(solved) Assignment on Managing Financial Resources and Decisions
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Added on 2020-01-28
(solved) Assignment on Managing Financial Resources and Decisions
Added on 2020-01-28
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MANAGING FINANCIAL RESOURCES ANDDECISIONS
TABLE OF CONTENTS.........................................................................................................................................................3INTRODUCTION...........................................................................................................................4TASK 1............................................................................................................................................41.1 Identifying sources of finance that are available to business.................................................41.2 Assessing the implications of different sources.....................................................................51.3 Evaluating appropriate sources of finance for a business project..........................................62.1 Analyzing the cost of various source of finance....................................................................6TASK 2............................................................................................................................................72.2 Explaining the significance of financial planning.................................................................7To see that firm does not raise resources unnecessarily:...................................................7Provide assistance in fixing appropriate capital structure: ...............................................83. Helps in Investing Finance in Right Projects:...............................................................82.3 Assessing the information needs of different decision makers..............................................82.4 Explain the impact of finance on the financial statements...................................................9TASK 3 .........................................................................................................................................113.3 Assessing the viability of a project with the help of investment appraisal techniques. ......14TASK 4 .........................................................................................................................................184.1 Discussing the key financial statements..............................................................................184.2 Comparing the appropriate formats of financial statements for varied kinds of business...184.3 Interpreting financial statements using appropriate ratios and comparison of same ..........19REFERENCES..............................................................................................................................222
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INTRODUCTIONIts very important for every kind of organization to make choice of source of finance. Asthe choice affects the cash flows of the organization and place impact over the profitability.Every source comprises different implications as well as cost of the organization (ManagingFinancial Resources and Decisions, 2016). Looking at the present competitive and dynamicbusiness world, it is primary goals of the organizations to have an adequate availability of fundsany time so that it can protect itself from the potential threats. Having required quantity offinance sources and its proper administration is necessary so that business can achieve theirfinancial goals in most effectual manner (Adams and et.al., 2010). Present project assignmentwill demonstrate different types of sources that an organization can use to fulfill their financialneed. Effective analysis and examination of the sources helps to identify most appropriatesources so that firms can fulfill their financial requirement at less cost. TASK 11.1 Identifying sources of finance that are available to businessThere are various sources of finance from which a business can raise funds: Those are:Equity Shares/ Share CapitalShare capital is a amount that company raises from the proceeds of shares of stock fromthe public investors. Share capital includes equity financing and can be generated through thesale of common or preferred shares (Beck, Levine and Loayza, 2010). Though share capitalrefers to a dollar amount, it is dictated by the number and selling price of a organisation shares.For example, If a company issues 1,000 shares for £25 per share, it generates £25,000 in sharecapital. Share capital falls into one of several categories, depending on where the company is inthe equity-raising process.DebenturesDebenture us a long term instrument with the help of which copies borrow money fromgeneral public at fixed rate of interest. In originally it can be refer to as the document that eithercreated acknowledges while some countries are using bonds loan stock etc these days (Bennounaand et.al., 2010). Financial Institutes 4
Financial institute is a establishment that conducts the financial transactions such asloans, deposits, investments etc (Bhimani, Datar and Foster, 2002). Everything from depositingmoney to taking out of loans and exchanging currencies must be done through financialinstitutions. Here is an overview of some of the major categories of financial institutions andtheir roles in the financial system.Commercial BanksA commercial bank is a financial institution that provides different financial service, suchas issuing loans as well as accepting deposits. Commercial bank customers can take advantage ofa range of investment products that commercial banks offer like savings accounts and certificatesof deposit (Blocher, Chen and Lin, 2008). The loans a commercial bank issues can vary frombusiness loans and auto loans to mortgages.1.2 Assessing the implications of different sources Implications of share capital are it helps in increasing the flexibility in issuing additionalstock that is considered as a security that is not require to be paid back. Under this theorganizations are not required to make regular interest or principal payments that givesmanagement more operational flexibility. It also leads to the dilution of ownership of existingshareholders (Bougheas, Mizen and Yalcin, 2006). Debentures does not result into the dilution of interest of equity shareholders as they donot have any right to vote or either to take a part into the management of organisation. Also theinterest is tax deductible expenditure and so saves income tax. Another implication of debentureis that cost of debenture is low in comparison to equity as well as preference shares. However,payment of interest on debenture is obligatory and hence it becomes burden if the companyincurs loss (Broadbent and et.al., 2012).Implication of financial institute carries both loan capital as well as risk and also providesfacility of underwriting. For the organizations which have been set up at a low scale it is easierfor them to take loan from financial institution than that of taking loans from public. However,concern requiring finance from public financial institutions has to submit itself to a thoroughinvestigation that involves a number of formalities and documents (Brunzell and et.al., 2013).Implications of Commercial Banks are that it is quick and cost effective way of raisingregular working capital. It is best way in which the organisation can make advantage of short5
term interest fluctuations in the markets and also provides exit opportunities to investors to quittheir investments (Georgiou, 2010). However, It is available only to a few selected blue chip andprofitable companies. By issuing commercial paper, the credit available from the banks may getreduced. Issue of commercial paper is very closely regulated by the RBI guidelines.1.3 Evaluating appropriate sources of finance for a business projectIn order to prepare a business project the company can take loan from two sources thatare commercial banks and financial institutions. As in case if financial institute it is easier for thecompanies to recover the theft amount if any. This can be better understand with an example thatis in any case money will be paid back if any hacker has wiped out all financial resource formthe account (Gray and et.al., 2011). Secondly financial institution provides more freedom as ifthe company wants to transfer money from other account there is no need to pay extra feescharges, drop interest rate as well as change policy etc. Hence it will be easier for the company tomove its business somewhere else etc. Another helpful source for the organization will be of commercial banking can help asmall business by making it easier to manage day-to-day financial tasks. An establishedcommercial account with a bank will make it easier to borrow money when you grow yourbusiness. Often a business is assigned a representative who works directly with the company tofind the best services and solutions for the issues the business is facing. For example, thecompany may save money by outsourcing payroll processing (Adams and et.al., 2010). Banksalso offer invoicing services, with personalized invoices, and can set up transfers to other bankswhich will simplify accounting procedures. Some banks offer retirement account managementfor your employees as well as other employee benefits. This can save you money, and make iteasier to manage all of the services you offer employees. Some banks allow you to makedeposits online by scanning checks. Your bank may offer you discounts on your merchantservices fees. Commercial banking allows you to set up direct deposits for your employees aswell as for any invoices you need to pay to others, which will save you time.Since its inception that company wants to expand in market and thus it require largeamount of funds for different business activities. In this respect, company needs to invest in newbuilding. Therefore, it can obtain bank loan as it provide large amount of funds at flexibleinterest rate. The construction loan can be obtained and can be easily repaid in few installments.6
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