Business: Finance and Financial Management Essay

Submitted By louisaaa5
Words: 649
Pages: 3

Influences on Financial Management: 1. Internal Sources of Finance:
Owners Equity is the funds contributed by owners/partners to establish and build the business.
Retained Profits is where not all the earnings/profits are distributed, but are kept in the business as an accessible and cheap source of finance.

2. External Sources of Finace:
External finance is the funds provided outside the business, eg: banks, other financial institutions, government, suppliers or financial intermediaries.
Debt: Short-term borrowing is provided by financial institutions through bank overdrafts, commercial bills and bank loans. Short term borrowing generally refers to those funds that will be repaid within 1-2 years.

Bank overdrafts is where the bank allows a business to overdraw on their account to an agreed limit and for a specific time.
Commercial bills are a type of bill of exchange (loan) issued by intuitions other than banks.
Factoring is the selling of accounts receivable for a discounted price to a finance or factoring company.

Debt: Long-term borrowing relates to the funds borrowed for periods longer than 2 years. Long term borrowing refers to mortgages and debentures.

Mortgage is a loan secured by the property of the borrower.
Debentures are issued by a company for a fixed rate of interest and for a fixed period of time.
Unsecured note is a loan for a set period of time but is not backed by an collateral or assets.
Leasing is a long-term source of borrowing for businesses. It involves the payment of money for the use of equipment that is owned by another party.

Equity refers to the finance raised by a company by issuing shares.

Ordinary shares are the most commonly traded shares in Australia. The purchase of ordinary shares by individuals means they have become part owners of a publicly listed company. They following terms refer to the variations in the type of issue or ordinary shares; * NEW ISSUE; a security that has been issued and sold for the first time on a public market. * RIGHTS ISSUE; the priviledge issued to shareholders to buy new shares in the same company. * PLACEMENTS; allotlmets of shares, debentures and so on made directly frim the company to investors.
Private equity is the money invested in a company not listed on the ASX.

3. Financial Institutions:
Banks are the major operations in financial markets and are the most important funds for a business.
Investment banks are one of the fastest growing sectors of the financial markets and provide specialised advice and services for business financial needs.
Finance and life insurance companies are non-bank financial institutions and act