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• Module overview
• 1. Introduction to budgets
  • 1.1 Introduction to the Budget Process
  • 1.2 Budget types
    • 1.2.1 The Budget Guidelines
    • 1.2.2 The Sales Budget
    • 1.2.3 Budget for Operating Expenses
    • 1.2.4 Profit Budget
    • 1.2.5 Cash-Flow Budget
    • 1.2.6 The Financial Position Budget
    • 1.2.7 Additional Types of Budgets
    • 1.2.8 Additional Budgeting Techniques
  • 1.3 The budget process and its objectives
  • 1.4 Budgets for performance management
    • 1.4.1 Master budget

• 2. Planning the budget

  • 2.1 Planning the Budget
    • 2.1.1 Business income
    • 2.1.2 Visual representation of sales and budgets
    • 2.1.3 The break-even point
    • 2.1.4 Contribution margin

• 3. Controlling the budget

  • 3.1 Controlling budgets
    • 3.1.1 Variance analysis
    • 3.1.2 Taking action to achieve the objectives of the budget
    • 3.1.3 Resource acquisition and usage

• 4. Introduction to Financial Management

  • 4.1 Business Objectives
    • 4.1.1 Maximising profit
    • 4.1.2 Maximising wealth
  • 4.2 Ethics and conflicts in business
    • 4.2.1 The dilemma of ethics in finance, investment and accounting
  • 4.3 Financial Managers
    • 4.3.1 Financial information and objectives
    • 4.3.2 Accounting, the financial information system
  • 4.4 The finance function
    • 4.4.1 Business and financial calculations

• 5. Elements of Business and Financial Management

  • 5.1 Business Structures
    • 5.1.1 Sole proprietors
    • 5.1.2 Partnerships
    • 5.1.3 Corporations and companies
  • 5.2 Reporting financial data and information
  • 5.3 Financial reports
    • 5.3.1 Statement of financial performance (profit and loss statement)
  • 5.4 Capital Markets
    • 5.4.1 Capital Markets
  • 5.5 Regulation and financial institutions
    • 5.5.1 Interest rates, supply and demand and market efficiency
  • 5.6 An overview of taxation implications

• 6. Obtaining Funds: Sources of Long Term and Short Term Finance

  • 6.1 Finance from external sources
    • 6.1.1 Equity finance
  • 6.2 Debt
  • 6.3 Long-term debt
    • 6.3.1 Debentures and unsecured notes (bonds)
    • 6.3.2 Mortgage loans
  • 6.4 Hybrids of debt and equity
  • 6.5 Leasing
    • 6.5.1 Operating Lease
    • 6.5.2 Financial Lease
    • 6.5.3 Distinguishing between an operating lease and a financial lease
    • 6.5.4 Sale and Leaseback
    • 6.5.5 The issue of gearing
  • 6.6 Short-term debt
    • 6.6.1 Bank Overdrafts
    • 6.6.2 Fully drawn advance
  • 6.7 Retained Earnings, internal funds and depreciation

• 7. Managing Working Capital

  • 7.1 Managing current assets and current liabilities
    • 7.1.1 Appropriate level of working capital
  • 7.2 Managing inventories
    • 7.2.1 Reasons for holding inventories
    • 7.2.2 The economic order quantity (EOQ)
    • 7.2.3 Re-order point (ROP)
    • 7.3.4 Safety stock (SS)
    • 7.2.5 Quantity discounts
  • 7.3 Managing trade debtors (accounts receivable)
    • 7.3.1 Credit policies
    • 7.3.2 Collection period
    • 7.3.3 Managing cash and near-cash assets
    • 7.3.4 Managing trade creditors (accounts payable)

• 8. Job Costing

  • 8.1 Accounting information about product, service and project costs
    • 8.1.1 Full costing
    • 8.1.2 Single product/service line
    • 8.1.3 Multi product/service
    • 8.1.4 Direct and indirect costs
  • 8.2 How costs behave
    • 8.2.1 Allocating Overheads
  • 8.4 Cost drivers
    • 8.4.1 ABC and the service industry
  • 8.5 Conclusion

6.3.1 Debentures and unsecured notes (bonds)

A debenture is a loan agreement where the borrower gives a written promise to pay the lender a principal amount at a specified time, and interest on the principal at a specified rate per period. Companies generally issue debentures in denominations of $100, which is called the nominal value, face value or principal. On maturity date the borrower must repay the nominal value to the debenture holder.

Debentures and unsecured notes have similar characteristics, except that a debenture holder is a secured creditor and the note holder is not. Unsecured notes are called bonds . The borrowing company must pay a specified amount of interest per year (quarterly or half-yearly) and repay the entire amount borrowed on maturity. The difference between the two liabilities is the security offered to the lender.

With unsecured notes investors expect a higher interest rate to compensate for additional risk (of non-payment on maturity). The interest rate may be around 1% higher than for secured debentures.

There are two types of debentures. Mortgage debentures are secured by a fixed charge over freehold property. This means that the lender(s) in effect 'own' the property until the debt is paid. If the loan is not repaid the debenture holders can have the property sold and receive the proceeds in settlement. So the borrowing company loses some control over particular assets.

Ordinary debentures are ones secured by a 'floating charge' (page 442 in textbook) over unpledged assets. The interest rate payable on debentures (the cost of borrowing) depends on the general level of interest rates at the time the debentures are issued, the security offered and the credit rating of the borrowing company.

Like shares, debentures can be privately placed with selected lenders or issued to the investing public by a public issue (debentures are also traded on the Stock Exchange) . Where a public issue is made a company must issue a prospectus , which is lodged with ASIC, and which is also attached to the application form to be used by people and organizations offering to lend money. As with a share prospectus, the document is a marketing aid and also gives information to potential investors about the debentures and about the financial 'health' of the issuing company.

Where a company borrows by making a public issue it must establish a trust deed and appoint a trustee to look after the interests of the debenture holders. Among other duties the trustee must make sure that the company:

• Does not breach the Trust Deed or take action which jeopardises the company's obligations to debenture holders
• Does not break any loan covenants (page 444 in textbook), such as not borrowing beyond a fixed debt ratio

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