Business Studies - Finance

...

External Equity

Ordinary Shares

- Mostly common traded in Australia, purchase of shares means that you are part owners of a publically listed company (and receives dividends)

- Value of share is determined by a company’s current or future performance.

- New Issue: security that has been issued and sold for the first time on a public market. Also known as primary shares or new offerings.

- Rights Issue: privilege granted to shareholders to buy new shares in the same company.

- Placemats: allotment of shares, debentures, etc. made directly from the company to investors.

- Share Purchase Plan: offer to existing shareholders to purchase more shares without brokerage fees or discounted price.

Private Equity

- Money invested in a private company (not listed on the ASX).

- Aim is to raise capital to finance future expansion/investment of the business

- Financial Institutions

Financial Institutions

Source of Funds

Significance

Bank

- Receive deposits from individuals, businesses and government and makes investments and loans it to borrowers

- Most important source of finance for businesses

- Wide range of roles

- Supervised by Reserve Bank of Australia

- Cautious since GFC

Investment Banks

- Deposits from the business

- Fastest growing sector in Australian financial system

- Trades money, securities and financial futures

- Long term finance

- Project fiannce

- Foreign exchange cover

- Mergers and take overs

- E.g. Macquarie, UBS

Finance Companies

- Capital through share issues.

- Debentures are for a fixed term and carry a fixed rate of interest

- Major provider of lease finance to businesses

- Specialise in factoring or cash flow financing

Insurance Company

- Receipts of insurance premiums

- Large amounts of both equity and loan capital to businesses

- Funds received in premiums (reserves) then invested in assets

- E.g. Medibank

Superannuation Funds

- Superannuation contributions

- Grown rapidly due to tax incentives and compulsory contributions

- Long term securities (shares, gov. and company debt) due to long term nature of funds

- E.g. MLC, First State Super

Unit Trusts

- Take funds from a large amount of small investments

- Niche-specialist

- Short term one market, shares, mortgages and property and public securities

- Increase in gold, silver, oil and gas investments

Australian Securities Exchange

- Primary stock exchange group in Australia

- Market Operator

- Cleaning house and payment systems facilitator

- Promotes standards of corporate governance among Australia’s listed companies

- Biggest stock traded include BHP Billiton, CBA, Telstra, Rio Tinto and NAB

- Influences of government

Australian Securities and Investment Commission (ASIC)

- Independent statutory commission

- Enforces and administers the Corporation Act and protects consumers in areas of investments, life and general insurance, superannuation and banking within Australia

- Aims to reduce fraud and unfair practices in financial markets and financial products.

Company Taxation

- Tax that Australian companies and corporations pay on the profits- levied at 30%

- Drives long-term economic growth → more jobs and higher wages

- Businesses may lead country to avoid this taxation

- Global Market Influences

Globalisation

- Interdependence between economies and their business/financial sector which relies on trade for expansion and profit

Economic Outlook

- Projected changes to the level of economic growth throughout the world

- An improving or positive global outlook will increase demand and decrease interest rates

- A worsening or negative global outlook will decrease demand and increase interest rates

Availability of Funds

- The ease of which a business can access funds on the international financial market

- High interest rates reflect high risk when lending, therefore availability of funds would decrease during this time

Interest Rates

- Cost