Year 10 Accounting: Financial Management


Image: Bullish Tech Stocks | CNA Finance (Retrieved 13 Feb, 2017)

Short term investments

Cash management trusts: a managed investment where the funds of individual unit holders are pooled
‚Äč(Source: Australian Investors Association)

Money market: where financial instruments with high liquidity and very short maturities are traded
(Source: Investopedia)

Term deposits: money is invested for a fixed term and you get a fixed rate of interest over that term.
(Source: ASIC's MoneySmart)

Long term investments

Shares: are units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends.
(Sources: Investopedia, ASIC's MoneySmart)

Debentures: a medium-term investment issued by a company where investors lend them money in exchange for a regular and fixed interest amount for the term of the investment.

Unsecured notes: a type of fixed interest investment issued by a company whereby it promises to pay regular interest payments and return the capital at the end of the investment term.
(Source: ASIC's MoneySmart)

Trusts: a type of closed-end collective investment fund built as a public limited company.
(Source: Investopedia)

Term deposits: (see above in short-term investments)

Debt vs equity financing

Debt finance: money provided by an external lender, such as a bank, building society or credit union.

Equity finance: money sourced internally by the business.


Types of Financial institutions and Roles

The main types of financial institutions in Australia include: Authorised Deposit-taking Institutions (ADIs), Non-ADI Financial Institutions and Insurers and Funds Managers

Source: Main Types of Financial Institutes | Reserve Bank of Australia (Retrieved 16 Feb 2017)

Short and long-term sources of finance available to Public Companies

Short-term sources of external finance:

  • Overdrafts 
  • Trade credits
  • Factoring

Long-term sources of external finance:

  • Owners (savings for sole traders and partners, share capital for companies by shareholders)
  • Loans
  • Debentures (loans made to a company)
  • Mortgage (for property)
  • Hire purchase or leasing (for equipment)
  • Grants

BBC - GCSE Bitesize: Sources of finance


Consequences of over and under capitalisation

Capitalisation: when the costs to acquire an asset are expensed over the life of that asset rather than in the period it was incurred.(Source: Investopedia)

Overcapitalisation: when a company has issued more debt and equity than its assets are worth. An overcapitalized company might be paying more than it needs to in interest and dividends.
(Source: Investopedia)

Undercapitalisation: when a company does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow or is unable to access forms of financing such as debt or equity.
(Source: Investopedia)