal - Equity External - Debt Debt Current Liabilities (external debt) Short Term means _______________________________________________________________ 1. Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Use ___________________________________________________________ 2. Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Use ___________________________________________________________ 3. Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Use ___________________________________________________________ 4. Type ___________________________________________________________ Cost ___________________________________________________________ Len Nixon – Finance © 7 Source _________________________________________________________ Use ___________________________________________________________ Long Term – (External) Non-Current Liabilities Long term means__________________________________________________ 1. Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Purpose ________________________________________________________________ 2. Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Purpose___________________________________________________________ 3. Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Purpose _________________________________________________________ 4 Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Purpose ________________________________________________________________ Len Nixon – Finance © 8 Financial Management consequences of using debt – effects upon RATIOS The use of short and long-term debt will affect: • Profitability - ______________________________________________ • Solvency ___________________________________________________ • Efficiency __________________________________________________ Important financial management principle The matching the terms and sources of finance to the purpose __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Equity – internal and external equity Internal Equity – relates to an unincorporated business structures such as _______________________________________________________________ Sources of funds __________________________________________________________ External Equity sources – relates to incorporated business entity such as Type ___________________________________________________________ Cost ___________________________________________________________ Source _________________________________________________________ Purpose ___________________________________________________________ 2014 HSC Emu Manufacturer Uniform You have been hired as a consultant to write a report to the management. In your report: • recommend a source of finance for the factory expansion Sales are increasing They need to expand. To do this they will have to outsource overseas OR expand their current factory site Len Nixon – Finance © 9 Recommend a source of finance for the factory expansion Suggestions? Advantages and disadvantages of using debt finance Advantages Disadvantages Advantages and disadvantages of using Equity finance Advantages Disadvantages Financial institutions – intermediaries operating in a range of finance markets Banks _______________________________________________________________ Investment Banks ____________________________________________________ Finance companies __________________________________________________ Australian Securities Exchange _________________________________________ Insurance companies’ __________________________________________________ Superannuation Funds_________________________________________________ Unit trusts__________________________________________________________ Len Nixon – Finance © 10 Len Nixon – Finance © 11 Len Nixon – Finance © 12 Government and Global market influences. . These external influences are out of the direct control of management but can affect a business in the following areas: • Growth • Liquidity • Solvency • Profitability • Efficiency Influence Effect on processes- ratios Effects on fin objectives ASIC – fraud and unfair practices Company Tax – is an expense Reserve Bank Australia – interest rates Global Outlook – Demand for G&S increases Availability of Funds- availability Global interest rates- comparative Len Nixon – Finance © 13 Processes of financial management Limitation of financial reports • • limitations of financial reports – normalised earnings, capitalising expenses, valuing assets, timing issues, debt repayments, notes to the financial statements ethical issues related to financial reports HSC 2013 Auditors have discovered that the value of legal fees paid has been included in the asset value of a new warehouse purchased by a business. What limitation of financial reports does this show? Why are ethical considerations play a role in the valuing of current assets such as • Accounts Receivable • Inventories (A) Capitalised expenses (B) Debt repayments (C) Normalised earnings (D) Timing issues What is Capitalising expenses means? Issues with debt payment Len Nixon – Finance © 14 Processes of financial Management Financial Ratios Ratio Formula Calculation Interpretation Direct Links Sales generated = Marketing Advertising = Marketing Cost of Goods Sold = Operations Franchise Fees = Operations Rent = Operations Wages = Human Resources Len Nixon – Finance © 15 Liquidity Current Assets Industry Average 0.75:1 Current Liabilities Gearing Total Debt Industry Average 1:1 Total Equity Profitability Gross Profit Industry Average Total Sales Gross Profit : 80% Net Profit Net Profit: 40% Total Sales Return on Owner’s Equity: 58% Net Profit Total Equity Efficiency Total Expenses Industry Average 40% Total Sales Importance of comparative ratio analysis- must be used in answering a question such as Evaluate the importance of financial management strategies in improving business performance. (HSC 2014) Len Nixon – Finance © 16 Financial strategies Report 2013 Kingland Office Supplies operates in a large NSW city in a highly competitive market. A paid manager is responsible for the day to day running of the business. The owners are concerned about the low profitability of the business. Investigations by the owners indicate the following problems: What is required? • customers find the product mix unappealing • poor management of cash flow • poor accounts receivable turnover compared to similar businesses. The manager has also identified low prices offered by larger competitors as a cause of the low profitability. Write a report recommending financial strategies to improve the performance of the business. providing reasons for financial strategies such as cash flow management, working capital and profitability management to address the issues identified in the hypothetical situation Len Nixon – Finance © 17 Financial Objective Ca lcula te d CA/CL Wor king capital manage ment Liquidity Problems and Solutions Liquidity ability to pa y short term de bts Types of short te rm de bt found in Us e of funds Current As sets Ba lance Sheet Current Liabilities Types Too much or Too little Storage Transport Insurance Costs Poor credit policies Cleric al problems High Ac ounts Re ceiv able Turnov er Age ac counts Problems Ca sh Solutions Financial management strategies Ca sh Budgets Ba nk Ov e rdraft Problems Stock / Inv entory Ac counts Re ceiv able Problems Solutions Solutions Problems with the current asse ts will have and effect on the business's cashflow cycle Len Nixon – Finance © J.I.T Stock ta kes Tw o Bin method. Fa ctoring Ca sh only Discounts Credit restrictions Sourc es Ba nks Fina nce Companies La rge Companies Ac counts Pa yable The use of all t hese type s of finance will be a cost or expense t o the business. Their use will decreas e profit s Credit Ca rd Ba nk Bill Financial Management Curr ent Ass ets = Current Liabilit ie 18 Len Nixon – Finance © 19 Financial manage men t iss ues related to Profitability Re v enue inflow Influenc ed by Sa les obj ectiv es Pric ing policy Sale s reve nue Outflow Cost control Profit Expenses De termined by Profit may increa se or de cre ase ow ing to s ales. This is the outc ome of good or poor mark eting de cisions Ca lcula tions Gross Profit Margin Ne t Profit Margin Re turn on Equity Marketing Issues and strate gies Good and poor manage ment c entres on the purc has e of stoc k Marketing resea rc h Ope ning Inv entory + Purchase s less e nding stoc k Market Segmentation Stra te gies and Solutions Fina ncial Ra tes of intere st (borrow ed funds) arising from Ba d Debts (A/C Re ceiv able More efficient manage ment of mark eting Employment relations and opera tions and Costs 4P strate gies Place Administration Huma n Re source s Outlays to ge nerate rev enue and profit Problems Ta rget Market Pric e Se lling Marketing Cost of goods s old Promotion Product Liquidity issues Too much Not enough Stock Solutions Storage Ordering Transport Ex pens es directly affe ct the EFFICIENCY of a Business Cost control Manage ment J. I. T Stock ta kes Tw o Bin Method Fixe d Costs Va riable Costs Cost ce ntre s These transactions a re to be found in a business's Profit and Loss Statement Known as a Statement of Financial Per formance Len Nixon – Finance © 20 Len Nixon – Finance © 21 Len Nixon – Finance © 22 2016 HSC What is required? • Syllabus knowledge • Processes + strategies • Verbs • Len Nixon – Finance © 23 Possible report question Objective Liquidity Efficiency Net Profitability Solvency 2016 2.1 45% 55% 100% 2017 1.1 65% 30% 250% What role do objectives play in the financial management of a business? Evaluate the financial positon of the business Recommend an appropriate set of profitability and liquidity strategies financial strategies Len Nixon – Finance © 24 Len Nixon – Finance © 25 Len Nixon – Finance © 26 Len Nixon – Finance © 27