Finance in a Business - Essay Example

Running Head: Fundamentals of Finance Name Institution Course Title Date of submission Introduction Fundamentals of finance is a category of the finance displine which has to be put in consideration by any investor or business personality, essentially finance plays an essential part making decisions concerning the current and future local and global market, the finances are directly used in product development, marketing and distribution which the entrepreneur needs to accomplish. All business have to make use of finance in order to achieve their goals and objectives of which the need might be in the short run or long run. Generally finance in a business can either be long term finance or short term, long term investments are made in the areas of fixed assets while short term provides the working capital of the business, the mount of capital and other aspects of investments such as age, character, level of education among others vary from one individual to another and therefore in regard to superannuation, potential investors can clearly be advised a bout their portfolio status. Question 1 Year to Dec Asset A Asset B Asset C Asset D Asset E ABC ACD EDC 1995 20.20% 26.50% 12.70% 22.80% 8.00% 19.96% 14.47% 11.90% 1996 14.60% 6.60% 14.50% 13.00% 7.60% 12.98% 14.25% 10.06% 1997 12.20% 41.70% 20.30% 12.20% 5.60% 19.72% 14.63% 9.86% 1998 11.60% 32.60% 17.90% 9.50% 5.10% 17.06% 13.07% 8.54% 1999 16.10% 17.50% -5.00% -1.20% 5.00% 12.16% 6.31% 1.76% 2000 4.40% 2.60% 19.70% 12.10% 6.10% 7.10% 10.53% 25.98% 2001 10% -9.40% 14.70% 5.40% 5.20% 7.24% 10.64% 7.14% 2002 -8.10% -26.90% 11.00% 8.80% 4.80% -8.04% 1.01% 6.84% 2003 15.90% 0.00% 8.80% 3.10% 4.90% 11.30% 11.21% 5.32% 2004 27.60% 10.80% 32.00% 7.00% 5.60% 25.12% 24.80% 11.16% 2005 21.10% 17.60% 12.50% 5.80% 5.70% 19.78% 15.46% 7.08% 2006 24.70% 12.30% 34.00% 3.20% 6.00% 24.08% 23.19% 11.04% 2007 18.00% -1.70% -8.90% 4.00% 6.40% 8.68% 7.13% 2.86% 2008 -40.40% -24.90% -55.30% 16.50% 6.70% -40.28% -33.49% -3.74% 2009 39.60% 0.30% 9.60% -2.00% 3.30% 25.74% 22.28% 3.50% E® 12.52% 7.48% 9.23% 8.01% 6.07% 10.83% 10.37% 7.95% Appendix question 1 Calculation of the portfolio in Australian asset A, B, C,D,E The working is as follows 1996 ABC = (0.6x14.60)+(0.2x6.60)+(0.2x14.50) ACD = (0.5x14.60)+(0.3 +14.50) + (0.2x13) EDC = (0.6x7.60) + (0.2x13.00) + (0.2x14.50) 1997 ABC = (0.6x12.20) +(0.2x 41.70) +(0.2x20.30) ACD = (0.5x7.60) + (0.3x20.30) +(0.2x12.20) EDC (0.6x 5.60) + (0.2x 12.20) + (0.2x20.30) 1998 ABC (0.6 x11.60) + (0.2 x 32.60) + (0.2 x17.90) ACD (0.5 x 11.60) + (0.3 x 17.90) + (0.2x9.50) EDC (0.6x5.10) + (0.2x 9.50) + (0.2x17.90) 1999 ABC (0.6x16.10) +(0.2x17.50) + (0.2x5.00) ACD (0.5x16.10) + (0.3x-5.0) + (0.2x-1.20) EDC (0.6x5.00) + (0.2x-1.20) +(0.2x-5.00) 2000 ABC (0.6x4.40) + (0.2x2.60) +(0.2x19.70) ACD (0.5x4.40) + (0.3x19.70) +(0.2x12.10) EDC (0.6x 6.10) +(0.2x12.10) + (0.2x19.70) 2001 ABC (0.6x10.3) + (0.2x-9.40) + (0.2x14.70) ACD (0.5x10.3) +(0.3x14.70) + (0.2x5.40) EDC (0.6x5.2) + (0.2x5.4) + (0.2x14.70) 2002 ABC (0.6x-8.10) + (0.2x-26.90) + (0.2x11) ACD (0.5x-8.10) + (0.3x11) + (0.2x8.80) EDC (0.6x4.8) + (0.2x8.8) + (0.2x11) 2003 ABC (0.6x15.90) +(0.2x0.0)+ (0.2x8.80) ACD (0.5x15.90) +(0.3x8.8) +(0.2x3.1) EDC (0.6x4.9) +(0.2x3.1) + (0.2x 8.8) 2004 ABC (0.6x27.60)+ (0.2x10.8) + (0.2x32.0) ACD (0.5X27.60) +(0.3X32) + (0.2X7.0) EDC (0.6X5.6)+(0.2X7.00) +(0.2X32) 2005 ABC (0.6X24.70) + (0.2X10.8) + (0.2X12.50) ACD (0.5X21.10) + (0.3X12.50) + (0.2X7.00) EDC (0.6X5.70) + (0.2X5.8) + (0.2X12.50) 2006 ABC (0.6X24.70)+(0.2X12.30)+(0.2X34.0) ACD (0.5X24.70) +(0.3X34) +(0.2X3.2) EDC (0.6X6.0) + (0.23.2) +(0.2X34) 2007 ABC (0.6X18)+(0.2-1.7)+(0.2X-8.9) ACD (0.5X18) + (0.3X-8.9) + (0.2X4.0) EDC (0.6X6.4) + (0.2X4) + (0.2X-8.9) 2008 ABC (0.6X-40.4)+(0.2X-24.9) +(0.2X-55.3) ACD (0.5X-40.4)+(0.3X-55.3)+(0.2X16.5) EDC (0.6X6.7)+(0.2X16.5) +(0.2X-55.3) 2009 ABC (0.6X39.6) +(0.2X0.3) +(0.2X9.6) ACD (0.5X39..6) +(0.3X-9.6) +(0.2X-2) EDC (0.6X3.30) +(0.2X9.6) +(0.2X9.6) QUESTION 1B Calculation returns Assets A: (20.2+14.6+12.2+11.6+16.1+4.4+10.3+-8.1+15.9+27.6+21.1+24.7+18+-40.4+39.6) /15 = 12.50% The risks = square root of 12.50 = 3.53% Returns in B (26.5+6.6+41.7+32.6+17.5+2.6+-9.4+-26.9+0.0+10.8+17.6+12.3+-1.7+-24.9+-0.3) /15 = 7.48% Risks in B square root 7.48% = 2.73% Return in C (12.7+14.5+20.3+17.9+-5.0+19.7+14.7+11.0+8.8+3.1+7.0+5.8+3.2+4.0+16.5+-2.0) /15 = 23% Risks 3.03% Returns from D (22.8+13.012.2+9.5+-1.2+12.1+5.4+8.8+3.1+7.0+5.8+3.2+4.00+16.5+-2.0) /15 =8.01% risks =2.83% Returns from E (8.0+7.6+5.6+5.1+5.0+6.1+5.2+4.8+4.9+5.6+5.7+6.0+6.4+6.7+3.3) /15 = 6.07%b risks= 2.46% Question 2 The superannuation funds in fundamentals of finance are termed as the funds which comply with the operational standards of SISA which is the body authorized to check the compliance of other businesses funds to these standards. The tax authorities in the country tax these funds continually and usually it is a policy by the state to carry out such taxation programs (Stevenson 23). In any country a cross the world, any company has to have a financial base in terms of funds; the companies whose funds comply with the SISA standards are taxed 15% while those funds that do no comply with those standards are taxed 30% more. The purpose of the superannuation funds in the economy is to ensure that the funds regulated by the authority or the states provide benefits to the fund owners or investors so that incase of their retirement and occurrence of death are given to the their beneficiaries or them themselves to support them at an old age (Stevenson 34). The superannuation funds are provided according to their current tariffs in the taxation authorities thus the taxes differ from one country to another since each country has its own taxation policy that reflects different interest rates to be used in calculation of the superannuation Question 3 The assets are important in determining the financial position of the organization, for instance the assets of the above Australian companies in the year 2004 (27.60%, 10.80, 32.00, 7.00, 5.60) are combined to show the best combination of assets which will lead to good investment decisions for the investors. The investors wishing to invest in the country in the next year which in this case is 2005 will compare between the combination ABC which gives 25.12% against ACD and EDC which have 24.80% and11.16% respectively asset combination. The net returns from assets can also be used to making short and long run investment decisions taking the assets in the table one for instance the returns from the asset A (12.52%) are more than the returns from other assets, thus in making an investment decision asset A will be preferred against the other assets. (20.2+14.6+12.2+11.6+16.1+4.4+10.3+-8.1+15.9+27.6+21.1+24.7+18+-40.4+39.6) /15 = 12.50% The risks = square root of 12.50 = 3.53% The risks in the asset A are also very few. The assets are able to give the real and direct financial reflection of any given organization. In any financial accounting the assets are economic resources that the company relies upon and in terms of business liquidation they are usually the last one to be disposed off (Beekman 92). The assets can either be tangible or intangible, the intangible ones are more of services while the tangible ones are commodities or physical goods; the assets in the company can in any time can be transferred to liquidity in any time. The assets are used in maintaining of the business financial position and stipulate the like hood of future business expansion or success; in some cases they reflect the reputation of the business, and hence potential investors can gauge whether the business is viable or not from just looking at the kind of assets the business has. The assets are also profit motivated and they directly or indirectly provide and keep cash flowing to the organization or the business. Question 4 The probability percentage which an investor can receive from an asset in his/her company is termed as expected return of an asset in a country and its variable from one country to another due to variation in the economic traits and even the existing global market conditions. Third world countries tend to have low expected returns on an assets as compared to developed country’s since at wearing out an asset they lack the third market to dispose it unlike in developed countries that have third world countries as their potential customer to their second hand assets (Martin 14). The expected return is calculated together with the normal return in the business from goods and services. In calculating the returns from an asset the mean probability of distribution of every outcome from the asset is usually based on in order to reflect the actual return of the asset, the risk are a standard deviation from the returns thus from the Australian company the returns are square rooted to achieve at the risks involved in trading such kind of business. Question 5 The chief objective of any kind of business is diversification. Diversification in business involves the enlarging of the areas in which the business undertakes its activities, the diversification in business takes places in various issues, it can be either in expansion of the current business unit by increasing the number of assets or workers or opening up another business unit in a different place, it can also take a form where by the business now engaged or start trading in other products apart from the current one (Lawson 3). Through diversification the entrepreneur ensures that the business has enough resources to cushion it from any form of risks that might be posing danger to the growth and development of the business. Diversification helps the companies to cushion themselves from any unforeseen and foreseen risk that in case of any emergence the company is already prepared on how to handle the situation. A company that uses many resources is in a position to achieve its goals as various combinations of assets can be used to record expected returns from the assets in the company, For example The Australian company uses the combination of assets ABC, ACD and ECD. This combination of asset is advantageous to the company as the company always expected to get at least a positive return from one of the assets combination, as it clear that that at least of the combination has to yield positive return to the organization. Question 6 The customer portfolio was devised in the mid 1960s. From the Australian company the section of customers will depend on the returns that are achieved from every portfolio. With customer types presented, in my capacity I will advise the young Deakin commerce graduate to undertake the second portfolio; this will enable him to keep track of his assets as he continues to search for jobs without undergoing a prospect loss due to multi-tasking. This will allow him to make a proper organization of the available resources and plan for his future goals and objectives that he is likely to achieve within the business time frame (Lawson 53). The young graduate, is also venturing in the industry with few needs or requirements so that his productivity will increase to high levels in the future and thus by so doing he will be able to enjoy his profits. The advice, which I will offer to the couple with three children, is that they should undertake the investment with the second portfolio. My advice that I am offering is based on the point that the second portfolio is achieving a greater percentage of returns from the assets invested as compared to the first portfolio. This is the only portfolio which will be able to cater for the needs of any investor who has grater needs of funds at hand in order to make ends meet. (Martin 74). The investor who needs to enjoy their profits in short time in order to address their frequent monetary needs as the couple should only resolve in undertaking such investment decision in such cases of conflict of interest. Most of the individuals that fall in this group are the most active in undertaking investment decisions. It’s within this age that every one is striving to make his/her future before the issue of age beats him/her or other indirect issues such as family stress, employment etc catch up with him. The individuals in this age gap are in a position to handle the pressures involved in the management of business institutions due to high level of enthusiasm depicted from the and the knowledge capacity that they acquired from various fields as part of their experience (Lawson 86). My advice to the older and older worker force will be to encourage them to undertake the third investment portfolio since it is not as complicated as the first two portfolios. This will be based to the fact that they are unable to undertake the more pressures involved in the management of business and organization, they are old and lack stamina to engage in business operations which require high level of innovation and invention especially in this times of drastic changes in technological approach and business management, it is true old management ideals are likely to failure in a number of business situation at them moment, most organization need new ideas to compete favorable in the current market of which the old cannot not meet (Hope 231). The aging groups are only going home to relax from the pressure they have undergone in their work situations. They only need to undertake business activities which are not so much engaging and that do not require close supervision. The old people also need something to make them busy, in most cases the older work force usually has made enough investments and thus there business is not mostly concerned with what it gets from the activities it is undertaking. Though in any business engagement the owner’s aim at achieving profits the motivation to profit defers from one generation to another, the returns required from any investment determines the level of personal engagement to the business, which the business owner will have in the investment (Lawson 109). To under take any business activity that requires investment of resources it is important to first to conduct a certain degree of research to the industry to determine which investments will make the maximum returns from the assets to be employed in the business. Question 7 In this case the best superannuation that I will consider for my own management in the above portfolio that will be the first portfolio this will be because I wish to settle down early and have all my investments making the best profits (Stevenson 123). This will also prepare me psychologically to be in a position to undertake greater challenges in the future and hence develop or assist me to have the capability of managing big investments and be able to plan for massive business ideas and plans both on the current business or future business which I think of investing in the future. The first portfolio requires an active investor whom I think I belong in that class and thus will be in position to associate with my mates and by so doing we shall share ideas in a more mutual way of which it is likely to boast my business management capability of which in the end will have a great influence on the level of success in my business investment. In conclusion, for the success of any business be there competition or no competition, the way in research regarding the business is undertaken determines the success of the business (Beekman 262). The research also ensures that the business or the investor will be able to get returns from the investment in which he putting his assets and hence it call upon the investors to carry out an appropriate research before investing in any kind of business. The research should based on the fundamental principles of business investment and it should be carried out exclusively in order to come up with the true picture of the market situation before any investment is done, factors such as the market, competition, security, accessibility etc should be well defined in order to enable the investor prospect occurrence of any risk within the business and at the same time evaluate whether the business he or she is interested in is viable in the areas of interest. ‘’Work cited’’ Allan Richards. Fundamentals of finance Volume McGraw Hill Paperbacks, Publisher McGraw-Hill, 1980 Edward Martin. Fundamentals of finance Certified Accountants general publications, publisher certified Accountants Educational Trust 1976 J. H. Kriek, E. Beekman. Fundamentals of finance: a practical guide to the world of finance, publisher LexisNexis, 2008 Jennifer R. Parry, Parry, Carolyn Wirth, Andrea Bennett. Fundamentals of Finance: Institutions and Markets, publisher Pearson Education New Zealand Limited, 2001 Thomas William Lawson. Frenzied finance, publisher The Ridgway-Thayer Company, 1906 Victor Hope. The Crime of Amalgamated, Publisher Cosimo, Inc, 2010 Read More