((
Marketing))
((
HR))
((
Operations))
Finance
Finance, Finance, Finance.... the final Chapter.PS (This one took the longest as it's the most difficult)Finance is about:
- Managing cash flows (in and out)
- Managing finances in the long and short term
- Financial reporting
............................................................
Role of financial management
objectives of financial management
profitability, growth, efficiency, liquidity, solvency
short-term and long-term2017 Apple was declared the most profitable company in the world! 45.7B in profit! 2016 Apple had more than 50% of the shares of smart phone sales! Apple has a liquidity ratio of 1.28, which means that for every dollar in liability, they have $1.28 in profits.
interdependence with other key business functionsFinances are needed for marketing, operations and HR. Without finances, operations cant run, marketing campaigns cant run!
https://www.macworld.com/article/1138344/ericsson.htmlIn 2009, Sony Ericson cut 5000 jobs due to declining profits and finances. This is relevant as HR needs finance to fund the expansion of departments and operations! Operations cannot expand as it may increase their costs!
.
influences on financial management
internal sources of finance retained profitsAMAZON has returned 11 quarters of profits, after reinvesting nearly all profits from 2012 to 2015. The 2017 last quarter had $1.9 B in profit!
https://www.recode.net/2018/2/1/16961598/amazon-jeff-bezos-record-profit-11-quarter-q4-2017-earnings
external sources of finance debt short-term borrowing (overdraft, commercial bills, factoring), long-term borrowing (mortgage, debentures, unsecured notes, leasing)
Factoring >
https://cashflowfinance.com.au/invoice-factoring/Companies like CFF provide invoice factoring. The invoicee receives an up-front payment for the invoice, without having to invest resources into chasing up the debtor, a responsibility that is assumed by the invoice finance provider.
Debentures >
https://www.dealstreetasia.com/stories/ifc-mulls-15m-more-funding-in-aptus-97234/ IFC is offering to provide 15 million dollars for Aptus Value Housing Finance India Ltd. They will have a life of 7 years, be non-convertible.
https://www.businesswire.com/news/home/20180412006279/en/Atlanta-Gold-Convertible-Debenture-Payments-DueAtlanta Gold has $2.5M in debentures , the company is trying to delay the maturity date and change the interest date.
Unsecured notes (bonds)>
http://www.afr.com/business/transport/automobile/tesla-sells-us546-million-of-bonds-as-buyers-cant-get-enough-20180201-h0sa42TESLA sells bonds to investors for finance (546 Million)
https://www.japantimes.co.jp/news/2017/05/18/business/corporate-business/toyota-planning-%C2%A5100-billion-bond-issue-focus-rd/Toyota sells 900 million in bonds for R & D Finance.
Leasing >
https://www.tesla.com/en_AU/support/tesla-leasing?redirect=noTESLA leases out their vehicles to businesses. They pay for the running of it.
Many car dealerships lease out cars to people for money.
equity ordinary shares (new issues, rights issues, placements, share purchase plans), private equityNew issues >
http://www.afr.com/technology/atlassian-prices-ipo-sets-record-us44-valuation-20151209-gljvspAtlassian issued shares for the first time in the US. They raised $462 M dollars at 21 dollars per share.
https://www.reuters.com/article/us-godaddy-ipo-exclusive-idUSKBN0MR2S220150401GoDaddy IPO values company at $4.5 billion. They raised 440 million dollars at 20 dollars per share.
Rights issues/ Placements https://www.forbes.com/sites/jimcollins/2018/04/25/a-brief-history-of-tesla-19-billion-raised-and-9-billion-of-negative-cash-flow/#10ebe7763d65TESLA has been able to raise 19B dollars since its IPO. Some of it from equity raisings.
Private equity > E.g. Goldman Sachs, Blackstone Group
http://www.afr.com/technology/web/ecommerce/aussiefounded-bigcommerce-raises-84-million-ahead-of-us-ipo-20180424-h0z5m1Startups and new firms approach Goldman Sachs who have database of rich investors.
https://www.smh.com.au/business/companies/healthscope-receives-4-1b-takeover-offer-from-private-equity-groups-20180426-p4zbpa.htmlHealthscope was approached by a private equity consortium (2 or more firms that get together) for $4.1B
financial institutions banks, investment banks, finance companies, superannuation funds, life insurance companies, unit trusts and the Australian Securities Exchange[u[Banks[/u] > Self explanatory
IB > Many large companies like VTB seek the services of State Street (IB), Macquarie Bank and JP Morgan!
https://www.reuters.com/article/us-vivo-energy-ipo/vivo-energy-vitols-africa-venture-floats-with-2-billion-pound-valuation-idUSKBN1I50Q7JP Morgan was helping Vivo Energy to list on the London Exchange to raise 2 Billion pounds. They raised the funds and it was over subscribed (the level of interest was greater than the amount they needed)!
https://www.reuters.com/article/us-astonmartin-ipo/aston-martin-plans-to-appoint-three-banks-to-prepare-4-billion-pounds-float-source-idUSKCN1HD2R6JP Morgan is helping Aston Martin to list on the London stock exchange for 4 billion pounds!
Super funds > Super Funds like AustralianSuper and Industry Super invest in companies and direct funds there.
ASX > Companies can raise money on the ASX by listing
http://www.insightnews.com.au/Article3/1533/Ophthalmic-startup-targets-ASX-listing-to-generate-10-millionTeleMedC (start-up) is floating on the ASX to raise 10 M.
https://thewest.com.au/business/markets/nicheliving-gets-second-chance-at-asx-listing-ng-b88822530zNicheliving listing on the ASX. They are seeking 12M dollars.
influence of government Australian Securities and Investments Commission, company taxationASIC >>
http://www.abc.net.au/news/2018-04-27/asic-fronts-hayne-royal-commission/9702662ASIC dictates whats allowed in financial markets and products. AMP misled ASIC on 20 occasions about a practice of charging fees to customers who were no longer receiving financial advice. This is illegal according to the Corporations ACT!
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2018-releases/18-024mr-asic-commences-civil-penalty-proceedings-against-commonwealth-bank-of-australia-for-bbsw-conduct/ASIC started proceedings against COMMBANK for manipulating the BBSW (interest rate setter). COMMBANK traded bank bills to make it go up and down to improve its profits.
TAXATION >> In Australia, many companies were grilled over tax avoidance. Google and Facebook had to be TAXED onshore, which meant that revenue HAD to be recorded in Australia. Facebook booked revenue of $327 million, ten times the $33.5 million recorded in the the previous year.
https://theconversation.com/google-facebook-fall-into-line-on-tax-but-ebay-remains-defiant-76946
global market influences economic outlook, availability of funds, interest rates economic outlook >> During the GFC, the economic outlook was low and borrowing of funds for companies was difficult! Banks restricted the amount of money that companies could borrow (for internal leverage)
availability of funds >> As the stock exchange was doing good (as was the economy), it was easy for companies to get funds! Investor sentiment was at its highest (compared to the GFC)
https://www.cnbc.com/2017/03/23/investor-sentiment-jumped-to-highest-level-since-tech-bubble-in-first-quarter.html
.......................................................................
processes of financial management
planning and implementing financial needs, budgets, record systems, financial risks, financial controls https://www.ato.gov.au/general/other-languages/in-detail/information-in-other-languages/record-keeping-for-small-businesses/?page=2INCOME, expenses, Bank records MUST BE KEPT
debt and equity financing advantages and disadvantages of eachDebt:
http://fortune.com/2018/04/06/spacex-tesla-elon-musk-debt/Teslas DEBT is due (2.9B). They need to find a way to pay it back, one way or another .. or they will go broke.
TESLA does not need to pay back the billions they got during equity raisings.
monitoring and controlling cash flow statement, income statement, balance sheethttps://www.apple.com/newsroom/2018/05/apple-reports-second-quarter-results/Apple reported 61.1B in revenue and had over 15B in operating cash flow. Revenue comes from income statement and CF comes from cash flow. The core business of Apple generated 61.1 B after depreciation and taxes.
https://www.stocknewsgazette.com/2018/04/18/gopro-inc-gpro-raising-eyebrows-among-investors/Go Pro has 202.5 M in cash and 551.54M in liabilities. It has more liabilities than owners equity. It means that they are in a bad shape! They could go broke if they cannot pay their liabilities!
financial ratios liquidity current ratio (current assets χ current liabilities)
gearing debt to equity ratio (total liabilities χ total equity)
profitability gross profit ratio (gross profit χ sales); net profit ratio (net profit χ sales); return on equity ratio (net profit χ total equity)
efficiency expense ratio (total expenses χ sales), accounts receivable turnover ratio (sales χ accounts receivable)
comparative ratio analysis over different time periods, against standards, with similar businesses
Liquidity >>
https://simplywall.st/stocks/us/retail/nasdaq-nflx/netflix/news/is-netflix-inc-nasdaqnflx-a-financially-sound-company/ . Netflix has $5.47B liabilities and $7.67B meaning that they have a ratio of 1.41. They can comfortably pay off their short term debts.
Gearing >> Netflix has 3.37B of debt for 6.36B in equity. This means that it has a ratio of 53%. For every dollar of equity, there is 53c in debt, which means that it can pay back its debt in the long term.
Profitability >>
https://www.forbes.com/sites/danafeldman/2018/01/22/netflix-has-record-breaking-fourth-quarter-in-2017-exceeds-11b-in-revenue/#75cd622588eb . Netflix produced a profit of $227M
Comparative ratio analysis >>
http://www.wired.co.uk/article/netflix-2016-earnings-revenue-original-shows Netflix made a profit of 186.7M in 2016. They made 227M in 2017. This is an increase of 21.6% over the same quarter in the previous year!
ethical issues related to financial reportshttp://www.afr.com/business/legal/new-slater--gordon-investigation-unsurprising-given-long-history-of-accounting-problems-20161221-gtfu0zSlater & Gordon said that it had uncovered errors over three years relating to its cash flow calculation, that summed to tens of millions of dollars. They also wrote things off.. creative accounting!
http://www.afr.com/news/world/north-america/former-autonomy-exec-convicted-of-accounting-fraud-in-disastrous-10b-hp-merger-20180430-h0zgqqFormer Autonomy exec convicted of accounting fraud in disastrous $10b HP merger. He had spun his company's financials to create a false appearance of growth.
..............................................
financial management strategies
cash flow management
cash flow statements
distribution of payments, discounts for early payment, factoringCash flow statements > TALKED ABOUT IN
processes of financial management - monitoring and controlling. Basically look at the money coming in and out.. and then adjust / change things in the business.
Discounts for early payment > TALKED ABOUT IN
Working capital management.
Distribution of payments > Companies can spread out the cost of bills or debt over a few months. For example, NRMA allows customers to pay monthly or choose the entire bill.
working capital management
control of current assets cash, receivables, inventories >
CashTouched in other areas of finance! Can include leasing or selling assets for cash!
>
ReceivablesReceivables means that service is provided, but money is owed! Electricity, gas and phone companies sometime provide a discount for early payments!
https://www.originenergy.com.au/terms-and-conditions/origin-saver-and-conditions.html A pay-on-time discount on the usage charges if you:
pay the total amount due by the due date and don't have an overdue amount on your account
https://campaign.agl.com.au/landing/residential/jm/?state=QLD AGL: 28% off electricity usage charges when you pay on time
>
InventoriesZara uses Just in time for its inventories. This means less stockpiled products and more cash.
Toyota uses JIT and just orders materials when they need it (gets orders from customers). Less piled up stock and written off items.
control of current liabilities payables, loans, overdrafts>
Loans reduce or refinancehttps://www.smh.com.au/business/companies/whitehaven-coal-strikes-14b-refinancing-deal-20150312-141rbf.htmlWhitehaven Coal renegotiates the debt. Interest on the $1.4 billion debt facility will be about 100 points better than the 6 per cent on Whitehaven's previous loan.
https://www.ft.com/content/6fce65d2-48e3-11e8-8ee8-cae73aab7ccbTotal debt had fallen from $22.7BN to $14.9B.
strategies leasing, sale and lease backLEASING:
https://www.tesla.com/en_AU/support/tesla-leasing?redirect=noTesla Leases out their cars to companies to generate cash.
https://www.whistleout.com.au/MobilePhones/Guides/leasing-a-phone-on-telstra-how-does-it-work-is-it-a-good-dealTelstra leasing out phones. People can use phones for up to 2 years and then have the option to wait or buy it.
SALE:
https://www.goauto.com.au/news/toyota/toyota-puts-altona-machinery-up-for-sale/2017-05-10/56742.htmlToyota sells their manufacturing plants in AUs. It will recover some capital and result in a loss of 2600 jobs.
profitability management
cost controls fixed and variable, cost centresExpense Minimisation:
https://investor.gopro.com/press-releases/press-release-details/2018/GoPro-Announces-Fourth-Quarter-and-Full-Year-2017-Results/default.aspxGopro reduced operating expenses by 54% to $548M. They are aiming for $400M.
Costco: Negotiates in bulk and doesnt spend much on fancy stores. They just use a warehouse and have basic decorations!
Cost Controls:
https://www.investopedia.com/news/amazon-eyes-boxes-effort-cut-shipping-costs/Amazon is trying to reduce the amount of boxes used to cut costs!
revenue controls marketing objectivesCompanies like DJ, Myers and TopShop have discounts during non-Christmas seasons to even out sales and clear out stock.
global financial management
exchange rateshttps://www.ft.com/content/f21b3a92-f907-11e1-8d92-00144feabdc0BMW lost 2.4 BN in profits due to exchange rates changing. BMW did not want to pass on its exchange rate costs to consumers through price increases.
http://www.autonews.com/article/20170206/OEM01/170209886/toyota-operating-profit-declines-39-percent-on-foreign-exchange-hitExchange rates hit Toyotas profit and it dropped by 23%.
methods of international payment payment in advance, letter of credit, clean payment, bill of exchange
Derivatives > many companies that export use derivatives such as forward exchange contracts to protect them against FOREX changes. Particularly exporters!
Hedging >
https://oilprice.com/Energy/Energy-General/How-Oil-Hedging-Could-Cost-Companies-7-Billion.htmlCompanies lock in the price of oil at $65, just in case the price of oil falls!
Buyers can also lock in the price of things like coal and other inputs.
Methods of International payment >
letter of credit >
https://www.prnewswire.com/news-releases/vistra-energy-significantly-increases-merger-synergy-targets-announces-post-merger-financial-guidance-and-reports-first-quarter-results-300642645.html$18 million in available letter of credit capacity. Vistra still has 18 million dollars in funds that they can draw from, if they need extra capital.
clean payment > Self explanatory. Companies just pay only online for a good or service before they receive it.