Finance - Influences Flashcards
Sources of Finance
Internal
Business owners (owner’s equity) and the outcomes of business acitvity (retained profits)
* Owner’s Equity - funds contributed by owners
* Retained Profits - comulative amount of profit the business retained rather than distributing as dividends
no extra cost or interest in using internal sources
Sources of Finance
External
Funds provided by sources outside the business
* banks
* financial institutions
* government suppliers
Sources of Finance - External
Debt Finance
Finance provided form external sources through creditors or lenders
* Short-Term
* Long-Term
* Equity
Sources of Finance - External - Debt Finance
Short Term
F.O.C
Factoring - sells accounts receivables to a factoring firm
Overdraft - banks allows overdraws on accounts up to agreed limit over certain period of time
Commercial Bills - loans issued by financial institutions for larger amounts (+180,000) for 30 - 180 days
* receive immediately by repay w/ interest
Sources of Finance - External - Debt Finance
Long Term
M.U.L.D
Mortgage
* loan is secured on property of borrower
* repaid over long period w/ interest (30-40 yrs)
Unsecured Notes
* loan from investors for a set period of time
* interest rate = higher
Leasing
* payment of money for the use of equipment owned by another
Debentures
* issued by a company for a fixed rate of interest and fixed period of time
Sources of Finance - External
Equity
The finance raised by a company through inviting new owners into the business
* Ordinary Shares
* Private Equity
Sources of Finance - External - Equity
Ordinary Shares
New Issue
* company sells its shares for the 1st time + the money raised goes to the company
* AKA: primary shares, new offerings or initial pubic offering (IPO)
Rights Issue
* privilege granted to existing shareholders to buy more shares in the same company
* not mandatory for shareholder
Placements
* allotment of shares made directly from the company to investors
Share Purchase Plan
* An allotment of shares made directly from the company to investors
* Shares offered at a discount to special investors
Sources of Finance - External - Equity
Private Equity
Private Equity
* funds raised by a priv. company through selling partial ownership of the business
Public Equity
* funds raised by a pub. company by selling partial ownership of the business through the sale of shares to the public
Financial Institutions
S.U.L.F.A.B
- Superannutation Funds
- Unit Trusts
- Life Insurance Companies
- Finance Companies
- Australian Securities Exchange (ASX)
- Banks + Investment Banks
Financial Institutions
Superannutation Funds
Emmployer financially contributes to a fund for employees that provides benefits when retiring.
* 9.5% for pay over $450 a month before tax.
Financial Institutions
Unit Trusts
Take funds from large no. of small investors + pool them together to invest in specific financial assets.
Financial Institutions
Life Insurance Companies
NBIFs who provide cover + lump sums in the event of death.
Can provide equity + loans to corporate sector through receipts of insurance premiums
Financial Institutions
Finance Companies
Non-bank financial institutions that offer loans to businesses through debentures.
* smaller commercial loans
* short + mid term loans
* entitled to sell the business’s assets to recover the initial loan if the business becomes insolvent.
Financial Institutions
ASX
Where shares are traded.
* Main function = act as market operator + a clearing house + payments system facilitator.
* Primary Market for Trading»_space; deals w/ new issue of debt instruments by the borrower of funds
* Secondary Market for Trading»_space; deals w/ the purchase + sale of existing shares.
Influence of Government
Inluence of Government
Government’s Influence = economic policies like monetary + fiscal policy, legislation + gov. bodies who monitor + control the bus. environment.
* Australian Securities and Investment Commission
* Company Taxation
