Importance of Financial Planning and Analysis for Radisson PLC

This document discusses the importance of financial planning and analysis for Radisson PLC, a medium-sized software manufacturing firm in London. It explores the appropriate sources of finance and their implications, as well as the cost of funding projects using equity versus debt finance. The document also analyzes the significance of budgets for variation and decision-making, and assesses the impact of suggested finance options on the company's financial statements.

Managing Financial resources and
Decisions
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
A) Identification the appropriate source of finance for the firm and assess the implication of
different sources.....................................................................................................................3
B) Evaluating the appropriate sources of finance for the company ................................................6
TASK 2............................................................................................................................................7
A) Analyse the cost of fund the project using equity versus debt finance and recommendations
on choice.................................................................................................................................7
B) Explain the importance of financial planning and assessing the information requires needs
for the financial decision-making ..........................................................................................9
C) Explain the impact of suggested finance option on financial statement...........................9
TASK 3..........................................................................................................................................10
A) Analyse the significance of budgets for variation and make appropriate decisions for the
firm.......................................................................................................................................10
B) Explanation how would calculate unit cost and make pricing decisions based upon the
appropriate information at the firm......................................................................................12
C) Assess the viability of the expansion project using investment appraisal techniques such as
NPV......................................................................................................................................13
TASK 4..........................................................................................................................................15
A) Discussion on the financial statements of Radission PLC..............................................15
B) Interpret the financial statements using appropriate ratio of a public limited company and
compare with those of another company..............................................................................17
C) Ratio Analysis for the Radission PLC .....................................................................................18
CONCLUSION .............................................................................................................................20
REFERENCES..............................................................................................................................21
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INTRODUCTION
Radission PLc is a manufacturing medium size firm of software at the London and it is
want to expand its business. The manager of the company feel that there is a lot of opportunities
relate to expand it business activities and operations. In the present research project, there is a
different source of available an it has a legal, financial implication and dilution of control.
Furthermore, there is an also explain the importance of financial planning and comparison on the
debt finance and equity (Misund,2016). There is also a comparison on the two company
financial statements and also discussion on the investment appraisal techniques.
TASK 1
A) Identification the appropriate source of finance for the firm and assess the implication of
different sources
Every firm needs a finance to run their business operations and functions smoothly. Thus,
there is two types of sources of finance available to the Radisson Plc in London and its
implication that are describe below-
Internal sources- It is that type of funds that can be generate by the firm from internally
and there of various type of internal sources available are:
Internal sources Description Legal
implication
Financial
implication
Dilution of control
Sales of an assets  The Company
can generate its
finance within
the organisation
by sale of
machinery,
furniture, office
equipment,
goodwill,
licenses, land
and building.
 There is a
legal
implicatio
n of sales
of an
assets by
the seller
to the
vendor so,
it requires
a legal
formalities
 These internal
sources also
create a
financial
implication in
that the owner
of an assets
sales any kind
of assets to
the purchaser
it will raise it
short-term
 There is no
dilution of control
as there is no any
other external
parties engage
with the firm.
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and
documenta
tion
process
under the
contract.
funds.
Therefore, in
the other the
firm have to
reduce its
price to clear
off the stock.
Retained profits  In this internal
source of
finance the
Radisson Plc
can generate its
long-term
finance from
internally
 In that the
company can
used its retained
earning that are
remains after
the distribution
of dividends to
the
shareholders. It
is beneficial for
the company as
its helps them to
reinvest in the
organisation to
expand its
 There is
no a legal
as well as
financial
implicatio
n as the
retained
profits is
used by
the
company
for itself
so, it does
require
any legal
formalities
. (Epstein
and
Buhovac,2
014)
 Further, there
is no financial
implication
but the
company
increase its
sales by
reinvesting in
its business.
 These type of
retained profits
does not have a
dilution of
control.
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business in a
short period of
time. Thus, it
helps in
generating large
revenues.
External sources- It is that type of sources that are used by the firm from the outside the firm to
generate its funds more effectively.
External
sources
Description Legal
implication
Financial
implication
Dilution of control
Bank loan  The company
can generate its
funds by take
any type of loan
for the purpose
of business
from the
banking and
financial
institution.
 The bank loan
can be taken by
the Radisson
PLC from the
bank firm at the
rate of interest
for some
maturity time
period.
 The bank
loan given
by the
company
only when
the other
party fill
all the
legal
requireme
nts that are
necessary
required.
So, there
is a legal
requireme
nts
(Jackson,2
010).
 The bank loan
have a
financial
implication
for the
company as
they have to
re-pay its loan
payment
before
maturity
period at
interest.
 The bank loan
have a
financial
implication
for the
company as
they have to
 . The dilution of
control of bank
loan with the bank
firm is low.
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re-pay its loan
payment
before
maturity
period at
interest.
Venture capital  The Radisson
PLC can take
generate its
funds from the
externally with
the venture
capitalist by
borrow the
equity capital
participants.
 These external
source of
finance not only
provide
financial
assistance
support but it
also act as a
consultancy
firms in which
they give the
proper
guidance.
 There is
legal
implicatio
n of
venture
capital is
that the
company
who
borrow the
equity
capital
have to fill
all the
legal
formalities
before
borrow
capital
from the
venture
capitalist.

 The financial
implication is
that the
venture firms
is a part of
stakeholder
so, it is a
responsibility
of the
Radisson PLC
is that to pay
the dividend
as a cost of
finance to
them from its
profits.
 The dilution of
control of the
venture capital is
high as the
venture capitalist
invest its major
part.
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B) Evaluating the appropriate sources of finance for the company
The Radission PLC choose the appropriate source of finance by take into consideration its
advantages and disadvantages that are discussed below-
Bank loan
Pros
 The main benefits from the bank loan is that it is a secured loan and there is not any
change in the fixed interest rate.
 The firm who take bank loan can get an advantage of tax benefits.
Cons
 The disadvantage of bank loan is that it is not suitable for the small firm as they charge
high rate of interest (Eckerd,2015).
 Bank charge high penalty cost from the firm if they not re-pay amount of bank loan on
maturity period.
Retained earning
Advantages
 The main advantage of the retained profits is that it help the firm to expand it business
effectively.
 The another advantage of these external source of finance is that it does gives any kind of
financial burden to re-pay the loan like other bank loan.
Disadvantages
 The company sacrifice its money by re-investing in the firm and its also create
opportunity cost to the firm. .
 The company may suffer loss if they cannot earn high returns from the re-investing in a
business (Epstein and Buhovac, 2014 ).
From the above advantages and disadvantage of sources of finance it can be said that the
most appropriate sources of finance for the Radission PLC is a bank loan. Thus, it gives benefits
for the firm as company can easily finance its business from the bank loan and they can easily
generate high rate of profits.
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TASK 2
A) Analyse the cost of fund the project using equity versus debt finance and recommendations
on choice
There is a difference among the equity finance and debt finance
Sources Cost implication advantages
Equity
 Preference
shares
 Retained
profits
 Equity shares
The cost of these
sources of finance is
that in which there is
a payment of
dividends in the
annual that are from
earning and with the
payments there is a
tax
implication(Yellen,2
016).
 There is a
less risk as
compared to
other finance
source.
 There is an
dividend has
been made
after
deduction all
the firm's
cost.
Disadvantage
 No Tax relief
 Higher cost
Debt
 Bank loans
 Commercial
borrowings
from
financial
institutions
 Issue of
bonds as well
as
debentures
etc.
 The cost is
relate to the
interest rate
of loans
 Tax benefits
 Cost incurred
less
 The payment
are to be
made on
periodical
basis
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Recommendations
From the above it has been analyse that Radisson PLC should opt the debt financing in
which the there is a completion of contract from the software supplier than they can easily afford
to re-pay loan. There they get tax-benefits on payment interest that leads to reduce risk.
B) Explain the importance of financial planning and assessing the information requires needs for
the financial decision-making
There is an significance of the finance planning for the Radission PLC are as follows-
 It help the company to assist the inflow of cash and outflow of cash of future periodical
time period.
 It also help them to optimum utilization of resource and they can able to determine the
right time to generate funds.
 It also help in reduction cost and make a financial plan regard to cost and revenues.
 The another benefit is that they can easily forecasting its profitability.
C) Explain the impact of suggested finance option on financial statement
The company can opt for the finance to expand its business from the debt financing that
can be taken from the bank is a long term loan. It will impact on the Radisson PLC financial
statements in which there is a reduction in Net profits due to maximizing the interest cost which
is a part of the net/ profit of the firm(Greenbaum, Thakor and Boot,eds., 2015). Along with that,
in the balance sheet there is an increase in the non-current liabilities on the debit side and the
cash at bank will increase in the credit side of the B/S. The cash inflow from the financing
activities in the cash flow statements as a loan procurement. Thus, it will be given as follow-
Statement of financial position
9

Statement of profit or loss and other comprehensive income
10

TASK 3
A) Analyse the significance of budgets for variation and make appropriate decisions for the firm
Budget means that the company can make plan and forecast all the activities that are
related to the business and also operations for the future time period. These budgets mainly
include in it are the sales budge, purchase budget, cash budget and marketing budget etc. The
most significant budget can the Radission PLC used that is Cash budget it helps the firm to
forecast all the business activities more effectively. Therefore, this budget is important for the
firm:
 Helps in forecasting future requirement: Cash budget is beneficial for the Radisson
PLC as its helps them to forecasting the requirement of monetary for the future. The
manager of the company easily make decisions regard to which sources is beneficial for
them to enhance the money (Misund,2016 ).
 Control cash expenditure: The cash budget helps the company to control expenses due
to which the finance department manager take more restrictions on its subordinates. Thus,
they can optimum usage of financial resources and influence them not to exceed the
target limit.
 Planning: The Cash budget helps the manager of finance to construct the polices as well
as make plans. It is relate to the investment plans for the future by manage the surplus
cash and also make arrangements when there is any deficiency arise.
 Performance evaluation: The cash budget can be used by the firm as a standard tool for
the evaluating the firm's performance. It is possible by make comparison of actual
management of cash with the target that are set by the firm earlier.
 Co-ordination: The cash budget is beneficial for the Radission Plc to make coordination
among all the function of marketing, sales and production etc.
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From the above cash budget it has been analyse that the Radission Plc has a better
financial position at the end of the six months. In the initial stage, the Net cash flow is positive
that is £ 1600 in the January but in the next two months the NCF is start decrease in the February
and march. It is £ 750 in the February and in the next month it is £ 490 that means there is
reduction of 35 % (Geng, Bose and Chen,2015). The reason behind the variation of NCF start
decreasing as the Radission PLC spend a lot of money on the purchase on an assets and increase
expenses of advertising of its goods or services. Therefore, it has been said that there is increase
in the NCF in the next three months that is April, May and June that is £ 1000, £ 2670 and £
5250 respectively. It is only possible when the firm see that there the NCF goes downward in the
month February and March. Thus, the company start using its unique marketing strategies this
will able them generate more revenue from the potential market.
Decisions to mitigate from the shortfalls
 Provide the trade discount offers to increase the sales amount
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 Optimum utilization of resources that run the business functions smoothly and generate
more revenues.
 Bargaining with the suppliers as well as vendors.
B) Explanation how would calculate unit cost and make pricing decisions based upon the
appropriate information at the firm
Unit and price cost
Cost per unit
Particulars Amount
Fixed expenses £55000
Variable expenses £25000
Total expenses or cost £80000
Output volume 900 units
Cost per unit £90
Margin of profit in percentage 24.00%
Selling price per unit £111.6
From the above price unit cost in which the information available of Radisson Plc in that
there is a fixed expenses related to the machinery is £35000 and salaries is a £ 20000 that the
firm produce. The fixed expenses are those which cannot be changed over a period of time.
whereas, the company also produce the variable expenses that can be changes with the time
period (Jackson,2010 ). The Radisson Plc produce variable expenses in which there is overhead
cost that is £15000 and £ 10000 for the labour cost that produce total £25000. The cited company
incurred a total expenses that is £80000 and the information available that is output volume 900
units. It has been asserted that there is a £90 cost per unit due to which the company wants to
earn profit in the future time period. Thus, firm wants to increase profit in which there is margin
profit is 24.00% with the helps of unit cost they can easily make a pricing decisions. It has been
analyse that company can earn profit of 24 % only when they sales of its goods or services at the
selling price of per unit at £111.6.
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C) Assess the viability of the expansion project using investment appraisal techniques such as
NPV
The investment appraisal techniques can be used by the firm to make investment
decisions effectively in the project. It helps the firm to make decisions regard to the project in
which they decide to invest in the on those project that generate more cash inflows. There are
various investment appraisal techniques available are the Net present value methods, Average
rate of return, Internal Rate of Return and pay-back period etc. The Radisson Plc wants to invest
on projects A and C but they only invest on those project that gives them a higher returns. For
this reason, they use investment appraisal techniques to make effective investment decisions the
are as follows-
Net Present value method
The information is given in the below table, the Radission can able to make investment
decisions by adopt the net present value method. It has been analysed that Project A there is a
initial investment made by the company is 60000 and the total cash inflow is generate over the
time period is a 125646. Thus, there is NPV is a 109.41 % and on the hand there is another
project the Radission PLC wants to invest in the Project B. The Company made a initial
investment made in it are the 60000 but there is NPV is a 150.66 %. It is clearly analyse that the
Radission can invest in the project B as there is a high NPV as compared to the Project A.
Therefore, it has been clearly shows that company generate high rate of returns from the project
B investment.
Average Rate of Return
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The ARR Investment appraisal techniques is used by the Radission PLC to determine the
firm's profitability and also adopt to know the returns on investments. In the project A there is a
initial investment made that generate total cash inflow is 198000 and the Average rate of return
is a 79.20 %. The Average of the project A is 39600 in this it can be analyse from the below
table information of Radission PLC is that the firm should invest in the project A. Thus, in the
Project B it can be said that it does not gives the firm high rate of profits as compared to the
project A (De Oliveira, 2017). The project B initial investment is a 60000 and it the total cash
outlay is a 177000 due which there is ARR is 59.00%. It means that project a is higher ARR than
the project B so, the company have to invest in the project A.
Project A Project B
Initial
investment 50000 60000
1 60000 35000
2 35000 25000
3 28000 30000
4 45000 45000
5 30000 42000
6 0 0
Total 198000 177000
Average 39600 35400
ARR 79.20% 59.00%
TASK 4
A) Discussion on the financial statements of Radission PLC
Each and every firm are required to manage its financial statements so, they can easily
analyse its financial position. There is a financial statements of Radission PLC that are as follow-
 Income statements: In the income statements in which it is clearly indicate the
company's income as well as expenses that shows the financial position of the Radission
PLC. It also helps the organisation to make an effective financial decisions on the basis of
the Income statement of the organisation. Thus, there is a income statements are:
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 Cash Flow statements: It is an another financial statement that are used to track all
transaction that are relate to cash that are resultant from the financing activities, operating
activities and investing activities. There is cash flow of cited company:
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 Financial position statement: It is a balance sheet of the company in which there is
current assets as well as current liabilities that indicate the firm's actual financial position.
There is a balance of the firm are as follows:
B) Interpret the financial statements using appropriate ratio of a public limited company and
compare with those of another company
The financial statements of any organisation is differ from each other according to the
company act in which there is a regulation of both financial and accounting framework.
Therefore, the reason behind the difference among the financial statement of any company are
the size of the firm, they are listed or not and also difference in the type of organisation. The
Radission PLC is the manufacturing medium size company as well as it is not a listed company
and on the other hand the another company is a Merlin Entertainment Plc is listed company as
well as it is a service company (Rubin, 2016). Therefore, there is a comparison of financial
statements of the above two company are as follow:
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 Income statement- There is a difference among the public and non-public limited
company is that the Merlin Entertainments generate a more revenue as compared to the
Radission PLC. Along with that, there is difference in the expenses in which the
Radission manufacturing company generate manufacturing expenses. Thus, the Merlin
Entertainments is a service company in which it mainly include selling and administrative
expenses. Statement of financial company: The financial statements of the Radission company
have a more tangible assets than the Merlin Entertainment company. Therefore, the
another major difference is that the Merlin Entertainment firm has a share capital and the
Radission has a investment capital of its business owners.
 Statements of cash flow: In the cash flow statements in operational activities of both the
manufacturing and service company have a large number. Therefore, in the finance
activity there is a issue of equity shares in the listed company that are not presence in the
Radission PLC.
C) Ratio Analysis for the Radission PLC
Current Ratio
From the table it has been interpret from the information available for the year 2015 and
2016 respectively. Therefore, in the year 2015 the data is available for the Current Assets of the
Software Company Radission PLC is 746 and other hand there is a Current liabilities are the 309.
There is calculation of Current Ratio measure by taking current assets and current liabilities by
make difference among two. Thus, from these the company current ratio is calculating is the 2.41
in the year 2015 and in the next year 2016 it is a 2.48. There is a comparison among the two
current ratio of the year 2015 and 2016 respectively in which it analyse that the firm have a
better current ratio in the year 2015 that is 2.41. It is clearly shows that in the year 2015 the
Radission PLC can easily convert the cash into liquid assets.
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Quick Ratio
From the above table it has been analyse that from the information available the Radisson
PLC have a better position in the year 2016 is a 2.33 that is most beneficial for the company.
Profitability ratio
The information available in the table its has been interpreted on comparison of the year
2015 and 2016 (Sehgal, 2017).. In the year 2016 the Radission PLC Net profit ratio is 2.63 %
that is the better for the company as compared to the year 2015 is 1.89%. In the year 2016 the
net profit is better that means that the firm generate revenues 1255 and they earn gross income
that is 175. Thus, it is clearly interpret that the firm have a better profitability ratio in the year
2016.
20

Gearing ratio
The information available in the table it has been interpret that by comparison on the year
2015 and 2016 the debt equity ratio is a 0.16 and 0.19 respectively. Therefore, it is clearly
indicate that the company have a better debt ratio in the year 2016 due to less number of debt
than the equity. In the previous year 2015 the firm is in bad position and after that the
management of the company has improved its performance by investing in the profitable areas in
an effectual manner.
CONCLUSION
Summing up the whole report, it has been concluded that, the Radisson PLC can opt the
bank loan that is an appropriate source of finance from all the available sources. Further, there is
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a also analysing that the company can earn marginal profit 24 % over a period of time if they
sales per unit is 112. There is also analyse that with the help of NPV the firm can invest in the
project B and in the ARR the company can invest in the project A.
22

REFERENCES
Books and journals
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