Finance for Business

Introduction to Finance for Business

Financial institutions are defined as the firms or the companies that acts as intermediate between capital or debt markets and the consumers providing various banking and investment services (Kidwell et al. 2016). The main activities of these institutions are concerned with various monetary and financial transactions like loans, deposits, currency translations and investments. They are responsible for transferring adequate amount of funds in the market from the investors to the companies and other customers that requires funds for their growth and survival. The major forms of financial institutions comprises of investment banks, commercial banks, asset management funds, brokerage firms and insurance companies. The main purpose of the assignment is to compare four fey financial institutions, namely commercial banks, insurance companies, investment banks and investment funds in Australia on the basis of main activities, major source of income, code on ASX, date of first listed stock on ASX, etc. and to analyze three financial management questions concerned with capital budgeting, capital structure and working capital management. After this, the advantages and problems faced by the company while being listing on ASX are to be analyzed. The facts related to the registration of financial advisers in Australia is also to be determined and at last project is to be evaluated on the basis of different scenarios asked in part 3 of the assignment followed by the conclusion.

Part 1 - Research and Fact Finding of Australian Financial Market

Comparison of four key financial institutions – Commercial banks, Insurance companies, Investment bank and Investment fund

Commercial bank – National Australia Bank is among the big 4 major commercial banks in Australia. It is categorized in the group of Authorized Deposit taking Institutions (APRA 2020). National Australia Bank operates in the banking market sector. The main activities of the company are concerned with depositing the funds of the public and provide loans to the people or business firms to fulfill their requirements. The main source of the income is the difference in the amount of interest provided on deposits and the interest charged on funds provided as loans. The code of listed National Australia Bank stock on Australia Stock Exchange is NAB. The fist stock was listed on 1/10/1982. The total number of outstanding shares is 12411914 and market capitalization is $61.42 billion. Mr. Philip Chronican is the Chairman and Mr. Ross McEwan is the Chief Executive Officer as well the Managing Director of the company (Annual report 2019). The next date for making dividend payment is 3/07/2020.

Insurance companies – AUB Group Limited is an insurance company which is involved in providing financial services to the customers and business enterprises. The company offers insurance broking, equity based risk management, risk solutions, specialist underwriting agencies to the clients. The income is received in the form of commission, interest and profits received on offering solutions and investment to the customers. The code of listed stock of AUB Group Limited on Australia Stock Exchange is AUB. The first stock of the company was listed on ASX in 2005. The market capitalization of the company is $974.41 million and the total number of outstanding shares is 180397 (ASX Limited 2020). Mr. David Clarke is the Chairman and Mr. M.P.C. Emmett is the CEO of the company (Annual Report 2019). The next date for making payment of dividend is 04/09/2020.

Investment bank – Antipodes Global Investment Company Limited is an investment company listed on ASX. The main business activities of the company are concerned with providing income and capital growth by undertaking investment in a profitable portfolio. Income is received in the form of dividends and distributions from the companies and trusts. APL is the code of listed stock of the company on Australia Stock Exchange. The fist stock of the company is listed on 18/10/2016 on ASX (Antipodes 2020). Total number of outstanding shares of the company is 469130 and market capitalization is $500.28 million (ASX Limited 2020). Mr. Jonathan Trollip is the Chairman and Mr. Andrew Findlay is the Chief Executive Officer of the company (Annual report 2019). The next date for making dividend payment is 27/03/2020.

The data with regard to dividends is only provided for three years – 2018, 2019, 2020.

Investment funds – Acorn Capital Investment Fund Limited is investment Fund Company categorized in financial institutions. The main activities of the company are concerned with investing in wide range of economic sectors and generate income in the form of returns from those investments. ACQ is the code of listed stock of the company on ASX and its first stock was listed in 2014. The number of outstanding shares is 120074 and market cap is $48.29 million (ASX Limited 2020). Mr. Robert Routley is the CEO and Mr. John Steven is the Chairman of the company (Annual Report 2019). The next date for making dividend payment is 04/05/2020.

1.2 Analysis of Three Financial Management Questions

Capital budgeting – National Australian Bank has raised A$3.5 billion capital to boost its balance sheet (Niesche 2020).

This is an example of capital budgeting decision as funds are raised to undertake long term capital growth of the company. Therefore, it will be regarded as long term investment decision.

Capital structure – Macquarie Bank Limited has notified about its intention to raise $400 million by offering BCN2 at an issue price of $100 per BCN2 (Team Kalkine 2020).

This is an example of capital structure decision in financial management as the company is making decision with regard to raising its capital amount by issuing securities in the market. This will definitely affect the capital structure of the company.

Working capital management – Macquarie Group which is an investment bank in Australia is surrendering its office space which is in Hong Kong in One IFC in order to cut down its expenditure (Liu 2020).

This is an example of working capital management decision in financial management as the firm is planning to save costs to carry out its day to day operations in an effective and efficient manner.

Part 2 - Fact Finding of Australian Financial Market Regulation

2.1 Fact Finding of The Listing on ASX

1. Advantages of being a listed company on ASX

When a company is listed on ASX, it receives various advantages. Adequate listing on ASX helps the company in raising large amount of capital required for modernization and expansion of business operations. It promotes the profile of the company with the industry, media and analysts at large that helps the company in accomplishing great demand for its shares. Listing helps the company in developing independent valuation based on available information by the market. Moreover, it helps in attracting large institutional investment because the trading liquidity and transparency increases by listing on ASX (ASX 2020). This provides the option to the company to offer remuneration to the employees in the form of shares and thus aligns the employees’ interest with the organizational interest. Therefore, it raises credibility and access to the required amount of capital. This raises the operational efficiency of the business operations by fulfilling all the major requirements regarding reporting and disclosures.

2. Problems that need to be taken into consideration for being listed on ASX

While listing on ASX, the companies might face some problems that are required to be taken into consideration. The share price of the company can get easily affected by the market conditions that are beyond its control (ASX 2020). Listing on ASX requires the companies to follow greater degree of corporate governance and disclosure. This will lead to more time and investment expenditure by the management. Adequate management is required to control the news posted on different media channels. Fees and various charges are to be paid by the company to issue IPO, raising of additional capital and maintaining adequate listing on ASX. When large numbers of shares are sold, the company loses ownership control over the company and responsibilities of directors’ increases.

3. Requirements for listing on ASX

A company has to satisfy the general requirements to be listed on ASX. The company must have 300 minimum numbers of shareholders @ A $2000 and free float rate of 20% in order to be listed on ASX. Size of company can be determined by conducting profit test or asset test. According to profit test, it must earn A$1 million aggregate profit from continuing its operation for past 3 years in addition to A $ 500000 profit over past 1 year (ASX Limited 2020). According to asset test, the company must have A$15 million market capitalization or A$4 million net tangible assets.

4. Steps of listing procedures on ASX (ASX Limited 2020)

Step 1: Appointing advisers

Step 2: Preparatory work

Step 3: Commencement of institutional marketing

Step 4: Lodge prospectus with ASIC

Step 5: Processing of listing application by ASX

Step 6: Marketing and offer period

Step 7: Closing the offer

5. Applying of listing fee

The company is required to make payment of an initial listing fee and annual fee on pro-rata basis for the remaining financial year at the time of being listing on ASX. After this, annual fee are applied on the company (ASX Limited 2020). Calculation of fees is done on the basis of securities’ value and fee is also applicable in case, the company has raised additional amount of capital with the help of IPO.

National Australia Bank Limited listing fees calculation using listing fees calculator

There are total three types of equity listing fees, namely, initial fee, annual fee and subsequent fee payable.

Number of shares = 12411914, Value per security = $18.920 (ASX Limited 2020)

Total value = $234833412.88

Initial fee payable = $222084 (ASX Limited 2020)

Annual fee payable = $51653

Subsequent fee payable = $141598

2.2 Fact Finding of The Requirements on Financial Advisory Service Registration in Australia

  1. The Financial Advisers Register is managed effectively by ASIC and is published on the website of MoneySmart (ASIC 2020). This Register acts a public record and provides relevant details about the financial advisers that are eligible to provide financial advice regarding the financial products to the customers. It helps the customers in checking the authorization of the financial adviser to offer financial advice and in assessing the information about the particular financial adviser before fetching any advice from him/her. Moreover, this register improves the ability of the customers to check out the experience, qualifications and employment history of financial advisers and upgrades the capability of ASIC to determine and evaluate Australia’s financial advisers.
  2. The financial advisers who are authorized by ASIC are listed on the Financial Advisers Register. Financial adviser is defined as an individual who is considered as an authorized employee or representative of director of AFS licensee or as a licensee of Australian financial services having the authority to provide financial advice regarding relevant financial products to the customers. The individuals who do not meet the suitable criteria or who are not covered under the definition of financial advisers are not listed on the financial advisers register (ASIC 2020). For example: the individuals who give personal advice or general advice and other form of advice on irrelevant financial products such as general insurance, consumer credit and other basic banking products are not listed on the register.

It is the responsibility of AFS licensees’ to update and add information on the financial advisers register and this register is managed by ASIC (ASIC 2020). AFS Licensees are charged with penalty if they do not fulfill their obligations of updating information in this register.

  1. The financial advisers register contains all the details with regard to authorized financial advisers (ASIC 2020). Work history, experience, name, qualifications, training related information regarding the financial advisers and the relevant financial products are all provided in the register.
  2. All financial products are considered as relevant financial products except consumer credit insurance, general insurance products, basic banking products or any combination of these products. Relevant financial products includes derivatives, deposit and payment products, foreign exchange contracts, government debentures, stocks and bonds, managed investment schemes, retirement savings account products, superannuation, securities, merging lending facilities, carbon credits, miscellaneous financial facilities, etc. (ASIC 2020).
  3. Various new reforms have been raised in Corporations Act 2001 in 2017 by the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 in order to enhance ethical standards, training and education of financial advisers (ASIC 2020). Financial advisers are required to have proper qualification as approved in the professional standards and must have cleared the FASEA exam. They have to comply with the Advisers Code of Ethics and Financial Planners and do participate in 40 hours of CPD every year to improve and maintain their knowledge and skills.

Part 3 - Risk Analysis and Project Evaluation

Particulars

Values

 

0

1

2

3

4

Initial investment

2000000

       

Working capital

600000

       

Sales

 

350000

350000

350000

350000

Price per unit

 

22

22

22

22

Total Revenue

 

7700000

7700000

7700000

7700000

Total variable cost

 

3850000

3850000

3850000

3850000

Total fixed cost

 

350000

350000

350000

350000

Depreciation

 

450000

450000

450000

450000

EBIT

 

3050000

3050000

3050000

3050000

Tax at 30%

 

915000

915000

915000

915000

Profit after tax

 

2135000

2135000

2135000

2135000

Add: Depreciation

 

450000

450000

450000

450000

Total cashflows

 

2585000

2585000

2585000

2585000

Working capital released

       

600000

Salvage value

       

200000

Net cashflows

 

2585000

2585000

2585000

3385000

Present value at 10%

       

8740513

NPV

       

6140513

Case 1: Unit sales decrease by 10%

Case: Unit sales decreases by 10%

Particulars

Value

 

0

1

2

3

4

Initial investment

2000000

       

Working capital

600000

       

Sales

 

315000

315000

315000

315000

Price per unit

 

22

22

22

22

Total Revenue

 

6930000

6930000

6930000

6930000

Total variable cost

 

3465000

3465000

3465000

3465000

Total fixed cost

 

350000

350000

350000

350000

Depreciation

 

450000

450000

450000

450000

EBIT

 

2665000

2665000

2665000

2665000

Tax at 30%

 

799500

799500

799500

799500

Profit after tax

 

1865500

1865500

1865500

1865500

Add: Depreciation

 

450000

450000

450000

450000

Total cashflows

 

2315500

2315500

2315500

2315500

Working capital released

       

600000

Salvage value

       

200000

Net cashflows

 

2315500

2315500

2315500

3115500

Present value at 10%

       

7886234

NPV

       

5286234

Case 2: Price per unit decreases by 10%

Case: Price per unit decreases by 10%

Particulars

Value

 

0

1

2

3

4

Initial investment

2000000

       

Working capital

600000

       

Sales

 

350000

350000

350000

350000

Price per unit

 

19.8

19.8

19.8

19.8

Total Revenue

 

6930000

6930000

6930000

6930000

Total variable cost

 

3850000

3850000

3850000

3850000

Total fixed cost

 

350000

350000

350000

350000

Depreciation

 

450000

450000

450000

450000

EBIT

 

2280000

2280000

2280000

2280000

Tax at 30%

 

684000

684000

684000

684000

Profit after tax

 

1596000

1596000

1596000

1596000

Add: Depreciation

 

450000

450000

450000

450000

Total cashflows

 

2046000

2046000

2046000

2046000

Working capital released

       

600000

Salvage value

       

200000

Net cashflows

 

2046000

2046000

2046000

2846000

Present value at 10%

       

7031955

NPV

       

4431955

Case 3: Variable cost per unit increases by 10%

Case: Variable cost per unit increases 10%

Particulars

Value

 

0

1

2

3

4

Initial investment

2000000

       

Working capital

600000

       

Sales

 

350000

350000

350000

350000

Price per unit

 

22

22

22

22

Total Revenue

 

7700000

7700000

7700000

7700000

Total variable cost

 

3465000

3465000

3465000

3465000

Total fixed cost

 

350000

350000

350000

350000

Depreciation

 

450000

450000

450000

450000

EBIT

 

3435000

3435000

3435000

3435000

Tax at 30%

 

1030500

1030500

1030500

1030500

Profit after tax

 

2404500

2404500

2404500

2404500

Add: Depreciation

 

450000

450000

450000

450000

Total cashflows

 

2854500

2854500

2854500

2854500

Working capital released

       

600000

Salvage value

       

200000

Net cashflows

 

2854500

2854500

2854500

3654500

Present value at 10%

       

9594792

NPV

       

6994792

Case 4: Cash fixed cost per year increases by 10%

Case: Cash fixed cost per year increases by 10%

Particulars

Value

 

0

1

2

3

4

Initial investment

2000000

       

Working capital

600000

       

Sales

 

350000

350000

350000

350000

Price per unit

 

22

22

22

22

Total Revenue

 

7700000

7700000

7700000

7700000

Total variable cost

 

3850000

3850000

3850000

3850000

Total fixed cost

 

385000

385000

385000

385000

Depreciation

 

450000

450000

450000

450000

EBIT

 

3015000

3015000

3015000

3015000

Tax at 30%

 

904500

904500

904500

904500

Profit after tax

 

2110500

2110500

2110500

2110500

Add: Depreciation

 

450000

450000

450000

450000

Total cashflows

 

2560500

2560500

2560500

2560500

Working capital released

       

600000

Salvage value

       

200000

Net cashflows

 

2560500

2560500

2560500

3360500

Present value at 10%

       

8662851

NPV

       

6062851

Conclusion on Finance for Business

It can be concluded that different financial institutions provide different types of services and derives income differently. Listing on ASX requires the companies to follow greater degree of corporate governance and disclosure. This will lead to more time and investment expenditure by the management. The company must have 300 minimum numbers of shareholders @ A $2000 and free float rate of 20% in order to be listed on ASX. The company is required to make payment of an initial listing fee and annual fee on pro-rata basis for the remaining financial year at the time of being listing on ASX. All financial products are considered as relevant financial products except consumer credit insurance, general insurance products, basic banking products or any combination of these products. Financial advisers are required to have proper qualification as approved in the professional standards and must have cleared the FASEA exam. Different NPV arrives in different scenarios while evaluating the project.

References for Finance for Business

Annual Report. 2019. Antipodes Global Investment Company. [Online]. Available at: https://www.asx.com.au/asxpdf/20191004/pdf/4496sjspffssjq.pdf [Accessed on: 5 June 2020].

Annual Report. 2019. Arcon Capital Investment Fund Limited. [Online]. Available at: https://www.asx.com.au/asxpdf/20190826/pdf/447vv44y9k5wmw.pdf [Accessed on: 3 June 2020].

Annual report. 2019. AUB Group Limited. [Online]. Available at: https://www.asx.com.au/asxpdf/20190919/pdf/448nw35bp9brmz.pdf [Accessed on: 4 June 2020].

Annual report. 2019. National Australia Bank Limited. [Online]. Available at: https://www.asx.com.au/asxpdf/20191115/pdf/44blst5ckhxqf8.pdf [Accessed on: 4 June 2020].

Antipodes. 2020. Antipodes Global Investment Company (ASX: APL). [Online]. Available at: https://antipodespartners.com/apl/ [Accessed on: 4 June 2020].

APRA. 2020. List of authorized deposit-taking institutions covered under the Financial Claims Scheme. [Online]. Available at: https://www.apra.gov.au/list-of-authorised-deposit-taking-institutions-covered-under-financial-claims-scheme [Accessed on: 3 June 2020].

ASIC. 2020. Financial Advisers Register. [Online] Available at: https://asic.gov.au/for-finance-professionals/afs-licensees/financial-advisers-register/ [Accessed on: 2 June 2020].

ASIC. 2020. Information on the Financial Advisers Register. [Online]. Available at: https://asic.gov.au/for-finance-professionals/afs-licensees/financial-advisers-register/information-on-the-financial-advisers-register/#relevant [Accessed on: 2 June 2020].

ASIC. 2020. Professional standards for financial advisers. [Online]. Available at: https://asic.gov.au/for-finance-professionals/afs-licensees/professional-standards-for-financial-advisers/ [Accessed on: 2 June 2020].

ASX Limited. 2020. ACQ. [Online]. Available at: https://www.asx.com.au/asx/share-price-research/company/ACQ [Accessed on: 3 June 2020].

ASX Limited. 2020. APL. [Online]. Available at: https://www.asx.com.au/asx/share-price-research/company/APL [Accessed on: 5 June 2020].

ASX Limited. 2020. AUB. [Online]. Available at: https://www.asx.com.au/asx/share-price-research/company/AUB [Accessed on: 4 June 2020].

ASX Limited. 2020. Is listing for you? [Online]. Available at: https://www.asx.com.au/listings/listing-with-asx/is-listing-for-you.htm [Accessed on: 3 June 2020].

ASX Limited. 2020. Listing fee calculator. [Online]. Available at: https://www.asx.com.au/prices/cost-listing.htm [Accessed on: 3 June 2020].

ASX Limited. 2020. Listing fees. [Online]. Available at: https://www.asx.com.au/listings/listing-with-asx/listing-fees.htm [Accessed on: 3 June 2020].

ASX Limited. 2020. Listing process. [Online]. Available at: https://www.asx.com.au/listings/listing-with-asx/listing-process.htm [Accessed on: 3 June 2020].

ASX Limited. 2020. Listing requirements. [Online]. Available at: https://www.asx.com.au/listings/listing-with-asx/listing-requirements.htm [Accessed on: 3 June 2020].

Kidwell, D.S., Blackwell, D.W., Sias, R.W. and Whidbee, D.A., 2016. Financial institutions, markets, and money. John Wiley & Sons.

Liu, P. 2020. Australian investment bank Macquarie surrenders office space in One IFC, one of Hong Kong’s most prestigious addresses. [Online]. Available at: https://www.scmp.com/business/companies/article/3087438/australias-macquarie-surrenders-office-space-one-ifc-one-hong [Accessed on: 5 June 2020].

Niesche, C. 2020. Capital Markets Lawyers Busy as Companies Rush to Raise Funds. [Online]. Available at: https://www.law.com/international-edition/2020/05/10/australian-capital-markets-lawyers-busy-as-companies-rush-to-raise-funds/?slreturn=20200505031542 [Accessed on: 5 June 2020].

Team Kalkine. 2020. Capital Raising in the Wake of COVID-19; Lens on ELO, MQG, IPL, KTD. [Online]. Available at: https://kalkinemedia.com/au/covid-19/capital-raising-in-the-wake-of-covid-19-lens-on-elo-mqg-ipl-ktd [Accessed on: 5 June 2020].

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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