Explain the strategies that Santa and other businesses can use to control cash flow Cash flow is the measure of money flowing in and out of your business at any given time. In an Ideal business cycle, you will always have more cash flowing In than flowing out. The reality Is however, that most businesses have to produce or deliver goods/services to their customers while also paying their staff and suppliers before they get paid themselves.
The task of managing cash flow Is Increased In complexity as the number of transactions and amounts of money involved grows, also resulting n greater impacts for the business if it is not managed well. To effectively manage the businesses cash flow the business owner may introduce a cash flow management plan which is a strategic strategy that could keep the business running. This plan could list a series of steps in order to prevent the business reaching a cash crisis – meaning that they may not have the funds to pay all of their expenses such as wages.
These steps could include; staying on top of the businesses bills and paying them immediately, asking for extended credit terms with suppliers, order less stock but ore often to avoid stock wastage, chase debts promptly and firmly and finally review the profitability of the businesses selling prices. These small steps could be what prevents hardships for the business and keeps It successful. Santa and every other business could also develop a strategic cash flow management plan to avoid cash crisis. Santa could also introduce discounted tickets frequently to attract more customers more often and to compete with other airlines.
If Santa lowers the cost of their tickets, it would force the other airlines into lowering their prices or coming up tit a better deal to stop Santa from having the upper hand of the market place. Although lowering ticket prices means that Santa won’t make as much profit on that ticket as they usually would, it is likely that they will gain more customers with their low prices which would, In turn, make up for the cheaper flights. Another financial strategy Santa has used is introducing ‘Jet star’, their subsidiary airline.
Santa has gained a large profit from this airline domestically has It appeals to those who cannot necessarily afford to fly with the more expensive airlines. It has also gained Santa a impotently advantage over the other alertness as they have to lower their prices to compete with Jet star’s incredibly low prices. 2. Discuss the reasons why a business may act unethically and protect the financial interests of internal stakeholders. All businesses should act ethically for the wellbeing of people in either the internal (staff, stakeholders) or external (customers) business environment.
Ethics is defined as an individual’s personal beliefs about what constitutes right and wrong behavior. Although there is certain laws put in place to stop businesses from doing the wrong hinge, acting unethically may be things that are seen as morally wrong that the law doesn’t cover. The way a business acts, whether it is ethical or unethical will Influence employees, customers, suppliers and stakeholders. However, it is common for a business to act unethically In order to compete with other businesses In the market place and to appeal to customers so they gain more sales.
An example of this Is a company creating a scalar accreditation logo (such as the heart foundation tick) to state that the product is healthy and trustworthy to gain customers, however this is raciest are considered morally wrong and therefore unethical, but the Australian Consumer Law is in place to protect consumers from deceptive practices. An example of this is seen in the following case; ‘The Federal Court has fined TAP $2 million for using fine print to mislead customers about the minimum cost of its broadband service. The court declared the carrier falsely advertised an “unlimited DADOS” package for $29. 9 a month, when it actually cost consumers an additional $60 a month for line rental, plus an addition “upfront” charge of either $80 or $130 pending on their contract. The charge relates to an advertising campaign that ran on television, radio, its website, newspapers, magazines, coupon booklets, cinema screens and indoor and outdoor billboards between September 2010 and November 2011. It follows action by the consumer watchdog, who fined the company $13,200 in April for misleading advertising on its website for deals which falsely claimed “500 free Poi [voice-over-internet-protocol] minutes”. (Sydney Morning Herald – Georgia Wilkins, 20/6/12) 3. Explain the impact of a fluctuating exchange rate of the Australian dollar on Santa. The fluctuating exchange rate not only affects Santa, it affects all global businesses. If the Australian dollar is above parity, it advantages those in Australia, making overseas flights much more affordable. However it will disadvantage those overseas as flights will be more expensive. Santa is likely to gain sales from Australia but lose sales from overseas.
Although, if the Australian dollar is below parity it will advantage customers overseas as flights will be much cheaper going to Australia, but disadvantage customers in Australia wanting to fly overseas. The lactating exchange rate impacts Santa as customers overseas are more likely to buy airline tickets when the Australian dollar is lower as opposed to those in Australia intending to go overseas, it would be more likely for the customers buying tickets from Australia to purchase tickets when the Australian dollar is higher.
The exchange will not only impact Santa passengers but will impact Santa’ freight service and although Santa’ catering is mostly around Australia, they do deliver their goods to countries in the Indian Pacific, therefore the fluctuating exchange rate ill have an impact on all three sectors of the business, but more so on passengers and freight. 4. Discuss how recent global market influences have affected Santa. As Santa is a global business, and recently have made their subsidiary airline; Jet stars global also, the company faces many challenges in the global market like many other international businesses.
Two of the biggest global market influences on financial management are new sources of funds in Asia and new financial rules and regulations as a result of the financial crisis. The global financial crisis arose in July 007 with the credit crunch, when a loss of confidence by US investors in the value of sub-prime mortgages caused a liquidity crisis. This, in turn, resulted in the US Federal Bank injecting a large amount of capital into financial markets. By September 2008, the crisis had worsened as stock markets around the globe crashed and became highly volatile.
Consumer confidence hit rock bottom as everyone tightened businesses and households around the globe, Santa being one of many. As people were afraid of what the future held, financially, everyone acted cautiously and only ought necessities; most commonly flights were not considered one of these. This affected Santa as a business because they were losing all of their potential customers which meant very little revenue. Santa, like many other businesses around the world were facing great risks of declaring bankruptcy, and in fact many businesses didn’t survive the financial crisis and did go bankrupt.
However as the crises came to a halt, Santa bounced right back up again and gained a large profit, saving the business. Another great global influence that affected airlines more substantially was the 9. 1 terrorist attacks that happened in America in 2001. It had a huge negative impact on the airline industry with the immediate reactions to the attack and also the long term repercussions. Directly after the terrorist attacks on 9/1 1, the federal government closed airports, canceling thousands of flights at a direct cost to airlines.
However, even when the airports reopened, passengers were wary of air travel, and airlines experienced at least a 30 percent reduction in demand during the initial shock period immediately following the reopening. In addition, business travel accounts for one of the most profitable segments in the airline equines, and after the attacks, a significant number of businesses temporarily suspended non-essential travel for their employees. 5. Outline the objectives of financial management.
All businesses generally have the same objectives; for the business to be successful and gain a profit. However they aim to achieve many other things for the business including Liquidity – referring to the ratio of cash received and paid, Efficiency – the costs of producing the goods and services, solvency- meeting long term objectives, growth, maximizing the return on investment and finally short and long term goals. If the business achieves the objectives listed above, there business will be a successful one.
An example of this is the alliance between Santa and Emirate airlines. Together each business benefits each other, boosting their sales. 6. Discuss a benefit and a risk associated with the cost of debt. Debt is borrowing money from an outside source with the promise to return the principal, in addition to an agreed- upon level of interest. Although the term tends to have a negative connotation, start- up companies often turn to debt to finance their operations. In fact, even the lithest of corporate balance sheets will include some level of debt.
In finance, debt is also referred to as “leverage. ” The most popular source for debt financing is the bank, but debt can also be issued by a private company or even a friend or family member. Advantages: Maintain ownership: When you borrow from the bank or another lender, you are obligated to make the agreed-upon payments on time. But that is the end of your obligation to the lender. You can choose to run your business however you choose without outside interference. Tax deductions: This is a huge attraction for debt financing.
In most cases, the principal and interest payments on a business loan are classified as business expenses, and thus can be deducted from your business income taxes. It helps to think of the government as a “partner” in your business, with the government out of the equation, then it’s beneficial to your business. Disadvantages: Repayment: The business owner’s sole obligation to the lender is to make the payments. Unfortunately even if the business fails, they will still have to make these payments. And if they are forced into bankruptcy, the lenders will have claim to repayment before any equity investors.
Cash and collateral: Even if the business owner plans to use the loan to invest in an important asset, they will need to make sure the business will be generating sufficient cash flows by the time loan repayment starts. Also they will likely be asked to put up collateral on the loan in case they default on their payments. As it shows above, there are sufficient advantages and disadvantages to debt financing, it is a great way to start up a business but if the business doesn’t turn out successful and the owner is unable to pay back the loan it can cause a lot of problems and may even result in bankruptcy.
