Is the Business a Service, Manufacturing or Trading/retailing Business?
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Is the business a service, manufacturing or trading/retailing business? Explain your answer.
Billabong is a manufacturing business. A manufacturing business is a business that converts raw materials such as cloth into finished products such as clothes.
Identify and explain the types of short term and long term investments the company has? Explain each type of investment.
Bonds (long term) – bonds are a loan made to either a government or a corporate organisation – you “loan” your money for a set amount of time at a predominant interest rate (either a fixed rate or at a fixed level above a variable rate) and receive a steady income stream through regular interest payments. Bonds can be traded at prices that reflect prevailing interest rates. At the end of the term, you receive a payment equal to the bonds face value. Whilst bonds generally provide a more attractive return than cash, they do carry higher risk. The price of a bond rises as interest rates rises sufficiently; it is possible to obtain a negative investment return.
Shares (long term) – Shares represent ownership in a company. When you buy a share, you become a part owner in the company and become entitled to share in its future value and profits. One of the major advantages of dividends is that they can be very tax effective. If you invest in an Australian company that has already paid tax on its profits, tax credits may be attached to the dividends the company pays to you. These franking credits can be used to offset tax payable by you, on other income. In addition, shares held for more than 12 months qualify for a 50% discount on any capital gains tax payable. As shares are simply little parcels of companies, they have the potential to generate very high investment returns. However, they also have the potential to fall in value if the companys performance falters.
Property (long term) – Property is one asset class that most Australians are already very familiar with. Like shares, property prices fluctuate and have periods of sustained high returns and sustained low returns, so property is generally only suitable as a long-term investment.
Cash (short term) – Cash manager accounts are excellent short term investments if you want to access your money while still affording it a high level of security. The high interest that they offer make them a much better option when it comes to day to day savings than the conventional bank account option, because conventional bank accounts do not earn much interest if any. People use Online Cash Manager accounts for a number of different purposes. For example, they allow you to park your money while still allowing it to work for you. This is also the most ideal option if you are attempting to save up for something special, such as the purchase of a car or a holiday, or placing a deposit on a home.
Fixed term deposits (short term) – they are an excellent short term investment for any investor that wants to protect their capital without minding locking their money away for a short period of time where they cannot access it. These short term investments also mean lower returns in the longer term than other potential short term investment options
Market funds (short term) – allow you to invest in low risk government securities like T bills (Treasury bills) and commercial short term loans. Unlike most other banking investments like certificates of deposit, these money market funds do not receive federal insurance and they can change in price over time, though usually minimally at best
Identify and explain each short term and long term debt the company may have?
Secured bank loans (short term) – debt backed or secured by collateral to reduce the risk associated with lending. An example would be a mortgage, your house is considered collateral towards the debt. If you default on repayment, the bank seizes your house, sells it and uses the proceeds to pay back the debt.
Provision (short term) – a legal clause contained within a contract that requires or prevents either one or both parties to perform a particular requirement by some specified time. Specified requirements can include, but are not limited to, sunset, soft call, anti dilution, and anti greenmail provision.
Deferred payment (long term) – an annuity where the payments received will start sometime in the future, as opposed to starting when the annuity is initiated. An annuity is a financial contract that allows the buyer to make a limp sun payment, or a series of payments, in exchange for receiving future periodic disbursements. A deferred payment annuity allows the investment to grow both by contributions and interest before payments start coming back.
Identify and explain the types