Financial resources are those resources that have monetary value
Financial management is the planning and monitoring of an organizations financial resources to enable the organization to achieve its financial goals
Assets are the property and other items of the business both tangible and intangible.
Objectives of financial management:
Liquidity - ability to pay short-term debts.
Profitability - maximizing profits
Efficiency - ability to maximize profits with minimal resources
Growth - increase size in the longer term
Return on Owners Equity - percentage of profit compared with total invested.
The Planning Cycle
Address current financial position
Determine financial elements of business plan
Develop budgets
Monitor cash flow
Interpret financial reports
Maintain record system
Planning financial controls
Minimizing financial risk and losses
Major participants in financial markets
Banks
Finance/insurance companies
Merchant banks
RBA
Super funds
Mutual funds
Public/private companies
ASX
Sources of funds
Internal sources
- Owners equity
- Retained profits
Advantages
- Low gearing
- Less risk
Disadvantages
Lower profits and return on OE
External sources
o Short-term
ç Overdraft
ç Bridging finance
ç Bank bills
o Long-term
ç Bonds
ç Mortgage
ç Term loans
ç Leasing
ç Factoring
ç Trade credit
ç Venture capital
Advantages
Increased funds
Tax deduction on interest repayments
Disadvantages
Increased risk
Security required
Regular repayments
Lenders have first claim on money if they go bankrupt
Leverage measures the relationship between debt and equity
The accounting framework
Raw Data
Processed Data
Accounting Data
Analysis of report
Financial Statements
ç Revenue statement - shows revenue earned and expenses incurred over the accounting period.
ç Balance Sheet - shows the businesses assets and liabilities at a point in time.
Financial Ratios
Liquidity
Current Ratio = Current assets
(working k) Current liabilities
2:1 safe position
Solvency
Debt to equity = Total liabilities
Owner's Equity
Profitability
Gross Profit = gross profit...