Apple_Inc_&_Microsoft

Outline the factors that contribute to a business’s financial position. Explain how using financial information can help a business with its financial management Financial position is the state of and the relationships among the various financial data found on a firm's balance sheet. Factors which contribute to a business’s financial position include sources of funds, financial considerations, and comparison of debt and equity financing. Sources of funds are used to operate a business. Without sources of funds a business will not be able to operate as costs will not be able to be paid for. It can be divided into two main categories known as internal and external funds. Internal funds are those which from within the business. It may be capital contributions by the owners, known as owner’s equity and it may also come from successful operations of the business also known as retained profits. An example of profits being retained can be seen through Apple Inc. Whereby its retained earnings growth percent increases due to the growth which is accompanied by subsequent increases in sales and profitability. Apple’s retained profit shows that by March 1st its retained profit was at 11.38% and by December 9th of the same year its retained profit shot up to 54.36%. These statistics show that the business did it’s research in order to sell its product otherwise the retained profits would not have been so large especially in a short amount of time. This would no doubt help the business’s financial position as it is money that can easily be converted to cash if ever the business gets into debts it can not handle. External funds come from outside the business and are used to fund when there are insufficient retained profits. There are two types of external borrowing methods, short and long term borrowing. Short term borrowing is used by a business experiencing temporary liquidity problems and/or a business looking to invest in projects where the sum invested will be returned in less than 6 months. Examples of short term borrowing include overdrafts and bank bills. Long term borrowing allows a business to finance projects that are likely to last longer than a year. It also allows long-term debt to be repaid over time in regular installments, in which the business makes interest payments & repayments on the principal. As well as that is also commits to be confident that the regular returns from the project will be greater than the servicing payments on the debt. Examples of long term borrowing include mortgage and debentures. Financial considerations means matching the terms and source of finance to business purpose and structure. Examples of this can be seen through topics such as level of economic activity, solving problems, tax benefits, duration of required funds, meeting debt requirements and obtaining finance. The level of economic activity falls under this category and relates to any debt being open to interest risk. Changes to interest rates affect the level of investment and confidence in the economy. Economic conditions will affect the income of a business, its cash flows & its ability to meet debt repayments. To prepare for this easily affective condition, businesses must carefully and realistically plan for expected downturns without relying on continual growth from the income of a business as it may not occur. Factors which contribute to a business’ financial position are used after being interpreted into data. It is grouped together and used as financial information to help upon a business’ financial management. Financial information includes accounting framework, financial ratios, comparative ratio analysis and financial reports as well as its limitations. Management of effective working capital is also useful as its information, the working capital ratio, controls of current assets and liabilities as well as strategies to manage the working capital are used to attend to the overall financial position of the business. Comparative ratio analysis allows for financial ratios to be compared and assessed for the position and performance of a business against certain standards. There are three areas in which the financial ratios can be used for comparison. They are analysis between different time periods, analysis between different businesses and analysis between common standards. An example of comparative ratio can be seen within Qantas and its profitability ratios. Qantas uses analysis between different time periods. It shows that Qantas’ net profit ratio which measures the proportion of each dollar of sales that contributes to net profit decreased from 6.2% in 2008 to less than 1% in 2009. Another example include analysis between different businesses. This is where market research takes place. An example of this happening is through Qantas, whereby enormous loads of data in the secondary form were collected. This was all completed to help the business take a step forward to finding its financial position or bettering its financial condition through the main areas of target market, as well as the levels and sources of competition. It also analyses part of future trends which may count towards analysis between time periods though of competing businesses. How is a business able to respond to issues. Before using strategic plans to better its competitive advantages, areas of issues must be found. This is where accounting framework comes in. This is the set of rules & assumptions that govern the process of recording and transforming raw data into reports that satisfy the needs of all stakeholders. By completing so a business takes a step forward in working towards its financial position, which can then be defined, simplified and used for future/present reference. The accounting framework includes financial statements such as the revenue statement and balance sheet. These statements give images of where the business is at and its progress. Tools used in order to manipulate statistics into desired data include the use of the planning cycle. The planning cycle contributes to the businesses financial position as it appoints areas within the business that should be changed or maintained in order to obtain a successful financial condition. The planning cycle includes four steps, known as addressing the present financial position, determining the financial elements of the business plan, maintaining record systems and interpretation. To reach for a better financial position a business much use such things as budgets, cash flows, financial reports, and financial controls, risks and losses. By identifying and controlling these tools it is easier for a business to know what and where they are looking at. Revenue statements can be seen through Qantas. Such information that comes from it includes total sales and operating revenues in 2009 at $14552 million, total expenditure in 2009 at $14349 million and net profit in 2009 at $123 million. This information is all used to manipulate a business’ present data into the more desirable future data. Overall financial information can help a business with its financial management as the information acts as a guide which can then be responded to by managers. This can be seen through such examples of Qantas and Apple Inc where by they create reports and statements which are looked at then responded to by making changes in areas where problems or open/furthered decisions can be seen. Once responded to the managers react to this information by implementing strategies which can resultantly better the financial position of a business.