Clariton Antique Ltd: Financial Analysis and Decisions

This assignment examines the financial health of Clariton Antique Ltd. It analyzes the company's performance using current ratio, quick ratio, and project evaluation techniques to assess profitability and liquidity. The analysis also explores venture capital as a potential funding option for the business.

MANAGING FINANCIAL
RESOURCES AND DECISIONS

Table of Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
1.1 Identify sources of finance.................................................................................................................3
1.2 Assess the implications of sources of finance....................................................................................3
1.3 Evaluate the sources of finance..........................................................................................................4
TASK 2..........................................................................................................................................................4
2.1 Analyze the cost of sources of finance...............................................................................................4
2.2 Explain the importance of financial planning....................................................................................5
2.3 Assess the information needs of various decision makers.................................................................5
2.4 Impact of finance on financial statements..........................................................................................5
TASK 3..........................................................................................................................................................6
3.1 Prepare cash budget and analyze it....................................................................................................6
3.2 Calculate per unit cost and analyze pricing decisions........................................................................7
3.3 Assess the viability of the projects.....................................................................................................8
TASK 4........................................................................................................................................................11
4.1 Discuss different financial statements..............................................................................................11
4.2 Compare different financial statements used by partnership or sole trader owner...........................12
4.3 Interpretation of ratios.....................................................................................................................12
CONCLUSION.............................................................................................................................................14
REFERENCES..............................................................................................................................................16

INTRODUCTION
Finance act like a lifeline of the business which improves the existing health of the
business. Clariton Antique has been selected for this project report in order to assess the
capabilities. This report is all about different source of finance, its implications on the business.
Capital budgeting tools and ratio analysis has used.
TASK 1
1.1
Unincorporated business- It is that kind of business which is not registered under the law or
another kind of company law. There is no legal existence of the business entity in the external
market and doesn’t enjoyed any kind of rights and duties (Sharma and Keller, 2017). Sole trader
is common example of the unincorporated business who organizes their business on their own
foot without any financial or legal support offered by the government.
Retained earnings- This is used by the owner as this source of finance is the remaining amount
after deducting dividends to the available shareholders out of total amount of profit earned by an
enterprise. The own property of an individual are invested in the business of clariton in order to
earn higher profit.
Selling of assets- This is regarded as commonly used technique in which an entity will uses their
idle or obsolete assets by selling them in order to earn revenue. The earned revenue by the owner
will in turn utilize by them in their business to earn sales and the revenue in exchange of the
amount applied in the business.
Incorporated business- This is registered business who enjoy all kinds of benefits and rights of
having legal identity in the external business world.
Debentures- This is debt obligation choose by an entity owner in order to stabilize their overall
capital structure as this is cheapest source of finance. The interest will be paid by clariton to all
the debenture holders for lending specific amount of money.
Equity financing- The capital will be raised by an individual after inviting wide number of
public to apply for the shares. Shares are issued by an entity owner in order to meet their
business requirements.
1.2
Internal sources of finance
Retained earnings- The current source of finance utilized by an entity which is useful for the
business in meeting their expenses. This amount arises when dividends are payable from the
available profit earned by the business. There is no repayment of cost as the business using their

source of finance y boosting their investment spirit. It enhances the capability of an enterprise
and its overall economic growth.
Selling of assets- The existing assets held idle in the business will be sold off in order to
generate higher amount of sales and the revenue in the business enterprise. Basic risk incurred in
this source that assets some time sold at lower market value of all the assets utilized in the
business.
External source
Debentures- Taking debt by an enterprise in order to fund their business as this is regarded as
cheapest source of finance. Interest paid on the amount taken by the business in order to fund
their business will reduce the profit of an entity.
Equity financing- The Clariton will stores capital in their business for long time till the wound
up of the business entity. The dividend paid to all the shareholders is basic burden created on the
business of clariton. The cost of issuing equity shares is additional expenses incurred in the
venture.
1.3
The best suitable sources of fiancé are based on pros and cons of all the sources of
finance taken into consideration by an entity which is given as below:
Internal sources- The retained earnings are used as finance for an entity as enterprise uses their
property without any kind of obligation of using it in their business. On the other hand, selling of
assets is suitable in case of existing owner and not for an entrepreneur.
External source- Debt and equity source of finance is regarded as external source in which
applications for money are invited by the business from the external market in order to form their
overall capital structure.
TASK 2
2.1
Basis Venture capital Finance broker
Dividend We finance Ltd the venture
capitalist wants to take over
the clariton business by
providing capital in exchange
of 20% stake in their business
as an appreciation for granting
loan.
No dividend involved
Interest No interest charged Brokers provided bank loan to
the business on the behalf of

bank who charge 1% interest
as a brokerage and 2% interest
on the bank loan offered to
them.
Tax We finance Ltd will bear the
pressure of taxation imposes
on their business.
Interest on loan paid is usually
deductible of a tax.
2.2
Budgeting- the deficiency of the business gets removed by ensuring its future availability of
financial resources to strengthen the position of an enterprise (Grant, 2016). The cash budget will
determine the surplus or deficits which will be compensate by bringing cash or investing cash
into bonds.
Inadequate finance- the Insufficient amount of cash will be improved by arranging cash in
advance in order to fulfill goals of the business in the near future. The sources of fiancé are
arranged by assessing the current ability of the business.
Overtrading- The working capital can be stored in an entity in order to meet hidden obligations
in form of uncertainty which can be improved by utilizing the working capital. It can also be
improved by developing all kinds of goals.
2.3
Partners- The investing partners will care about the existing performance by assessing income
statement of clariton in order to ensure the ability of firm to repay their money. Balance sheets
has assessed in relation to the capital which will be invested in firm.
Venture capitalist- 20% interest enjoyed by the capitalist in the business of clariton is interested
in ascertaining the financial performance as it is essential in order to ensure its capabilities.
Finance broker- Brokerage fee charged by the agent for granting bank loan will incur fees of
1% along with total interest of 2% of bank loan interest that is in total 3 % will be charged
monthly from the clariton.
2.4 Impact of finance on financial statements
Venture capitalist- The amount provided by the financiers to invest money in the business of
clariton will be recorded in the balance sheet under the head capital. The interest charged by the
capitalist will reduces the profit earned by the business in a particular year.
Particulars Amount
Profit XXX
- Interest@20% (XXX)

Finance broker- The loan arranged by the broker from the bank without any kind of legal
formalities and consequences to be faced by an enterprise. The legal burden has reduces on the
business with the appointment of brokers for which brokerage fee charged by this broker that
reduces the overall profit (Cantillon, Maître and Watson, 2016). The interest paid on the loan
taken from the banks will also decrease the profit earned by an enterprise. This is also act a
liability for an enterprise that increases the obligation on the business in form of bank loan.
Particulars Amount
Equity
Capital XXX
+ Bank loan XXX
Non Current Liabilities
Bank loan XXX
Particulars Amount
Profit XXX
- EMI@2% (XXX)
-Brokerage fee charged b
agents
(XXX)
TASK 3
3.1
Particulars January February March April May June
Receipts
Received in same
month 15000 22500 30000 15000 15000 3750
Received in one
month 120000 240000 360000 480000 240000 240000
Received in two 22500 22500 45000 67500 90000 45000

month
Total receipts 157500 285000 435000 562500 345000 288750
Payments
Payment to suppliers 807250 137250 119750 437250 227250 219750
Shortage/Surplus -649750 147750 315250 125250 117750 69000
Opening cash
balance 110000 -539750 -392000 -76750 48500 166250
Closing cash
balance -539750 -392000 -76750 48500 166250 235250
Interpretation
Cash budget is prepared in order to ascertain the position of cash available in the business
in order to pay of short term obligations of the business. Cash is essential component of an entity
which will stored in the firm in order to repay their obligations by transforming all negative cash
into positive one by increasing the profit sources and variety of income sources in the business
enterprise.
3.2
Operating and running cost Total cost Units Per unit
Depreciation(Charge on machines) 5000 4000 1.25
Fuel and lubricant oil 2500 4000 0.625
Supervisor wages 500 4000 0.125
Repairs and Maintenance
Repairs 800 4000 0.2
Overhead 1000 4000 0.25
Petty expenses 250 4000 0.0625
Standing charges
Salary of manager 3000 4000

Insurance 1500 4000
Rent of premises 2100 4000
Motor vehicle 5800 4000
General expenses 4200 4000
Interest 1800 4000
Total standing cost 15400 4000 3.85
Total Cost per unit 6.3625
Add: Service tax @16% 1.108
Add profit@20% 1.27
Selling price 8.758
Absorption costing- This costing technique is highly used in developing the prices of products
as it will consider variable as well as fixed costs in the price of the products. It is alos regarded
as full costing system which will consider all kids of costing in order to ascertain the final output
in form of sales units produced by them.
Cost plus pricing- It is that form of pricing technique in which all different kinds of cost to be
incurred by the business owner in their business. Cost plus pricing technique will consider
specific profit margin of 20% included along with fixed and variable cost included in the pricing
of the products or services.
3.3
Years Project A Cumulative cash flows
0 8,60,000 -8,60,000
1 1,60,000 -700000
2 2,80,000 -4,20,000
3 3,40,000 -80,000
4 3,60,000 2,80,000
5 400000 6,80,000

6 4,20,000 1100000
Calculation of payback period
= 3+0.8/3.6
=3+0.22
=3.22 years
Years Project B Cumulative cash flows
0 4.40000 -4.40000
1 80000 -3.60000
2 1.40000 -2.20000
3 200000 -20000
4 2.40000 2.20000
5 2.30000 4.50000
6 2.60000 7.10000
Calculation of payback period
3+0.2/2.4
=3.08 years
Interpretations
Traditional form of capital budgeting is used to determine the time period taken by
particular projects in generating returns in the near future. The project produces higher return
will be selected by an enterprise. In the given case scenario, two projects are evaluated out of
which only project B will be forwarded in the business as this has produces returns in 3.08 years
out of total machinery of 6 years.
Years Project A Pv@14% Present value
0 8.6
1 1.6 0.877 1.40
2 2.8 0.769 2.15

3 3.4 0.674 2.29
4 3.6 0.592 2.13
5 4 0.519 2.07
6 4.2 0.455 1.91
Total 11.97
NPV 3.37
Years Project B Pv@14% Present value
0 4.4
1 0.8 0.877 0.70
2 1.4 0.769 1.07
3 2 0.674 1.34
4 2.4 0.592 1.42
5 2.3 0.519 1.19
6 2.6 0.455 1.18
Total 6.92
NPV 2.52
Interpretation
Capital budgeting used as assessing the viability of the projects has two method
traditional and modern techniques. Net present value method is used in assessing the profitability
of the business by using time value of money concept. In this technique discounting rate are used
in order to assess the cash flows currently generated by an enterprise n different time period. The
results have been shown that an entity has generated both the higher NPV as compared to the
section criteria is of around 2 million. Project A has generated higher value as compared to the
selection criteria which is around 3 Million.
ARR

Year Project A Project B
0 8,60000 4,40,000
1 1,60000 80,000
2 2,80,000 1,40,000
3 3,40,000 200,000
4 3,60,000 2,40,000
5 400,000 2,30,000
6 4,20,000 2,60,000
Total 19,60,000 11,50,000
Average 3,67000 1,67000
ARR 37.98% 43.56%
Interpretation
Average rate of return has analyses the profitability of business projects as this rate an
entity will earn higher amount of profit higher than its cost incurred by them. The cash flow will
be emphasizes which is the basic objective of this technique which helps in selecting the best
suitable projects who have generated higher returns in less period of time.
TASK 4
4.1
Income statement- Sales earned by an individual will be recorded in this particular statement in
order to ascertain the profitability of the business. All business activities are recorded by an
entity by preparing trading and profit loss activities to consider expenses which reduce the profit
of the business.
Balance sheet- Financial position of an entity can be ascertained by including all kinds of assets
and liabilities incurred in an enterprise. Equity in form of capital invested by the business will
help in reflecting good financial performance of the business enterprise

4.2
Partnership- Financial information gained by all the partners to enhance their existing
knowledge by assessing the income statement and financial position statement of an enterprise.
The reliability of sales and the revenue will be assessed by reviewing income statement to know
the capability of clariton in order to overtake by all the partners.
Sole trader- Sole proprietor is under no obligation n order to prepare financial statements by
following any kind of statements. They can prepare financial statements by suing any kind of
format by simply deducting all expenses from the income earned by an individual in a particular
year.
4.3
Particulars Formula 2015 2016
Profitability ratios
Revenue 1220 1255
GP 175 178
GP ratio Sales-Cost of goods sold/
sales*100
14.34% 14.18%
NP 33 23
NP ratio Gross profit-taxation/Net
sales*100
2.70% 1.83%
Liquidity ratios
Current assets 71 105
Current liabilities 161 167
Inventory 46 47
Quick asset Current assets-inventory 25 58
Current ratio Current assets/Current liabilities 0.44 0.62
Quick ratio Quick asset/Current liabilities 0.15 0.34

2015 2016
14.10%
14.15%
14.20%
14.25%
14.30%
14.35%
14.40%
14.34%
14.18%
GP
GP
Gross profit ratio- Basic profit earned by an entity by deducting the cost of goods sold from the
total sales earned by an entity is regarded as gross profit. This is regarded as steps in order to
reach the net profit of the firm.
2015 2016
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00% 2.70%
1.83%
NP
NP
Net profit- This is regarded as final amount of profit which is considered as most importat factor
in the corporate world. The performance of an entity has reduces from one period to another as

the pressure of taxation has imposes on the business of clariton.
2015 2016
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.44
0.62
Current ratio
Current ratio
Current ratio- The liquidity of the business needs to be maintained in which current assets are
assessed in relation with the current liabilities of an enterprise. The ratio shows higher
performance from 2015 to 2016 which reflects good performance of the business enterprise.
2015 2016
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.15
0.34
Quick ratio
Quick ratio
Quick ratio- The current assets are evaluated by an entity after excluding the amount of
inventory out of it as inventories will not easily converted into cash. It can be said that an entity’s
performance is increasing over the years in order to reflect the liquidity of the business.
CONCLUSION
It can be summarized from the above assignment that venture capital as a source of
finance will be selected by an enterprise in order to fund their business out of all other option of