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~- # (ENGAGE
·- UNIVERSITY AUSTRALIA 2nd edition
Chapter 1
3
Chapter 1: The Scope of Corporate Finance
4
WHAT COMPANIES DO
APPLE'S I-POPPING RESULTS
In Ju ly 2014, Apple announced financial results for components of the iPhone 6 and other Apple
its fiscal 2014 third quarter ended 28 June 2014. The devices are made in different countries, financial
company posted quarterly revenue of $37.4 billion managers in Apple's US-based treasury department
and quarterly net profit of $7.7 billion, or $1.28 per developed a plan to manage the risks that Apple
d iluted share. In the same quarter a year earlier, Apple would confront when making transactions in foreign
registered revenue of $35.3 billion and net profit of currencies. In this chapter, we explain how financial
$6.9 billion. Gross margin for the 2014 quarter was specialists interact with experts in fields as diverse as
39.4%, compared to 36.<t<>,,{, in the year-ago quarter. engineering, marketing, communications and law to
International sales accounted for 59% of the quarter's help companies create wealth for their shareholders.
revenue. Stories in the popular press tend to focus on We describe the types of activities that occupy
the success of Apple's products. However, financial financial managers day to day, and highlight some of
managers behind the scenes at Apple p lay a number t he most promising career opportunities for students
of crucial roles in driving the success of the business. who major in finance. The work that financial analysts
For example, before the iPhone 6's launch in 2014, do is intellectually challenging as well as economically
financial experts at Apple evaluated the potential rewarding. We hope our overview of t he field piques
market for such a device - an upgrade t o the iPhone your interest and inspires you to learn more.
5 - estimated the cost of producing it, and calculated Source: 'Apple reports third quarter results'. https://www.apple.com/
t he unit volume that t he company would have to au/pr/Iibrary/2014/07/22Apple-Reports-Third-Quarter-Results.html.
Accessed 9 December 2015.
achieve to earn a satisfactory rate of ret urn. Because ,,
I
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Bring your learning to life w ith interactive learning, study, and exam preparation tools t hat support the printed
textbook. CourseMate includes an integrated eBook, videos and quizzes, flashcards and more.
5
LEARNING OBJECTIVES
After studying this chapter, you will be able to:
LOl.1 appreciate how finance interacts with LOl.3 assess the costs and benefits of the
other functional areas of any business principal forms of business organisation
and see the diverse career opportunities and explain why limited liability companies,
available to finance majors with publicly traded shares, dominate
LOl.2 describe how companies obtain funding economic life in most countries
from financial intermediaries and markets, LOl.4 define agency costs and explain
and d iscuss the five basic functions that how shareholders mon itor and encourage
financial managers perform corporate managers to maximise
shareholder wealth.
1-1 THE ROLE OF CORPORATE FINANCE

IN BUSINESS
Apple's recent history illustrates the positive results of good management in a highly competitive, technology-
driven industry. It also reflects favourably on the vital role that financial managers play in creating wealth.
Business involves people with many different skills and backgrounds working together toward common goals.
Financial experts play a major role in achieving these goals and in creating value for the firm's shareholders. firm
This book focuses on the practising financial manager, who is a key player in the management team of A term generally used by
economists to refer to a
a modem company. Throughout this text we highlight one simple question that managers should ask when non-governmental entity that
contemplating all business decisions: Does this action create value for the shareholders? By taking actions employs tangible or intangible
that generate benefits in excess of costs, firms generate wealth for their investors. Managers seeking to generate resources as inputs to create
outputs, representing a form
wealth for their investors should take only those actions in which the benefits exceed the costs.
of production function. In
The skills and knowledge needed to achieve corporate business objectives are the same as those economics, a firm is often
needed to be a successful entrepreneur, to manage family businesses or to run a non-profit organisation. assumed to have a goal
of maximising profits. In
Successful financial managers must be able to creatively manage both people and money. Although
Australia, a firm is usually
the financial world was shaken by the recession that began in 2007 and continues to have impacts called a company
around the world, companies still need to accept, invest and manage capital. If anything, today it is more
important than ever to have a good understanding of corporate finance.
As an introduction to what a financial manager's job entails, the next section discusses how various
functional disciplines interact with financial managers, and describes the kinds of jobs that people with
financial training generally take.
1-1a HOW FINANCE INTERACTS WITH OTHER FUNCTIONAL

BUSINESS AREAS
Financial professionals interact with experts in a wide range of disciplines to operate successful
businesses. For example, working with Apple's engineers, designers and marketers, financial managers
analysed the business potential of the iPhone 6. Financial managers:
6
• studied the opportunity and competition in the market for mobile media and computing devices
• evaluated the costs of producing, marketing, and distributing iPhone 6
• analysed the potential demand for the iPhone 6
• used the above information to develop a pricing strategy consistent with sales projections and the
creation of value for shareholders
• made recommendations to the company's top management regarding the financial viability of iPhone 6.
LOl.1 In summary, although Apple's iPhone 6s was primarily a marketing- and technology-driven product,
the company's financial organisation played a pivotal role in every stage of the product's life cycle -
from the initial assessment and funding of research, through to the initial product launch, and then the
management of cash flows generated by iPhone 6 sales. In all of these activities, Apple's financial analysts
worked with people in other functional areas to gather the data needed to analyse the iPhone 6's financial
impact. So, in many ways, corporate finance helps make innovative technology possible.
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1-1b CAREER OPPORTUNITIES IN FINANCE
This section briefly surveys career opportunities in finance. Though different jobs require different
specialised skills, financial professionals employ the same basic tools of corporate finance whether they
work for Internet start-ups, in large manufacturing companies, in the investment funds sector, or in the
offices of a commercial bank or life insurance company. Three other skills that virtually all finance jobs
•
require are:
• good written and verbal communication skills
• an ability to work in teams
• proficiency with computers and the Internet.
For an increasing number of finance jobs, managers also need an in-depth knowledge of international
business to achieve career success.
Joshua Haines, Senior
Credit Analyst, The Private We classify finance career opportunities as follows: 1
Banlt
'Most of the basic • corporate finance
finance concepts that
I learned in my first • commercial banking
finance class I still use

• investment banking
today.'
See the entire interview on • money management
the CourseMate website.
• consulting.
More specific work areas in finance include:
• account and relationship management
• compliance and risk
• credit
• financial planning
1 The website http://jobs.efinancialcareers.eom.au/Australia.htm is informative for jobs in finance in Australia.
7
• funds management
• mortgages
• settlements
• stockbroking and trading
• treasury.
Corporate Finance
Corporate finance is concerned with the duties of financial managers in business. These professionals
handle the financial affairs of many types of businesses - financial and non-financial, private and public,
large and small, profit-seeking and not-for-profit. They perform such varied tasks as budgeting, financial
forecasting, cash management, credit administration, investment analysis and funds procurement.
In recent years, changing economic and regulatory environments have increased the importance and
complexity of the financial manager's duties. The globalisation of business has also increased demand for
people who can assess and manage the risks associated with volatile exchange rates and rapidly changing
political environments. Table I. I summarises the primary activities of various corporate finance positions.
TABLE 1.1 CAREER OPPORTUNITIES IN CORPORATE FINANCE

·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------·
'' '' ''
! Position ! Primary activities
' '
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------1'
'
' ' ' ' '
! Financial analyst ! Prepares and analyses the company's financial plans and budgets
' ' '
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------·
'
Capital budgeting manager !' Evaluates and recommends proposed asset investments
'
------·------------------------····----·-·······------------------ ····--------------------------------------------------------------------····---···········-·········-·············-······-······-······--······--·-·············--
''
Cash manager ! Maintains and controls the company's cash flow and short-term investments
'
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------·
'
' ' '
! Project finance manager ! Arranges financing for approved asset investments
' '
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------
' '
' '
! Credit analyst or manager ! Analyses and manages all aspects of the company's credit-granting activities
' '
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------·
'' '' ''
! Treasurer ! Oversees all financial management activities !
' ' '
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------·
'
' ' ' ' '
! Controller ! Manages all aspects of the company's accounting activities
' ' '
·--------··-···-··-·-····--------···-····-·········-·--··--·----····-··------------------------····--·-···--·------------------------··-··------------------------·-··---····--------------------------------------------·-·····--··-·
' ' '
i Chief financial officer (CFO) i Develops financial policies and strategies and oversees the activities of the treasurer and controller i chief financial officer
' ' '
·------------------------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------· (CFO)
Top management position
charged with developing
Commercial Banking
financial policies and
The commercial banking industry in Australia is dominated by 'the big four': ANZ, Commonwealth Bank, strategies covering all aspects
of a company's financial
NAB and Westpac. They comprise approximately 75% of the bank assets in the country. Nonetheless, management and accounting
Australia does have a number of smaller banks: some 11 other Australian-owned banks, about 10 foreign- activities
owned banks and branches of nearly 30 foreign banks. 2 Banks continue to hire large numbers of new
business and finance graduates each year, and banking remains a fertile training ground for managers
who later migrate to other fields. The key aptitudes required in most entry-level banking jobs are the same
as in other areas. In addition to communication, people, computer and international skills, apprentice
bankers must master cash flow valuation, as well as financial and credit analysis.
Most commercial banks offer at least two basic career tracks: consumer or commercial banking.
Consumer hanking serves the financial needs of a b ank's individual customers in its branch network,
2 Monthly Banking Statistics: October 2015. APRA. www.apra.gov.au/adi/Publications/Documents/20151 130MBSOctober2015.pdf. Accessed 9

December 2015.
8
Chapter 1 : The Scope of Corporate Finance
increasingly via electronic media such as the Internet. Commercial banking, on the other hand,
involves extending credit and other banking services to corporate clients, ranging from small,
family-owned businesses to global corporate behemoths. In addition, a great many technologically
intensive su p port p ositions in banking require excellent finance skills and intimate knowledge
of telecommunications and computer tech nology. Table 1.2 describes career opportunities in
commercial banking.
Investment Banking
Along with consulting, investment banking is the career of choice for many highly qualified finance
students because of its high income potential and the interesting nature of the work. Investment banking
involves three main types of activities:
• helping corporate customers obtain funding by selling securities, such as shares and bonds, to
investors
• providing advice to corporate clients on strategic transac tions, such as mergers and acquisitions
• trading debt and equity securities for customers or for the company's own account.
TABLE 1.2 CAREER OPPORTUNITIES IN COMMERCIAL BANKING

..·-----------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------·.
'
'
..!,-----------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------·
Position '
'
! Primary activities .
.l•• Credit analyst ! Ana lyses the creditworthiness of corporate and individual loan applicants
'
''
!• Corporate loan officer ! Develops new loan business for the bank, makes loan recommendations and services existing loans
'
Branch manager Manages the personnel and operation of a bank branch and markets bank services to attract new depositors
and borrowers
·-----------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
• •
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f CourseMate
l•...................................................•.
•
••
Trust officer
!• Mortgage banker
Provides investment, tax and estate advice and products to wealthy bank customers
.................•.................•....•...................•..........................................•..........................................................•..........
Originates and services mortgage loans to homebuyers and businesses

·-----------------------------------------------------·-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------,
• '
• '
!• Leasing manager ! Manages banks' equipment-leasing operations and develops related products and services
'
••
Operations officer Responsible for a number of possible activities, such as electronic banking, internal data processing, security !
of electronic transactions and coordination of computer links to ATMs, other banks and the Reserve Bank ·
Except during the global financial crisis (2007- 2011 ), investment banking has been extraordinarily
profitable since the early 1990s. The large inves tment banks in Australia include the Australian-owned
Macquarie Group and CommSec and foreign-owned entities such as JPMorgan, Deutsche Bank,
Credit Suisse, Goldman Sachs, Barclays, BNP Paribas and HSBC. As you can see from their names,
these foreign-owned investment banks are from the US and Europe, financial institutions with a global
presence.
Investment banking remains a highly volatile indus try. For example, from October 2007 to N ovember
Bill Eckmann, Principal.
Solar Capital 2008, Goldman Sachs' US share price lost three-quarters of its value, an experience shared by most
'Besides finance, there of the large American investment banks. On the other hand, the Australian-owned banks lost small
are three subject areas amounts of share value, but overall came out of the global financial turbulence of 2007- 2011 with
that have really helped
reasonable financial strength. Investment banking is also notorious for being extremely competitive and
me at the beginning of
my career in investment for demanding long working hours from its professionals (especially the junior ones).
banking. ' Investment banking can offer lucrative rewards for those who master the game. Most undergraduates
See the entire interview on hired by investment banks are assigned duties as financial analysts. Starting salaries for entry-level
the CourseMate website.
investment banking positions seem to range from $50,000 to more than $80,000, with some also earning
9
signing bonuses of $ 10,000 or more, and performance bonuses that, for highly ranked bankers, might
equal their base salaries in a good year. The remuneration does depend on the area of investment banking:
corporate finance , mergers and acquisitions and struc tured finance tend to be more generously rewarded
compared with margin lending or property finance. Employees who advance in the investment banking
business find that their incomes often rise rapidly. Success in this industry demands good analytical and
communication skills, while social and networking skills also pay handsome dividends. Much of the
growth in inves tment banking over the foreseeable future is likely to come from two sources: the ongoing
development of new financial products and services, and the continued internationalisation of corporate
finance.
Money Management
The 1980s and 1990s were very good for share market investors and finance professionals employed
in the money management industry. T he funds management industry has been challenging over recent
years because of a highly volatile market that has produced very low returns on average. This industry
includes investment advisory companies, mutual fund companies, superannuation fund managers, trust
departments of commercial banks, and the inves tment arms of insurance companies. In fact, the money
management industry encompasses any person or institution that acts as a fiduciary, a person who invests fiduciary
and manages money on another's behalf. A person or institution who
invests and manages money
In recent decades, three powerful trends have begun to create a rapidly growing demand for money
on another's behalf
management services in Australia. First, the bulk of the Baby Boomers (those born between 1946
and 1964) have entered their peak earning years and are beginning to invest large sums to prepare for
retirement. Because many Baby Boomers lack the financial expertise to handle their own finances, the
demand for professional money managers has surged.
Second, Australian government legislation introduced in 1992 requiring all employees in Australia
to be a member of a superannuation or retirement pension fund gave a tremendous impetus to the
collection of funds to be managed for investment. More than $1 billion per week was already being
collected by superannuation funds in the early 2000s, and that figure has grown.
T he third major force fue lling the growth of the money management ind ustry has been the
institutionalisation of investment. Whereas in the past, individuals held most financial assets
(especially ordinary shares), today, institutional investors dominate the markets. For example,
approximately two-thirds of Australian stock exchange shares are held by institutions , not
individuals. Of course, these money managers are not the owners of th e securities they invest in ,
but they do hold securities and make investment decisions for their clients. T h is trend toward
professional management of institutionally held financial asse ts continues to create employment
opportunities in the money management industry. Table 1.3 describes career opportunities in
money management.
Consulting
Do you see yourself working
Management consulting jobs are highly prized by b usiness school graduates. Consultants are hired by
in the finance industry in five
companies to analyse companies' business problems, processes and strategies, and to make and, possibly,
years, or in another industry?
to implement associated recommendations. Consulting positions offer a unique opportunity early in
Does your current career plan
your career to work with a broad range of businesses on a wide range of issues, and compensation in this
include work in the finance
industry often rivals pay in the investment banking field. The nature of the work means that consultants industry?
can expect to spend muc h of their time on the road.
10
TABLE 1.3 CAREER OPPORTUNITIES IN MONEY MANAGEMENT

.·------------------------------------------------------·----------------------------------------------------------------------------------------------------------------------------------------------------------------------------·
. '
'
! Position ! Primary activities
. i
'
------------------------------------------·-----------·----------------------------------------------------------------------------------·-----------------------------------------------------------------------------------------·
Securities analyst Prepares company-specific and industry-wide analyses and recommendations for various classes of publicly
traded securities (especially ordinary shares and bonds}
•····························· ···························--··········································································································································································
•• ••
i• Portfolio management, sales i• Markets mutual fund shares to individual and/or institutional investors
------------------------------------------------------·------------------------------------------------------------------------------············--····················--·········--·········--·····················---------------·
Portfolio manager Selects financial assets for inclusion in portfolios designed to meet specific investment objectives (growth,
income, international, emerging market bonds}
··············--·····--·····----------------···------- ----------------------------------------·-····-----·-·······----------------------------------------------···-----------------------------------------············----------·
Superannuation fund manager Manages assets held by a superannuation fund by diversifying them, allocating them to investment
managers and controlling administrative costs
......................................................•............................................................................................................................................................................•
Financial planner Provides budgeting, tax, borrowing, insurance, investment retirement planning and estate planning advice
to individuals
......................................................•............................................................................................................................................................................•
Investment adviser Provides investment advice, performance evaluation and quantitative analysis services to both the money
management industry and wealthy (or 'high net worth'} individual investors
You can establish a rewarding and satisfying finance career using the corporate finance concepts, tools
and practices covered in this text. In the next section, we answer the question: what basic concepts are
involved in the financial management of a company?
• •
1 Think of another company or product besides Apple's iPhone 6, and note that company's
connections between other functional areas and finance.
2 List and briefly describe five main career paths open to finance graduates.
1-2 CORPORATE FINANCE ESSENTIALS

In this section, we present several basic concepts involved in managing a company's finances. We begin
with a discussion of the five basic corporate finance functions that managers perform, then describe debt
and equity- the two principal types of long-term funding used by business - and conclude with a brief
discussion of the role of financial intermediaries in corporate finance.
1-2a THE FIVE BASIC CORPORATE FINANCE FUNCTIONS

corporate finance Although corporate finance is defined generally as the activities involved in managing cash (money) that
The activities involved in
flows through a business, a more precise description notes that the practice of corporate finance involves
managing cash (money} that
flows through a business five basic functions: financing, financial management, capital budgeting, risk management and corporate
governance. Nearly every topic covered in this text focuses on one or more of these five functions.
LOl.2 Financing
financing function The financing function involves raising capital to support a company's operations and investment programs.
Raising capital to support a A key aspect of this activity, known as the capital structure decision, involves determining and maintaining
company's operations and
investment programs
the mix of debt and equity securities that maximises the company's overall market value. Businesses raise
money either externally, from creditors or shareholders, or internally, by retaining and reinvesting profits.
11
Companies in Australia and other developed economies raise about two-thirds of their required financing
internally, but the financing function focuses primarily on external financing. Large companies enjoy
varied opportunities to raise money externally, either by selling equity (ordinary or preferred shares) or
by issuing debt, which involves borrowing money from creditors. When companies are young and small,
they usually must raise equity capital privately, from friends and family, or from professional investors
such as venture capitalists. Venture capitalists specialise in making high-risk, high-return investments in venture capitalists
rapidly growing entrepreneurial businesses. After companies reach a certain size, they may 'go public' by Professional investors who
specialise in maki ng high-risk,
conducting an initial public offering OPO) of shares - selling shares to outside investors and listing them for high-return investments in
trade on a stock exchange. After going public, companies can raise funds by selling additional shares. rapidly growing entrepreneurial
businesses
Financial Management initial public offering (IPO)
Companies offering shares
The financial management function involves managing the company's operating cash flows as efficiently as for sale to the public for the
possible. A key responsibility of the financial management function is to ensure that the company has enough first ti me by selling shares to
funds on hand to support day-to-day operations. This involves obtaining seasonal financing, building adequate outside investors and listing
them for trade on a stock
inventories to meet customer demand, paying suppliers, collecting from customers and investing surplus cash, exchange
all while maintaining adequate cash balances. Effectively managing the day-to-day financial activities of the
financial management
company requires not only technical and analytical skills, but also people skills, since almost every aspect of function
this activity involves building and maintaining relationships with customers, suppliers, lenders and others. The activities involved in
managing the company's
operating cash flows as
Capital Budgeting efficiently and effectively as
The capital budgeting function, often called the investment function, involves selecting the best projects in which possible
to invest the company's funds based on expected risk and return. It is a critical function for two reasons. First, capital budgeting function
the scale of capital investment projects is often quite large. Second, companies can prosper in a competitive selecting the best projects in
economy only by seeking out the most promising new products, processes and services to deliver to customers. wh ich to invest the company's
Companies such as Telstra, BHP Billiton, Woolworths and Hills Industries regularly make large capital funds based on their expected
risk and return. Also called the
investments, the outcomes of which drive the value of their companies and the wealth of their owners. For
investrnentfuncdon
these and other companies, the annual capital investment budget can total several billion dollars.
The capital budgeting process breaks down into three steps:
risk management function
1 Identifying potential investments
2 Analysing the set of investment opportunities and selecting those that create the most shareholder value identifying, measuring and
managing the company's
3 Implementing and monitoring the selected investments exposure to all types of risk
to maintain an optimal risk-
The long-term success of most companies depends on mastering all three steps. return trade-off. and therefore
Not surprisingly, capital budgeting is also the area where managers have the greatest opportunity to to maximise share va lue
create value for shareholders by acquiring assets that yield benefits greater than their costs. risk shifting
When an organisation pays
Risk Management another entity or person to
restore a loss of value due to
The risk management function involves identifying, measuring and managing the company's exposure to all unforeseen circumstances
types of risk to maintain an optimal risk- return trade-off, and therefore maximise share value. Common risk spreading, or
diversification
risks include losses that can result from adverse interest rate movements, changes in commodity prices and
When an organisation
fluctuations in currency values. The techniques for managing these risks are among the most sophisticated undertakes a number of risk
of all corporate finance practices. The risk management task begins with quantifying the sources and size of ventures at the same time
and the likelihood of all the
a company's risk exposure and deciding whether to simply accept these risks, or to actively manage them.
ventures simultaneously failing
Risks can be managed in two ways: risk shifting, and risk spreading, or diversification. Risk shifting and reducing organisational
involves you or your organisation paying another entity to take on the risk and to compensate you in case value is very low
12
negative outcomes occur. This is insurance. Some risks are easily insurable, such as the risk of loss due
to fire, employee theft or product liability, because there is much history of their occurrence, meaning
probabilities of loss are calculable.
Risk spreading involves combining activities that give rise to risks in such a way that the overall risk
of the combination is less than the risk of each item in the combination. This is also called diversification.
For example, rather than use a sole supplier for a key production input, a company might choose to
hedge contract with several suppliers, even if doing so means purchasing the input above the lowest attainable
To diversify risks by using price. However, most companies' risk management practices focus on market-driven risks. Risk managers,
financial instruments to offset who typically work as part of a company's treasury staff, use complex financial instruments to hedge, or
market risks such as interest
rate and currency fluctuations offset, market risks such as interest rate and currency fluctuations.
corporate governance
function Corporate Governance
developing company-wide The corporate governance function involves developing company-wide structures and incentives that influence
structures and incentives that managers to behave ethically and make decisions that benefit shareholders. The existence of a well-
influence managers to behave functioning corporate governance system is extremely important. Good management does not occur in a
ethically and make decisions
that benefit shareholders
vacuum. Instead, it results from a corporate governance system that hires and promotes qualified, honest
people and structures employees' financial incentives to motivate them to maximise company value.
collective action problem
When individual shareholders An optimal corporate governance system is difficult to develop in practice, not least because the
bear all the costs of monitoring incentives of shareholders, managers and other stakeholders often conflict. A company's shareholders
management, but the benefit
want managers to work hard and protect shareholders' interests, but it is rarely profitable for any individual
of such monitoring accrues to
all shareholders shareholder to expend time and resources monitoring managers to see if they are acting appropriately. An
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# Course Mate
individual shareholder would personally bear all the costs of monitoring management, but the benefit of
such monitoring would accrue to all shareholders. This is a classic example of the collective action problem
that arises in most relationships between shareholders and managers. Likewise, managers may feel the
need to increase the wealth of owners, but they also want to protect their own jobs. Managers, rationally,
do not want to work harder than necessary if others will reap most of the benefits. Finally, managers and
shareholders may effectively run a company to benefit themselves at the expense of creditors or other
stakeholders who do not have a direct say in corporate governance.
See the concept explained
step by step on the As you might expect, several mechanisms have been designed to mitigate these problems. A
CourseMate website. strong board of directors is an essential element in any well-functioning governance system, because
it is the board's duty to hire, fire, pay and promote senior managers. The board develops fixed (salary)
Australian Securities and and incentive (bonus- and share-based) compensation packages to align managers' and shareholders'
Investments Commission incentives. Auditors play a governance role by certifying the validity of companies' financial statements.
(ASIC)
The Australian government In Australia, the independent national governmental body charged with oversight of corporate
entity charged with enforcing activities is the Australian Securities and Investments Commission (ASIC}. ASIC's role is to enforce and
and regulating company and regulate company and financial services laws to protect Australian consumers, investors and creditors;
financial services laws to
protect Australian consumers,
to be the corporate, markets and financial services regulator. It was created in 1998 from an earlier
investors and creditors, and national regulator, and had further functions added to its portfolio in 2002 for credit protection,
being the corporate, markets oversight of the Australian Securities Exchange (ASX) in 2009 and of the newest stock exchange, Chi-X, in
and financial services regulator
2011. The ASX was created by the merger of the Australian Stock Exchange and the Sydney Futures
for Australia
Exchange in July 2006, and is today one of the world's top 10 listed exchange groups measured by
Australian Securities
Exchange (ASX) market capitalisation.
The primary stock exchange Most of AS IC's work is conducted under the Corporations Act 2001, but because of its wide compass,
operating in Australia for
ASIC also works with such laws as the Business Names Registration Act 2011, the Insurance Contracts
trading shares in publicly listed
companies Act 1984, the Superannuation (Resolution of Complaints) Act 1993 and the Superannuation Industry
13
(Supervision) Act 1993, the Retirement Savings Accounts Act 1997, the Life Insurance Act 1995, the
National Consumer Credit Protection Act 2009, and the Medical Indemnity (Prudential Supervision and
Product Standards) Act 2003.
Just as companies struggle to develop an effective corporate governance system, so too do countries.
Governments establish legal frameworks that either encourage or discourage the development of
competitive businesses and efficient financial markets. For example, a legal system should permit
efficiency-enhancing mergers and acquisitions, but should block business combinations that significantly
restrict competition. It should provide protection for creditors and minority shareholders by limiting the
opportunities for managers or majority shareholders to expropriate wealth.
We will discuss each of the five major finance functions at length in this text, and we hope you come
to share our enthusiasm about the career opportunities that corporate finance provides. Never before
has finance been as fast-paced, as technological, as international, as ethically challenging, or as rigorous
as it is today; and the market seems to be responding. A notable recent pattern in Australian university
education has been that more students are currently enrolled in undergraduate and postgraduate business
and management education courses than in any other broad field such as science, engineering or arts.
FINAN CE I N PRA CT I CE
In a recent survey by Accent ure, analysis found that the following issues were central to the finance function in
the organisation and the role of the CFO in managing it.
MANAGING VOLATILITY
Finance functions have made significant progress in the past three years (2012-2014] in their ability to
navigate some of the powerful external forces that affect
performance, including the challenge of permanent volatility.
THE RISE OF DIGITAL ON THE CFO AGENDA
Digital technology- which may include cloud computing or software

as a service {SaaS), big data and/or analytics, mobility and social media -
is having a profound impact on t he finance function's performance.
NAVIGATING COMPLEXITY
Complexity, in its various guises, is the b iggest challenge finance

o rganisations face today. But it is also an opportunity. High-performance
businesses must find ways of navigating complexity- by standardising
and optimising p rocesses to streamline and simplify the organisation.
HIGH-PERFORMANCE BUSINESSES HAVE MORE INFLUENTIAL CFOS
Finance leaders at high-performance businesses are particularly likely to

have seen their influence grow in key strategic activities.
Source: Accenture. Used with permission. https://www.accenture.com/t20150523T021053_w_Jus-en/_acnmedia/Accenture/Conversion-Assets/DotCom/
Documents/Global/PDF/Digital_2/Accenture-2014-High-Performance-Finance-Study-CFO-Architect-Business-Value. PDF(accessed 18 October 2015). .
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14
1-2b DEBT AND EQUITY: THE TWO FLAVOURS OF CAPITAL

debt capital Companies have access to two broad types of capital: debt and equity. Debt capital includes all of a
Long-term borrowed money company's long-term borrowing from creditors. The borrower is obliged to pay interest, at a specified
annual rate, on the full amount borrowed (called the loan's principal), as well as to repay the principal
at the debt's maturity. All of these payments must be made according to a predetermined schedule,
and creditors have a legally enforceable claim against the company. If the company defaults on any of
its debt payments, creditors can take legal action to force repayment. In some cases, this means that
creditors can push the borrowing company into bankruptcy, forcing them out of business and into selling
(liquidating) their assets to raise the cash needed to satisfy creditor claims.
L01.2 Investors contribute equity capital in exchange for ownership interests in the company. Equity remains
equity capital permanently invested in the company. The two basic sources of equity capital are ordinary shares and
An ownership interest preferred shares. Ordinary shareholders (Australian and UK terminology), or common stockholders (US
purchased by an investor,
terminology), bear most of the company's risk, because they receive returns on their investments only
usually in the form of
ordinary or preferred shares. after creditors and preferred shareholders are paid in full. Similar to creditors, preferred shareholders
that is expected to remain are promised a specified annual payment on their invested capital. Unlike debt, preferred shareholders'
permanently invested claims are not legally enforceable, so these investors cannot force a company to become insolvent if a
scheduled preferred share dividend is not paid. If a company becomes insolvent and has to be liquidated,
preferred shareholders' claims are paid off before any money is distributed to ordinary shareholders, but
after creditors' claims have been paid.
1-2c THE ROLE OF FINANCIAL INTERMEDIARIES IN CORPORATE

FINANCE
In Australia and most developed western countries, companies can obtain debt capital by selling
financial intermediary securities, either directly to investors or through financial intermediaries. A financial intermediary is an
An institution that raises institution that raises capital by issuing liabilities against itself, and then uses the capital raised either to
capital by issuing liabilities
against itself, and then uses
make loans to companies and individuals or to buy various types of investments. Financial intermediaries
the capital raised either to include banks, insurance companies, savings and loan institutions, credit unions, mutual funds and
make loans to companies and pension funds. But the best-known financial intermediaries are commercial banks, which issue liabilities
individuals or to buy various
such as demand deposits (cheque accounts) to companies and individuals and then lend these funds to
types of investments
companies, governments and households.
In addition to making corporate loans, financial intermediaries provide a variety of financial services to
businesses. By accepting money in demand deposits received from companies and individuals, banks eliminate
their depositors' need to hold large amounts of cash for use in purchasing goods and services. Banks also act as
the backbone of a nation's payments system by facilitating the transfer of money between payers and payees,
providing transaction information, and streamlining large-volume transactions such as payroll disbursements.
The Growing Importance of Financial Markets

The role of traditional intermediaries such as banks as providers of debt capital to companies has been
declining for decades. During 2007-2011, this source of debt capital contracted severely in many
countries as the effects of global financial turbulence spread around the world. Many banks stopped
lending to any customers, especially during the latter part of 2008, and this caused a severe liquidity
crisis for many companies. Recovery, from 2009 onward, has seen some increases in lending, but only
trending towards the levels before 2007.
15
Australian capital markets did not decline as abruptly as those in the rest of the developed world during
2007-2010, and so recovery was not as keenly sought. But during 2010-2014 - as global equity markets,
in particular, rose - with more confidence in share trading by investors, Australian capital markets rose
again. By the end of 2014, the ASX was trading at overall share values exceeding those of 2006.
Figure I. I shows the value from May 2007-May 2011 of a share in Powershares Dynamic Banking Portfolio
Exchange Traded Fund - a portfolio of US bank shares. Clearly, the price decline over that period reflects the
impact of the crisis in banking, which was most severe in the US compared with most other countries.
For several decades, non-financial companies have increasingly turned to capital markets for external
financing. This shift toward greater reliance on market-based external funding has resulted in the growth
of mutual funds and superannuation funds - both financial intermediaries that are major purchasers of primary-market
the securities of non-financial companies. transactions
Cash sales of securities to
When companies sell securities to investors in exchange for cash, they raise capital in primary-market investors by a company to
transactions. In such transactions, companies actually receive the proceeds from issuing securities, so raise capital
these are true capital-raising events. Once companies issue securities, investors can sell them to other secondary-market
investors. Trades between investors, called secondary-market transactions, generate no new cash flow for transactions
Trades between investors that
the company, so they are not true capital-raising events. Most share market trades are secondary-market generate no new cash flow for
trades, whereas a large fraction of all bond market trades are capital-raising primary-market transactions. the company
3 List and briefly describe the five basic corporate finance functions. What is the general relationship
among them?
4 Which of the five basic corporate finance functions might be considered non-traditional? Why do
you th ink these functions have become so important in recent years?
5 What is a financial intermediary? Why have these institutions been steadily losing market share to
capital markets as the principal source of external financing for companies?
FIGURE 1.1 BANK SHARES FALL BY HALF

From May 2007-February 2009, the banking sector suffered its most serious contraction since the Great Depression. One
barometer of the stress on banks during this period is the price of the Powershares Dynamic Banking Portfolio Exchange
Traded Fund, which fell from almost $22 per share to less than $11 in less than two years.
$25
$20
$15
$10
$5
$0-t-~~~~~~~.--~~~~~~~.--~~~~~~--.~~~~~~~--,
May-2007 May-2008 May-2009 May-2010 May-2011
Source: Prices for Powershares Dynamic Banking Portfolio Exchange Traded Fund. Obtained from Yahoo! Finance.
16
1-3 LEGAL FORMS OF BUSINESS

ORGANISATION
Companies exist so that people can organise to pursue profit-making ventures. This section examines
how companies organise themselves legally, and discusses the costs and benefits of each major form. We
begin with the most popular forms of business organisation in Australia, and then look at some forms that
are used in countries other than Australia.
1-3a BUSINESS ORGANISATIONAL FORMS IN AUSTRALIA

The three key legal forms of business organisation in Australia have historically been the sole
proprietorship, the partnership and the company. These have recently been joined by a fourth type,
the limited partnership. The sole proprietorship is the most common form of organisation. The largest
businesses tend to be organised as companies, and they account for a large fraction of total Australian
business sales and profits. The principles and tools that financial analysts use to do their jobs apply to all
of these organisational forms.
L01.3 Sole Proprietorships

sole proprietorship A sole proprietorship is a business with a single owner. In fact, in sole proprietorships, there is no legal
A business with a single owner distinction between the business and the owner. The business is the owner's personal property; it exists
only as long as the owner lives and chooses to operate it, and all business assets belong to the owner.
Furthermore, the owner bears personal liability for all the company's debts and pays income taxes on its
earnings. In recent years, sole traders and partnerships made up about 45% of actively traded businesses
in Australia, but generated less than 10% of total sales. 3
Simplicity and ease of operation constitute the principal benefits of the proprietorship. However, this
organisational form suffers from weaknesses that in most cases limit the company's long-term growth
potential. These include the following:
• Limited life - By definition, a proprietorship ceases to exist when the founder retires or dies. Although
the founder-entrepreneur can pass the assets of the business on to a third party, most of what makes
the business valuable is tied to the proprietor personally. Furthermore, changes in ownership of
successful companies can trigger large tax liabilities.
• Limited access to capital - A proprietorship can obtain operating capital from only two sources:
reinvested profits and personal borrowing by the entrepreneur. In practice, both of these sources are
easily exhausted.
• Unlimited personal liability - A sole proprietor is personally liable for all the debts of the business,
including judgements awarded to a plaintiff in any successful lawsuit. This is a high risk, which often
is not insurable; and the risk is not spread widely, because the sole proprietor has a small investment
by definition.
3 Berk, J, OeMarzo, P. Harford, J, Ford, G, Mollica, V, and Finch, N. Fundamentals of Corporate Finance, 2nd edition. Pearson Australia,
2012: 421.
17
Partnerships
A (general) partnership is essentially a proprietorship with two or more owners who have joined their skills partnership
and personal wealth. As in a sole proprietorship, there is no legal distinction between the business and its A proprietorship with two or
more owners who have joined
owners, each of whom can execute contracts binding on all the other(s), and each of whom is personally their skills and personal wealth
liable for all the partnership's debts. This sharing of legal responsibility is known as joint and several liability. joint and several liability
Although nothing requires the owners to formalise the terms of their partnership in a written A legal concept that makes
partnership agreement, most partnerships create such a document. In the absence of a partnership each partner in a partnership
legally liable for all the debts
agreement, the business dissolves whenever one of the partners retires or dies. Furthermore, unless
of the partnership
there is a partnership agreement specifying otherwise, each partner shares equally in business income,
and each has equal management authority. As with a proprietorship, partnership income is taxed only
once: at the personal level.
In addition to the tax benefits and ease of formation that partnerships share with proprietorships,
the partnership allows a large number of people to pool their expertise and capital to form a much
larger enterprise. Partnerships enjoy more flexibility than proprietorships in that the business need not
automatically terminate following the retirement or death of one partner. Industries in which partnerships
are usually the dominant form of organisation include accounting, consulting, engineering, law and
medicine.
The drawbacks of the partnership form resemble those of the sole proprietorship:
• Limited life - The life of the company can be limited, particularly if only a few partners are
involved. Problems may also result from the instability inherent in long-term, multi-person business
associations.
• Limited access to capital - For operating capital, the company is still limited to retained profits and
personal borrowings.
• Unlimited personal liability-This disadvantage is accentuated because the partners are subject to joint
and several liability. As companies grow larger, the competitive disadvantages of the proprietorship
and partnership organisational forms tend to become extremely burdensome. Almost all successful
companies eventually adopt the corporate organisational form. limited partnership (LP)
A partnership in which most
Limited Partnerships of the participants (the
limited partners) have the
In many ways, a limited partnership (LP) combines the best features of the (general) partnership and the limited liability of corporate
corporate organisational forms (which we cover next). This is a recent organisational form in Australia, shareholders, but their share
of the profits from the business
dating from legislation put in place in 2000. In any limited partnership, there must be one or more
is taxed as partnership income
general partners each of whom has unlimited personal liability. Because only the general partners operate
general partners
the business and are legally exposed, they usually receive a greater-than-proportional (in terms of their One or more participants in
capital contribution) share of partnership income. Most of the participants in the partnership are limited a limited partnership who
partners. They have the limited liability of corporate shareholders, but their share of the profits from operate the business and have
unlimited personal liability
the business is taxed as partnership income. The limited partners, however, must be totally passive.
limited partners
They contribute capital to the partnership, but cannot have their names associated with the business; One or more totally passive
neither can they take an active role in the operation of the business, even as employees. In return for participants in a limited
this passivity, the limited partners face no personal liability for business debts. This means that, although partnership, who do not take
any active role in the operation
limited partners can lose their equity investment in the business, tax authorities (or other plaintiffs)
of the business and do not
cannot sue the limited partners personally for payment of their claims. It should be emphasised that face personal liability for the
limited partners share in partnership income, which is taxed as ordinary personal income for the partners. debts of the business
18
Limited partnerships are ideal vehicles for funding long-term investments that generate large non-
cash operating losses in the early years of the business, because these losses flaw through directly to the
limited partners. This means the limited partners can (under specified conditions) use the tax losses
to offset taxable income from other sources. Disadvantages of LPs include a shallow secondary market
for securities and difficulties with monitoring and disciplining the general partner(s). In some cases,
registering an LP with ASIC allows secondary-market trading of partnership interests; this can reduce or
eliminate the illiquidity problem.
proprietary limited
company Proprietary Limited Company
A company form with between
two and five shareholders with A private company is a more complex business structure formed by one or more people who wish to have
limited liability that creates an a business that is a separate legal entity to themselves. This makes a key distinction with the concepts
organisational form separate
from individuals
of partnerships and sole proprietor forms of organisation. A proprietary limited rompany creates the roles of
employee, director and shareholder of the company.
company
A legal entity, owned by the Private companies are regulated under the Corporations Act 2001, which sets out substantial
shareholders who hold its obligations for company directors. Establishment and ongoing administrative costs associated with
ordinary shares, with many
Corporations Act compliance can be high. This is why the structure is generally considered to be better
of the economic rights and
responsibilities enjoyed by suited to medium to large businesses.
individuals
corporation Companies
In Australia, a legal entity set
Under Australian law, a rompany is defined as a fictitious person created by charter, prescription or
up to conduct business and
regu lated by the Australian legislation. It is also called a corporation. Because it is a 'person' separate from humans, a company is owned
Securities and Investments by the shareholders, who hold its ordinary shares, with many of the economic rights and responsibilities
Commission (ASIC} under
enjoyed by individuals. A company can sue and be sued, it can own property and execute contracts in its
the Corporations Act 2001.
A corporation can be limited own name, and it can be tried and convicted for crimes committed by its employees.
by share or by guarantee, or The corporate organisational form has several key competitive advantages over other forms, including
be a no-liability company, a the following:
proprietary limited company
or a private company. Also • Unlimited life - Once created, a company has perpetual life unless it is explicitly terminated.
referred to as a 'company'
• Limited liability - The company's shareholders cannot be held personally liable for the company's
shareholder
An owner of ordinary or debts.
preferred shares in a company
• Separable contracting - Companies can contract individually with managers, suppliers, customers
public company
and ordinary employees, and each individual contract can be renegotiated, modified or terminated
A company, the shares of
wh ich can be freely traded without affecting other stakeholders.
among investors without the
• Impraved access to capital - The company itself, rather than its owners, can borrow money from
permission of other investors,
and whose shares are creditors, and it can also issue various classes of ordinary and preferred shares to equity investors.
listed for trading in a public Furthermore, the ownership claims themselves (ordinary and preferred shares) can be freely traded
securities market among investors without obtaining the permission of other investors if the company is a public company-
board of directors that is, one whose shares are listed for trading in a public securities market.
Elected by shareholders to
The shares of corporate ordinary shares carry voting rights, and shareholders vote at an annual meeting
be responsi ble for hiring and
firing senior managers and to elect the company's directors. The directors include key corporate personnel as well as outsiders,
for setting overall corporate typically successful private businesspeople or executives of other major companies. The board of directors
policies
is responsible for hiring and firing senior managers and for setting overall corporate policies. The rules
constitution dictating voting procedures and other parameters of corporate governance appear in the company's
The legal document created
at the company's inception to constitution, the legal document created at the company's inception to govern its operations. The
govern its operations constitution can be changed only by a vote of the shareholders.
19
Companies may issue two forms of shares, ordinary and preferred, each with slightly different rights
and privileges. Shareholders of ordinary and preferred stock or shares, as owners of the company's
equity securities, are often called equity claimants. Shareholders of preferred shares typically have equity claimants
Owners of a company's equity
higher-priority access to the company's earnings and bear less risk than shareholders of ordinary
securities
shares. In exchange for this privileged risk position, the preferred shareholders may no t have the right
managing director or
to vote. Therefore, we refer to ordinary shareholders as the company's ultimate owners. Ordinary chief executive officer
shareholders vote periodically to elect the members of the board of directors and, occasionally, to (CEO)
The top company manager
amend the company's constitution. with overall responsibility and
It is important to note the division between owners and managers in a large company. The managing authority for managing daily
director or chief executive officer (CEO) is responsible for managing day- to-day operations and carrying company affairs and carrying
out policies established by
out policies established by the board. The board expects regular reports from the CEO regarding the
the board
company's current status and future direction. However, the CEO and the board serve at the will of the
agency costs
shareholders. The separation betvveen owners and managers leads to agency costs, the costs that arise Costs that arise from
from conflicts of interest between shareholders (owners) and managers. T hese costs - and the agency conflicts of interest between
problems that cause them - are discussed in greater depth in Section l-4b. shareholders and managers
Although companies dominate economic life around the world, this form has some compet1t1ve
disadvantages. l\!lany governments tax corporate income at both company and personal levels. In
Australia, however, this is generally not an issue: because of the implementation of the dividend
imputation tax regime, the personal investor in a company is taxed at his or her own rate of taxation, with What are the pros and cons
compensation being provided for any corporate tax that has already been paid on dividends received. This of organising a business as
tax arrangement is discussed in more detail in our later chapter on dividends and payout policy. a company rather than as a
partnership?
1-3b FORMS OF BUSINESS ORGANISATION USED BY

COMPANIES OUTSIDE AUSTRALIA
H ere, we briefly review the most important organisational forms used by companies in the US and some
other countries outside Australia. Companies operating in current or former British Commonwealth
countries - such as India, Singapore, Hong Kong, New Zealand and Canada - tend to share very similar
laws relating to corporations, and hence have similar organisational forms. In countries with different
legal structures, such as Germany or France, which have codified laws, the organisational forms may
differ.
Almost all capitalist economies allow some form of limited liability business organisation, with
ownership shares that are freely traded on national share markets. T hese companies tend to dominate
economic life in the countries where these organisations exist.
Limited Liability Companies

L01.3 The limited liability company (LLC) combines the ta.x advantages of a partnership with the limited liability limited liability company
(LLC)
protection of a company. These forms were developed in the US, where they are easy to set up. The
A form of business
US Internal Revenue Service, or IRS (the American federal tax office), allows an LLC 's owners to organisation that combines
elect taxation as either a partnership or as a company, and many states allow one-person LLCs and the tax advantages of a
partnership with the limited
a choice between a finite or infinite company life. Even though LLCs can be taxed as partnerships,
Iiabi Iity protection of a
their owners face no personal liability for other partners' malpractice, making this type of company company
especially attractive for professional service companies. Given the limited liability feature and the
flexibility of LLCs, it is likely that they will continue to gain significant organisational market share in
years to come.
20
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of In two years'
time, Vol. 1 (of 2)
This ebook is for the use of anyone anywhere in the United States
and most other parts of the world at no cost and with almost no
restrictions whatsoever. You may copy it, give it away or re-use it
under the terms of the Project Gutenberg License included with this
ebook or online at www.gutenberg.org. If you are not located in the
United States, you will have to check the laws of the country where
you are located before using this eBook.
Title: In two years' time, Vol. 1 (of 2)
Author: Ada Cambridge
Release date: March 29, 2024 [eBook #73287]
Language: English
Original publication: London: Richard Bentley & Son, 1879
Credits: Carla Foust, WebRover, Tim Lindell, Darleen Dove,

Shannon Barker and the Online Distributed Proofreading
Team at https://www.pgdp.net (This file was produced from
images generously made available by The Internet
Archive/American Libraries.)
*** START OF THE PROJECT GUTENBERG EBOOK IN TWO

YEARS' TIME, VOL. 1 (OF 2) ***
IN TWO YEARS’ TIME.
BY
ADA CAMBRIDGE.
IN TWO VOLUMES.
VOL. I.
LONDON:
RICHARD BENTLEY AND SON,
NEW BURLINGTON STREET.

1879.
(All rights reserved.)

PRINTED AT THE CANTON PRESS, BECCLES.
CONTENTS OF VOL. I.
CHAPTER PAGE
I.Narraporwidgee 1
II.An Unexpected Pleasure 18
III.Pears and Greengages 46
IV.Arcadia 74
V.Despair 93
VI. Tom Smith’s Family Diamonds 110
VII.On the Mail Steamer 141
VIII.Some English Relations 166
IX. Eleanor Armytage 192
X.My Introduction to Mrs. Grundy 218
XI. Lord Westbrook 248
IN TWO YEARS’ TIME.
CHAPTER I.
NARRAPORWIDGEE.
“Seven o’clock!” exclaimed father, throwing his hat (with a very dirty
puggaree on it) upon the drawing-room sofa. “Isn’t that confounded
boy back yet?” Mother looked up from a low chair with her gentle
face of reproof. She had a great objection to strong language, and,
to do him justice, father seldom used it; but he was hot and tired,
poor man, after drafting sheep all day in a north wind, and,
moreover, the boy in question had gone to post for the English
letters, and was half an hour beyond his usual time for returning.
“He started late,” said mother. “Pat Malony wanted him to help to put
out a fire in the lake paddock. Go and change your dress, my dear,
and we’ll have dinner. I think the wind is turning; it is not quite so hot
as it was.”
Father obediently took himself off, puffing and blowing and wiping his
forehead vigorously, his dirty puggaree flapping against his dirty
grass-cloth coat (I don’t think he would have presented himself to us
in that costume if it had not been mail day). Mother folded up her
work and laid it neatly in her basket. I rushed out upon the verandah
to consult the stable weathercock, and, finding that it indicated a
blessed south sea-breeze coming round, flourished up all the blinds
and flung open all the windows, which had been tight shut since
early morning from the oven heat outside.
“Gently, my dear!” called mother after me, as the tail of my thin dress
whisked round a rough bole of grape vine clasping a verandah post,
and the bottom flounce parted with half a yard of lace. “I wish you
would move more quietly, Kitty.”
“I wish I could, mother, but this lovely air is intoxicating,” I responded,
tucking up my tail and dancing down upon the lawn and back again,
with my hands stretched out. “I believe it will be cold by bed-time,
really.”
The dinner bell rang, and I went indoors through the dining-room
window, and took my seat at table. Father, spruce and fresh after a
bath and change of clothes, stood up over a pair of boiled fowls, and
shut his eyes, and muttered briskly, “For what we are going to
receive—wing or breast, my dear?”—as if it were all one sentence
(another little habit he had which mother would have liked to break
him of, if she had not known her place too well). And mother, looking
with her calm eyes upon the sun-browned, arid landscape beyond
the garden gate, remarked, as she helped herself to a slice of pork,
“I see Sandy now, crossing the ford. Let us get dinner over before we
open the bag.”
We generally did what she told us, and we did now; but dinner was a
brief ceremony in consequence. The fowls gave place to the
puddings, and the puddings to the cheese, with a celerity that Ah
Foo, the Chinaman cook, was not used to these hot days, and we
left a lovely dish of raspberries and cream untouched for the first
time that year. (N.B.—It was nearly the end of January, and they
were just going out of season at Narraporwidgee.) Mother rose with
her accustomed dignity, and went into the hall to sort the servants’
letters into the hands of Bridget the parlour-maid. She selected her
own correspondence from the remainder, gave several letters and a
bundle of newspapers to father, and then deliberately hung up the
bag on its proper peg. Finally, we went out and seated ourselves on
the verandah, now cool and breezy, with one of those sudden
evening changes peculiar to the Australian climate; and father
commenced operations by reading his newspaper telegrams aloud,
as usual, and then tearing open the one English letter he had
received.
“Well!” he exclaimed presently, and continued gazing at his letter,
with a complacent smile on his honest face. Of course mother and I
looked up at him expectantly.
“The market not gone down yet?” she inquired.
“No,” he replied; “I believe the tide is on the turn, but it hasn’t turned
yet. Prices may even rise a little more, Norton thinks.”
“Dear me, I am very glad,” said mother; and so she looked, though
she never visibly excited herself. She knew quite well that the price
of wool, even at its then rate, if it lasted long enough (until father’s
shipment arrived in London) meant an increase of a great deal to our
income for the year; and she knew, too, that that increase meant so
much more promise for her of the fulfilment of a great hope and
scheme that she had cherished for many years. It was pathetic to
see the wistful eyes that she lifted to his, as he continued to look in
her face steadily.
“Yes, I know what you’re thinking of,” said he; “and I have been
thinking of it too. I believe it might be managed now. I said to myself
only this morning, while I was drafting those ewes, ‘If wool makes as
much this year as it did last, I can afford to turn the whole concern
over to somebody else, and Mary shall have her wish.’ So you shall,”
he added, letting his broad palm fall upon her shapely shoulder.
“We’ll wait till we hear the bales are in the market, and we’ll start
home by the very next mail, if you like.”
I looked at mother, and her face was a study. A delight that would
have overbalanced the self-possession of anybody else struggled to
break through her cloak of dignified reserve, and she would not let it.
Her eyes grew moist, and her mouth twitched at the corners; but she
just took father’s hand from her shoulder, and laid it to her lips, and
replied, gently, “Thank you, my dear; I shall be very glad. It will be
such a good thing for Kitty.”
When father was a young man (what he calls a young man, about
thirty-eight or forty years of age), he and mother came out to
Australia to seek their fortunes, bringing me, a baby, with them. My
grandfather had died several years before, leaving a home-made
will, and my uncle, his eldest son, his sole executor; and uncle
James, of whose integrity and uprightness no one had ever had the
faintest suspicion, was tempted by some flaws in that irregular
testament to take a mean advantage of his brother and sisters. My
father, who was the last to see evil in any one, let things drift a little
while, not suspecting mischief; but when the truth was suddenly
forced upon him he arose to do battle for himself and his sisters with
all his might and main. Aunt Alice and aunt Kate were both married,
and of course their husbands joined the fray, with their respective
family solicitors; and very soon the affair got into Chancery, and into
the hands of about fifty lawyers (speaking roughly), and, after two or
three years of suspense and misery, my father and my aunts—who
had only right on their side, while uncle James had the law on his—
found themselves no better off than if grandpapa had left them
nothing, and, indeed, rather worse. Aunt Alice’s husband was a
wealthy London merchant, and scorned to consider the loss of such
a trifle as £5000; and aunt Kate’s husband, who was a dignified
country rector of old family and ample means, paid his fees
gracefully, and comforted aunt Kate by an extra allowance of pin-
money thenceforth. But my poor daddy, hot and sore with indignation
and defeat, reckless and disgusted with everybody and everything,
gathered together what few hundreds he could call his own, told
mother to pack up her clothes, and her plate and linen, and anything
else she cared to keep, advertised his house and furniture, took our
passages in the Great Britain, and shook the dust of his native land
from off his feet for ever. “For ever” was what he said, and mother
made no protest at the time against a sentence of perpetual
banishment which almost broke her heart. Everything comes to
those who wait, it is said: mother was wise and waited, and the
things she wished for certainly did seem to come to her, sooner or
later.
They had had hard times in their early years of exile. Father had not
felt his privations on his own account: he was a vigorous,
enterprising, hopeful man, to whom difficulties came with a certain
pleasant zest. He was a born gentleman, too (though I say it that
shouldn’t), and so was never troubled with those scruples of gentility
which cause such poignant distress to many people in what they call
“reduced circumstances.” He delighted in his skill as groom and
gardener, builder and bricklayer, wood-cutter and butcher, and Jack-
of-all-trades, and understood that the doing of all that rough work
well conferred a new dignity of manhood upon him. As far as himself
was concerned, I believe those struggling years were the happiest of
his life, judging from the tone of his reminiscences, which is always
tender, and heartfelt, and vaguely regretful. It was mother who
suffered—poor mother!—without a word of complaint, of course. She
had to be left alone whole days together, while father was working on
his run, and the blacks used to prowl about the house and terrify her.
There were swagmen turning up at all hours for rations—very shady
characters, some of them; and there were the bushrangers (who, to
be sure, never came, but might have come, which was almost as
bad). The snakes used to glide between the shrunk boards of the
floors; the wild dogs used to make her blood run cold with that
dreadful howl of theirs at nightfall, when they came sniffing round
after the sheep; the native cats were her torment in the poultry-yard,
and the opossums as bad in the orchard. Worse than any of these,
there were the wretched trolloping women—that was father’s
description of them—that she had to do with for servants, when lucky
enough to get servants at all, who wore her life out with coarse
words and ways. Little brothers and sisters were born in the
wilderness, and poor mother had to fall back upon an awkward man
and a little child (me) to wait on her properly, and make her a decent
cup of gruel when she wanted it. And the babies died in the
wilderness, too, with little or no doctor’s skill to help them, and had to
be laid in their little graves under a wattle tree, with only their
parents’ love and tears to consecrate the ground.
But these were very old times. Father made money rapidly, as no
steady and persevering man could well help doing, under the
circumstances; and money, of course, brought us comfort in all sorts
of ways. As fences meandered all over the run, and stock increased,
and the value of wool with it, the weatherboard house grew bigger
and bigger, and its new rooms were furnished more and more
luxuriously. Then a better class of domestics, and many more of
them, appeared in the colony, railways were opened, townships were
founded and grew and flourished, lawyers and doctors, and police
magistrates and bankers, began to organize some system of society
in those little centres of population. We were able to drive to church
over a macadamized road, instead of being restricted to a family
service in the dining-room at home, as for ten years had been the
case; and I was fortunate enough to possess in my governess an
accomplished and well-bred lady. By-and-by, from a well-to-do
squatter, father became an extensive landowner and a rich man. He
bought his land easily by instalments before free selectors had
discovered its value; and then land in Victoria suddenly rose to a
great price, and his erewhile moderate estate became worth £60,000
at the lowest market rate. He had preferred sheep to cattle always;
and at this time the owners of sheep stations had such a run of luck,
in good seasons and high prices, for a few years, as they probably
never had before, and seem never likely to have again.
Just at this flood-time in his fortunes, and before the evil days of
drought and bad government fell upon the colony in general, and the
class in particular to which he belonged, that memorable mail arrived
from England which decided him to sell his property and go home.
Just at first (when mother and he talked over their plans on the
verandah that night) he seemed disinclined to sell, and proposed to
leave a manager in charge of everything. But mother, without in the
least assuming to give advice, suggested the difficulty of finding a
man at once capable and trustworthy enough for so responsible a
post, and the probability that such years of prosperity as we had had
latterly would not, in the nature of things, last much longer. It had
always been a land of vicissitudes, in which men made and lost
fortunes with equal celerity; and suppose now (she hinted in the
most modest manner) that droughts came and the stock died from
starvation, or suppose the scab broke out again and swept them off,
or suppose these high prices fell, as they were bound to do some
time or another, or an ignorant Government succeeded in turning
everything upside down.
“Then, perhaps, it would be wisest to sell,” said father, in a tone of
deliberation that meant he had made up his mind to do so; but he
sighed as he thought of all his improvements, and what a nice place
he had made of it.
The fact was, father had an idea of coming back again, and I am
sure mother never meant he should, if she could help it.
CHAPTER II.
AN UNEXPECTED PLEASURE.
I had my share in the conversation—and the lion’s share it always
was—until Bridget brought tea out to the verandah. I was wild with
excitement at this mighty change in my fortunes and the novel
experiences in store for me, and I wanted immediately to know all
about everything, from cabin furniture to the Zoological Gardens and
Madame Tussaud’s, wild beasts and waxwork being objects which
(grown up though I was, or thought I was) appealed far more
strongly to my imagination than the museums and operas and
picture-galleries that mother tried to tempt me with. By-and-by,
however, I began to see that I bothered them a little, and that they
had higher matters to talk over. So, when I had taken my cup of tea, I
left them to enjoy theirs in peace, and, wrapping myself in a light
scarf that hung in the hall, went down into the garden for a stroll.
It was a lovely, soft, cool night, raging hot and nasty though all the
day had been. The north wind blew no longer, as if from the mouths
of a million red-hot ovens: it had gone almost round to the south, and
came rustling, fresh and sweet, through the trees and shrubs, with a
dewy smell of flowers (from the few the drought had left) mingling
with the faint hay scent of the burnt-up paddocks. There was a little
crescent moon shining above the many roofs of the low house and
outbuildings, showing the delicate transparency of the atmosphere,
even on a cloudy night, as never moon could show me in England
afterwards. Some great oleander trees (it would have been an insult
to call them bushes) blushed rosily out from the half-darkness,
nodding their pink bunches over the verandah roofs, as if proud to
remind me that they were nearly all I had to depend upon in this
scorching weather for the innumerable flower-vases that I loved to
scatter all over the house.
It was such a sweet night, that it made me (even me) feel, all at
once, a little melancholy. I began to think of some things I had
forgotten in my first burst of excitement at the prospect of going
home. It occurred to me, for the first time, to wonder whether I
should really like England as well as my own dear Narraporwidgee?
And could I part with Spring, my canine familiar, who was as much
my shadow as any witch’s black cat? He was sniffing round my
petticoats now, poking his wet black nose under my arm and into my
face, as I leaned on the garden gate, in an attitude of contemplation
that he was not used to, and could not understand.
The dear old dog! He seldom took a night’s rest anywhere but on the
verandah outside my door—the glass door that was also the window
of my bedroom; and if I did let him lie under my bed in the daytime
when it was blinding hot outside, he was my dog, and it was
nobody’s business but my own. Who would understand his ways and
wants as I did? Who would take him down to the dam and the river
for his swims, and see that he got the bits of mutton he liked best?
And how could he bear his life without me?
At this stage of my meditations, when my eyes were filling with tears,
and I was wildly resolving to pay his passage and smuggle him along
with me somehow, if I had to sell my new watch and chain to do it,
Spring jumped out of my embraces with a sudden energy that nearly
knocked me over, and darted in pursuit of a wretched little opossum
that was just scuttling up the trunk of my favourite plum tree. He
scratched my arm with his iron claws, and I did not cry over him any
more.
I began to think of the plums, which would be ripe enough for jam in
another week or two. Oh, who would make the jam? And who would
eat it? I had visions of strange people rudely criticizing our pretty
house, rummaging about mother’s dainty store-rooms, and tramping
over our sacred Persian carpet with muddy boots; and they made
me very sad.
Then, by the vague moonlight, I saw the horses in the home
paddock quietly sauntering about and enjoying the night air, and
amongst them I easily recognized my own lovely Bronzewing—the
most perfect lady’s horse, many people said, in the whole of the
Western district. The pretty creature! I should know him from a
thousand in any scrap of moonlight—the graceful droop and lift of his
strong, supple neck, and the way he raised his feet as he trod the
earth, that hardly seemed good enough for him to walk on. He
whisked his silky tail from side to side, and nibbled, and glided from
shadow to shadow, little thinking, poor dear Bronzewing, what was in
store for him and me!
I wondered would daddy let me take my horse to England? Perhaps
he would, if I made a great point of it; he never liked to refuse me
anything if he could help it. Bronzewing was not like poor Spring; he
really was valuable, in whatever part of the world he might be. His
father and mother both came from England, to begin with. If daddy
did not mind paying all that for the parents, he surely wouldn’t mind
paying a little for the son, who had, as he always said, all the good
points of both of them. It was hardly a month ago that the Indian
buyer offered a hundred pounds for him, and father would not
entertain the offer for a moment. So, feeling pretty comfortable about
Bronzewing, I began to think of somebody else—Tom.
Tom was the only son of our next-door neighbour, and lived only five
miles off, and he was my great friend. That is to say, he had been my
great friend for years when we were children, until his father sent him
home to Oxford, and then I did not see him for nearly four years. He
had only been back about six months, and we had renewed our
acquaintance on rather a different footing, for now we were both
grown up. He was nearly twenty-three, and I was just over eighteen.
But I could not say that we were not great friends still. He brought
me some presents from Oxford when he came back—a pretty box
for my handkerchiefs, and a book of photographs of the colleges,
with a cardinal’s hat on the cover (he was a Christ Church man), and
a set of Egyptian jewellery that he said was the fashion in England—
and these were the greatest treasures I had in the world.
I had no girl friends that I cared for. A few young ladies lived around
us, but mother did not consider them what she called “her sort,” and
did not encourage any intimacy between them and me. (She was
considered “stuck up” in consequence, which did not affect her in the
slightest degree.) I seldom felt myself tempted to disregard her
prejudices, for I don’t think they were my sort either. I did not like
girls.
But Tom’s father was my father’s old friend, and his mother my
mother’s “sort” exactly, the very image of her ideal gentlewoman,
Mrs. Delany, as if she had stepped out of Lady Llanover’s book. And
so, considering what near neighbours we were, Tom and I were
intimate by the mere force of circumstances.
Did I say that his name was Smith—Tom Smith? I am very sorry, but
so it was. He ought to have had a nobler name to match his noble
height of six feet two and a half, and his noble, honest, handsome
face, and the noble old blood that mother said he inherited on both
sides; but—well, he hadn’t. And, after all, what does it matter? It is
only in novels that names are always appropriate to the people who
own them; it very seldom is so in real life.
When I began to think of Tom, I became far more melancholy than
any thought of Spring or Bronzewing had made me. How Tom would
miss me! And where should I find another like him, whatever part of
the world I might go to?
Mother was fond of contrasting the manners of society in “her time”
and in her country with the disrespect for les convenances which
characterized some of her acquaintances of later years, particularly
the young men; but I had seen plenty of emigrant Englishmen, and
not one of them the gentleman Tom was in all his ways, not only
after he left Oxford, but before he went there, though certainly
Oxford life did develop and polish him wonderfully.
Sighing heavily, and caring no more for the Zoological Gardens and
Madame Tussaud’s, I opened the garden gate and went out into the
paddock. Spring, having barked himself hoarse at the opossum,
which sat serenely on an exposed bough above him, with pointed
ears pricked up and bushy tail hanging down, uttering a nervous little
accompaniment of growls, discharged a final volley, and trotted after
me; and, not consciously following any route in particular, we went
towards the river, nearly a mile away, which was threatening to dry
up into a chain of stagnant water-holes. Across the moonlit paddock,
scorched to a sandy white; over the slip-panels in the fence, which,
of course, I never dreamed of taking down; through a larger extent of
burnt-up meadow, where white-faced Herefords came up to us and
stared at us, munching audibly in the still night air; over another
fence—a brush fence this time, instead of posts and rails—through
which I scrambled where I saw a likely place, irrespective of gates,
and in which my muslin train came to most dreadful grief; through
more paddocks, this time sprinkled with shorn white sheep, who
scampered away from Spring in the most abject terror, though he
would have scorned to look at them; and finally into the shadow of
the belt of gum and wattle trees that fringed the windings of the little
river.
Any one who had watched me taking such a walk at that time of
night, and especially if he or she had seen what came of it, would
certainly have accused me of keeping clandestine appointments with
young men—a thing I would no more dream of doing than mother
herself, notwithstanding my unfortunate ignorance of Mrs. Grundy’s
prejudices.
I was used to these wild rambles at all hours, considering my dog a
sufficient escort. I was a thorough bush girl, as mother sadly
acknowledged, and had no fear of strange men, or horned cattle, or
snakes, or darkness, or rain, or anything else that I know of. And
when, from under the bank of the river, a great curly sheep dog
rushed up at us, and began to growl at Spring, the two wagging their
tails and putting their black noses together, I was as much surprised
and dismayed as ever I was in my life. It was Tom’s dog, as I knew in
a moment; and of course Tom followed him up the bank to see what
he was after. He must have been pretty much astonished too, when
he saw me standing above him, in my white dress, without a scrap of
hat on.
“Oh, Tom, what are you doing here?” I cried nervously, feeling my
face and neck on fire—the first time I had ever been affected that
way by a meeting with him.
“Why, Kitty, is it you?” he responded incredulously. “What are you
doing so far away from home? You have nobody with you?”
“No—only Spring. We were just having a walk, and I thought, when
we were so far, I’d see if there were any ducks in that corner where
the moon shines. Father and mother were busy talking, and did not
want me. I didn’t notice how the time was going. I’m afraid it’s getting
very late, Tom?”
“Nearly nine o’clock, I should think. Never mind; it’s a lovely night.
Come and sit on this stump a few minutes while I set my trap, and
then I’ll walk home with you. Do you know what I am doing? Trying to
catch some more water-rats for you. I’ve got two hung up in that tree.
I’ve dressed thirteen skins already—wattle-bark, and pumice-stone,
and all the proper things. You’d never know they had not been done
by a furrier; they are as soft as wash-leather, and the fur like silk. If
you cut off the yellowish part at the edges, and leave only the brown,
they will be plenty wide enough, and you will have the swellest
imaginable jacket by next winter.”
I took his hand and scrambled down the bank, in a happy flutter of
shame and pleasure, renewing my assurances that I no more dreamt
of seeing him there than of seeing the bunyip itself.
“Of course you didn’t,” he replied cheerfully. “But, you see, this is
how it was: the moon got up, and as I had been too busy all day to
see after them, it occurred to me that I might as well take a stroll
down the river and look at my traps. And I’m very glad I did, Kitty. I’ll
never spoil a good mind again, for fear of what I might lose by it.”
I sat down contentedly on my stump, and watched him tilting up a
wooden candle-box with some sticks and a mutton bone and a piece
of string, and arranging the primitive apparatus safely on a platform
he had prepared for it; the while he threatened his dog, who stood
over him, with the direst penalties if he ventured to interfere. And
when I saw that he had quite done, I got up and turned to ascend the
bank again.
“Stay a few minutes, Kitty,” he called out hastily. “Now you are here
you may as well take breath before you start all that way home.”
I scouted the idea of being tired and wanting rest; but, while I
hesitated, he held out his hand, and I turned back again and allowed

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APPLE'S I-POPPING RESULTS

After studying this chapter, you will be able to:

1-1 THE ROLE OF CORPORATE FINANCE

1-1a HOW FINANCE INTERACTS WITH OTHER FUNCTIONAL

finance class I still use

1 The website http://jobs.efinancialcareers.eom.au/Australia.htm is informative for jobs in finance in Australia.

TABLE 1.1 CAREER OPPORTUNITIES IN CORPORATE FINANCE

2 Monthly Banking Statistics: October 2015. APRA. www.apra.gov.au/adi/Publications/Documents/20151 130MBSOctober2015.pdf. Accessed 9

TABLE 1.2 CAREER OPPORTUNITIES IN COMMERCIAL BANKING

Originates and services mortgage loans to homebuyers and businesses

TABLE 1.3 CAREER OPPORTUNITIES IN MONEY MANAGEMENT

1-2 CORPORATE FINANCE ESSENTIALS

1-2a THE FIVE BASIC CORPORATE FINANCE FUNCTIONS

THE RISE OF DIGITAL ON THE CFO AGENDA

Digital technology- which may include cloud computing or software

Complexity, in its various guises, is the b iggest challenge finance

HIGH-PERFORMANCE BUSINESSES HAVE MORE INFLUENTIAL CFOS

Finance leaders at high-performance businesses are particularly likely to

1-2b DEBT AND EQUITY: THE TWO FLAVOURS OF CAPITAL

1-2c THE ROLE OF FINANCIAL INTERMEDIARIES IN CORPORATE

The Growing Importance of Financial Markets

FIGURE 1.1 BANK SHARES FALL BY HALF

May-2007 May-2008 May-2009 May-2010 May-2011

1-3 LEGAL FORMS OF BUSINESS

1-3a BUSINESS ORGANISATIONAL FORMS IN AUSTRALIA

L01.3 Sole Proprietorships

1-3b FORMS OF BUSINESS ORGANISATION USED BY

Limited Liability Companies

Title: In two years' time, Vol. 1 (of 2)

Author: Ada Cambridge

Release date: March 29, 2024 [eBook #73287]

Original publication: London: Richard Bentley & Son, 1879

Credits: Carla Foust, WebRover, Tim Lindell, Darleen Dove,

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