Managing Financial Resources

Managing Financial
Resources
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Table of Contents
INTRODUCTION ...............................................................................................................................3
TASK 1 ................................................................................................................................................3
1.1....................................................................................................................................................3
External Sources of Finance ..................................................................................................4
1.2 ...................................................................................................................................................4
1.3....................................................................................................................................................6
TASK 2 ................................................................................................................................................6
2.1....................................................................................................................................................6
2.2 ...................................................................................................................................................7
2.3 ...................................................................................................................................................7
2.4 ...................................................................................................................................................8
TASK 3 ................................................................................................................................................8
3.1....................................................................................................................................................8
3.2 ...................................................................................................................................................9
3.3..................................................................................................................................................10
TASK 4...............................................................................................................................................11
4.1..................................................................................................................................................11
4.2..................................................................................................................................................12
4.3 .................................................................................................................................................13
Interpretation of financial statements of Raddison and ITS rivalry firm.......................................13
CONCLUSION ...............................................................................................................................14
REFERENCES...................................................................................................................................15
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INTRODUCTION
Finance is fuel for the business. Any business or trading organizations always deals with
managing financial resources and decision making aspects. For this there must be a basic
understanding of the sources of finances available for funding in order to minimize the costs of
finance and thereby increase profitability. In the present assignment the entire discussion will focus
on the types of financial decisions taken by the organizations, the basis on which these decisions are
taken, and the effects of these decisions on the long term profitability and goals of the company.
This report is based on the software developer company named Raddison Plc which is focusing on
it expansion perspectives (The Basics of Fiancial Management, 2016).
TASK 1
1.1
Sources of finance available
Business can raise funds from various external and internal sources of Finance available.
Following are some of the internal and external sources of finance from where business can raise
funds for its operations as well as expansion.
Internal Sources of Finance:
Internal sources of finance are the finance which can be generated by business itself
internally and need not depend on external sources of finance for the same. Internal sources of
finance are:
 Retained Profits: Retained profits are that part of profits which are not distributed to
shareholders as dividends rather retained into business for further expansion. This process is
known as 'Ploughing back of profits'. These are long term source of finance and most
effective as no conditions for repayment is attached to it. Radisson Plc can use this
effectively if business has earned sufficient profits in previous years it can retain part of
profits and use it for expansion (Petty, and et.al, 2015).
 Sale of Fixed Assets: Sale of fixed assets such as sale of land or building or investments for
generating cash for further usage is a good option to generate funds internally and
expansion. In case Radisson Plc has some unused land and buildings investments it can sell
them off and generate cash to be utilised for business expansion (Sources of Finance, 2016).
 Reduction of Working capital: Cutting down the stock levels or reducing the operating
cycle will generate cash and acts as a very good source of finance. This comes from
effective working capital management.
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External Sources of Finance
External sources of finance are those finance which are raised from outside the business.
These are the sources of finance which are externally acquired unlike retained earnings which are
internally generated and utilised.
 Equity Share Capital: Radisson Plc can raise funds through issuing equity shares. Equity
shares are common sources of funds but are governed by lots of regulations attached to it
therefore complex and involve floatation and underwriting cost. Equity share gives the
owners the ownership rights of the company.
 Long term Borrowings: Long term debts are good source of finance with low cost as
compared to equity. Financial instruments such as bonds or debentures can be issued as
acknowledging the debt towards the company and is offered to common public and has
many terms and conditions attached to it (Valackiene, 2015).
 Term Loans- Organization can avail term loans from banks and financial institutions which
can be either on fixed or floating rate of interest. A fixed sum as interest and a fixed amount
of the principle portion is required to be paid in the regular intervals. Hence this source is
the simplest way of finance procurement. However the bank keeps with itself a security of
the borrower as collateral. This security is liquidated in the event of failure to repay the
instalments.
 Venture Capital: This is modern concept of raising funds from the venture capitalist who
are the group or individuals interested in investing amount into new start ups or business
and exit once they get a good value for their investment (Sources of Finance, 2016).
1.2
Implications of Different Sources of Finance
All the sources of finances have certain implications on the company. Below is a brief
discussion of the implications of the above stated sources of finances in a tabular form.
Sources of Finances Legal Implications Financial
Implications
Others
Retained Profits Since retained profits
are from the internal
funding there are
barely any legal
compliances (Petty,
Since there is always
the concept of
opportunity cost
associated with the
retained earnings. The
If the retained earnings
are ploughed back into
the expansion of the
business the concept of
internal rate of return
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