Financial Management Analysis and Sources

This assignment delves into the core concepts of financial management, encompassing analysis techniques, reporting standards, and various sources of financing for businesses. Students will analyze financial statements, apply ratio analysis to assess performance, and examine diverse funding options like venture capital and debt financing. The assignment emphasizes understanding the interplay between financial decisions, market dynamics, and business success.

MFRD

Table of Contents
MFRD..............................................................................................................................................1
OVERVIEW....................................................................................................................................1
Task 1...............................................................................................................................................1
1.1 Types of economics..........................................................................................................1
1.2 Significance of different mode of raising capital.............................................................2
1.3 Best sources that can be used by restaurant ....................................................................3
Task 2...............................................................................................................................................4
2.1 Value of various origin of business..................................................................................4
2.2 Significance of planning the activities in advance ..........................................................5
2.3 Various information need by decision maker of the company.........................................6
2.4 Effect of various sources on fiscal documents.................................................................7
Task 3...............................................................................................................................................8
3.1 Analyse of Blue Island restaurant cash budget.................................................................8
3.2 Computing of Unit cost....................................................................................................8
3.3 Selection of best proposal by using various investment techniques.................................9
Task 4.............................................................................................................................................10
4.1 Financial statements.......................................................................................................10
4.2 Various statements prepared by different organization..................................................11
4.3 Computation of different ratios in order to examine which restaurant financial
performance is good.............................................................................................................11
INTERPRETATION......................................................................................................................13
REFERENCES..............................................................................................................................15

OVERVIEW
Finance is the governance and allotment of the funds and resources in every section and
project with an aim an achieve the desired objectives. In simple words it can be interpreted that it
is the procedure of allocating funds in a balanced way in every project.
In this project report different modes of finance that can be used by the Sweet Menu to
increase its capital are depict. These sources will help the company to raise finance in order to
fulfil various requirements. Along with this, expenses that needs to be bear by the company
while increasing its capital through this sources are also mentioned. Benefits of planning fiscal
activities in advance are discussed. Besides this, various information required by the decision
maker are also discussed.
Along with these, receipt and payment account of Blue has been examine with an aim to
find its current financial performance. Further, the income generated by the organisation on sale
of everyday meal is interpreted. In addition to this, an effort has been made to find out the best
proposal that can prove to be beneficial for Blue Island restaurant. Lastly, financial ratios of both
the restaurant are premeditated with the purpose to find out which restaurant fiscal performance
is better.
Task 1
1.1 Types of economics
Different modes of finance are available within the economy by using which every
organisation is able to increase its capital to fulfil various needs and wants. Thus, few resources
are presented within the organisation and some are required to be raised from outside the firm.
Internal sources of finance
Sale of fixed assets: - By selling the fixed assets any company can increase its finance. In
lieu which company sell out its aged assets that are of no use longer?
Friends and family: - An organisation can increase its capital by adoption it from its
angel investors. (Barnes and Pancost, 2010). It is cost effective source by which Sweet can hike
its capital. The reason behind this is that company is able to get loan from the friends and family
members at low rate of interest.
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Retained profit: -It is a part of money that is kept by the company after paying all its
expenses. This money is kept by the company in order to meet up any sudden uncertainty that
can occur in upcoming year.
External sources of finance
Loan from financial institution: - By using this method an organisation is able to cope up
all its requirement of capital. Through this source firm borrow fund from the bank by simply
paying the interest.
Issue of shares: - This source is used to fulfil age long objectives by issuing shares in the
market. In this method, the firm issues the equity shares to the general public with the aim to
increase its capital (Bellas, Toudas and Papadatos, 2007). Moving on with source will help the
company to meet up its long run objectives.
Leasing/hire purchase: - in this, the organization can use the assets or property without
purchasing it. Company use the assets by simply paying instalments.
1.2 Significance of different mode of raising capital
Origin Lawful feature Dilution/ownership Bankruptcy
Issue of shares Company is required to
consider a legitimate
procedure when they are
issuance the shares to the
general public.
Possession of the share
issued changes as and
when the legal procedure
has been completed.
If condition of insolvency
occur than in that case
firm is not required to
pay dividend.
Bank loan Lawful process is required
to be considered by the
organisation at the time of
borrowing fund from the
bank (Bentz, 2007).
Possession of the fund
borrowed by the
institution changes.
Bank seizes the collateral
security provided by the
company.
Leasing/Hire purchase A simply
agreement/contract is
made between both the
parties with the purpose to
use the asset for a specific
Ownership changes only
after all the instalments
are paid by the company.
In case of bankruptcy,
company is not able to
pay the instalments for
the quality hired.
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period of time without
buying it.
Sale of assets A judicial activity is
required to be precede by
the company at the time
of selling the asset.
Control of the assets
changes as and when
they are sold out.
Creditors sell out the
assets of the company in
order to recover their
money (Bhowmik and
Saha, 2013).
Preserved earnings No juristic operation need
to be predate by the
company.
State remains with the
company itself.
If preserved earnings is
available with the
company than in that case
condition of insolvency
cannot occur.
Friends and families No legitimate process is
required to be undertaken
by the company at the
time of borrowing funds
(Vitez, 2014).
Possession of the fund
adopt changes.
Friends and family can
collect its money from
the company by
merchandising the
property of the firm.
1.3 Best sources that can be used by restaurant
Origin Pros Cons Suitability
Issue of shares Company is not required
to repay the amount of
money raised by the
general public (Cetorelli
and Strahan, 2006).
Company need to pay
dividend to the
shareholders out of the
profit earned by them. In
lieu of the earnings
amount of the Sweet
Menu restaurant
decreases.
This method is most
suitable for the Sweet
Menu restaurant in order
to establish two new
business units.
Depository financial By using this method High amount of interest This source is appropriate
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institution loan Sweet will be able to
increase its finance in
order to fulfil its
requirement for small
time period.
is required to be paid by
the restaurant. In addition
to this they are also
required to deposit some
of its assets as security. .
for expanding the
business and for
purchasing new
machinery.
Sale of asset This tool may help the
company to raise its
capital by selling out the
assets that of no use
longer.
At the time of selling the
asset company may not
be able to get the
depreciated value of
asset (Chandra, 2011).
Company can even face
the loss condition. In
addition to this, Sweet
Menu restaurant is also
required to follow the
limit that is decided by
board members of the
company
This method is suitable
for the Sweet Menu
restaurant to meet its
short & medium term
requirement.
Task 2
2.1 Value of various origin of business
Issuance of stock certificate: - By using this source Sweet can fulfil its long term requisite
of finance within a limited time period. Merely, it may affect the income and expenses of the
organisation. They are needful to pay profits to its investor from the net profit incurred by them.
At the same time, Sweet Menu restaurant is mandatory to face different cost at the issuance of
stock certificate.
Depository financial institution lend: - By using this method company can borrow fund
from the bank within a short period of time in order to meet its urgent requisite of finance
(Kirkos, Spathis and Manolopoulos, 2007). Merely, it will raise the expenses of the organisation.
Owner of the restaurant is required to pay broad charge of interest to bank on monthly, quarterly
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or annually basis. Besides this, the organization is mandatory to submit the collateral security
with the bank.
Sale of assets: - The restaurant will to raise its capital by simply marketing its property
that have become old and obsolescent. Merely, it may raise the expenses of the restaurant.
Sweet may not be able to sell out the asset at the price which is required by the company. Profit
margin of the firm may get reduced if the assets is not sold out at its depreciated value.
2.2 Significance of planning the activities in advance
Here are various importance of planning all the financial activities in advance. Some of
the benefit of designing all fiscal action to the restaurant is as follows:-
Hold out an equilibrium between flow of cash: - Designing the financial activities
beforehand will help the restaurant to hold out an equilibrium between flow of cash for the
organisation (Kumbirai and Webb, 2010). Balance between flows of funds will assist the
company to generate more income.
Deflect stupefaction and amazement: - Fiscal designing will also aid the Sweet Menu to
deflect stupefaction and amazement that can be faced by them due to unpredicted happening in
competitor strategies or policies.
Effectively utilizing the resources: - Advance designing of all the fiscal action will assist
the Sweet to utilize the resource present in an effective manner. This in turn will help the firm to
generate more income by reducing the wastage of resources.
Proper distribution of finance to every project and department: - Designing of all the task
beforehand will also aid the organisation to properly parcel out the fund present in every project
and division (Paramasivan and Subramanian, n.d). This in turn will provide assistance to Sweet
to seek the problem of excess or low availability of funds.
Reduce the wastage of funds: - Wastage of funds can be reduced by the company if it
starts planning all its financial activities in advance. As the advance preparation of the task will
help the organization to effectively distribute the funds to every project.
Avoid the condition of uncertainty: - If Sweet Menu restaurant starts planning all its fiscal
action in advance than in that case firm will avoid or reduce the condition of uncertainty (Mayer,
Schoors and Yafeh, 2005). The condition of uncertainty arises due to unwanted occurrence in the
surroundings.
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Competent to forecast the sales in advance: - Designing of the activities will help the
company to predict future income. Thus, in regard to this Sweet Menu restaurant to mould its
sales strategies accordingly in order to beat its competitor.
2.3 Various information need by decision maker of the company
Variety of information is needed by different decision maker. Thus, in order to collect
those information the decision maker prefer various types of statements and report that is
prepared by the company. Information needed by different decision maker is as follows:-
Investor: - Investors are those who spend their private saving into company with the
purpose to generate high return. These opt fiscal province of the firm with an aim to collect
various types of information. They require these statements in order to terminate whether a
business is generating profit or not. Along with this they choose this statements for the purpose
to examine whether they will get high return on the investment made by them.
Employee: - Employee is the individual whose occupation is to work for the welfare of
the organisation. They prefer income statements of the company in order to decide whether the
company is able to provide them salary or not. They also choose these documents with the
purpose to conclude whether they are getting proper wages.
Suppliers: - Suppliers e company. They choose this statement in order to conclude
whether company is in the position to pay them for the goods supplied by them or not.
Government: - Government are the one who work for the betterment of the society. They
opt to see the fiscal documents and company audit report. They choose these statements with an
aim analyse whether the company’s financial performance is cracking or not. Besides this, they
choose this statement to find out the amount of tax they are required to pay at the end of the
accounting year.
Director: - Director is the person who prepares different policies with an aim to achieve
the set target of the company by beating its competitors. They adopt fiscal documents and
audited account of the organisation with the purpose to find out the profit earned by the
organisation at the end of financial year. Directors of the company want to generate high profit at
the end of the year.
Client: - Client wants value for their capital invested by them. They does not prefer any
fiscal documents to take decisions (Sueyoshi, 2005). They simply wants that company should
offer them a better products at reasonable rate.
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2.4 Effect of various sources on fiscal documents
Issue of shares: - Entry of issue of stock certificate will be made in the financial position
statement of the company under stock capital. Along with this, entry of earnings paid to
shareholders is made at the right hand side of the income account.
Bank loan: - Transaction of bank loan taken by the company from the bank is taped at the
indebtedness side of the financial position statement (Molly, Laveren and Deloof, 2010). Entry
of loan taken will be made under the head of Non-current liability. In addition to this, entry of
interest paid on this loan is recorded at right hand side of income account.
Sale of assets: transaction of asset sold by the company is recorded in financial position
under current assets.
Income statement (31st December,)
Operational income
Less: expenses payable to the bank
Earnings before revenue enhancement
Revenue enhancement
Earnings after revenue enhancement
Dividend paid to shareholders
Preserved earnings
Financial position statement
NON-CURRENT POSSESSION
Furniture
less:- assets sold
…...
…...... …....
CURRENT ASSETS
Payment(+)[due to sale of fixed asset]
Bank(+)[due to bank loan taken from bank]
….....
SHARE CAPITAL
50,000 ordinary share capital @ £20 per
share
Revenue reserves(Retained profit)
….....
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NON-CURRENT LIABILITY
Loan …....
Task 3
3.1 Analyse of Blue Island restaurant cash budget
From the following analyses it is see that the fiscal performance of the restaurant is
constantly changing. Its funds that moves outside the company is more than its inflow of funds in
the month of September and December. Along with this, it has be witnessed that Blue Island
restaurant inflow was more than outflow in the month of October and November. Thus, it can be
interpreted that fiscal perspective of the organization is not healthy enough. It is not able to hold
back the equilibrium between its flow funds. Thus, to seek out this problem restaurant should
start focusing more on forming various strategies. Along with this they should focus on the
research and development. Blue Island restaurant should plan its fiscal activities in advance with
an aim to defeat the problem.
3.2 Computing of Unit cost
Unit cost is the value that is subject by the organization while they are producing, selling
or storing one unit of a particular product.
Evaluation determination: Cost indicates the summarizing of fixed proportion of earnings
and expenditure that is subject by the firm (Muradoglu and Harvey, 2012). By following this
strategy, Blue is able to cover all its cost and at the same time it is able to generate profit.
Name of Component Monetary value (In £)
Steak 3
Vegetables and other ingredients 1.5
Labour 3.5
Overheads 2
Total Costs 10
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Mark Up (40%) 4
VAT (20%) 2
Selling Price 16
Profits (Sales - Cost) 6
Profit percentage on sales = Profit/sales prices*100
Profit percentage on sales = 6£/16£*100
Profit percentage on sales =0.375%
Food cost percentage = Total costs of ingredients/Sale prices
Food cost percentage = 10£/16£*100
Food cost percentage = 62.50%
On the basis of the above computation it is concluded that, Blue Island restaurant has
earned £6 from per customer. The reason behind this is that total cost of the product is £10
whereas Blue Island assertion £16 for the nutriment. Therefore, percentage of cost on sales is
62.50% and the profit percentage is 37.5%.
3.3 Selection of best proposal by using various investment techniques
Payback period
Year Proposal 1
Cash inflows
Proposal 2
Cash inflows
0 (£1,200) (£1,200)
1 £800 (£400) £300 (£900)
2 £600 £200 £400 (£500)
3 £400 £600 £500 £0
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4 £200 £800 £600 £600
5 £50 £850 £500 £1,100
Residual Value £0 £850 £50 £1,150
Payback period: - From the following calculation it can be interpreted that Blue is
required to move on with proposal 1. The return on investment of proposal 1 is earlier against
that of proposal 2. Company use this technique to compute the number of year’s later company
will be able to acquire the amount endowed by them (Paramasivan, 2009).
Net present value
Proposal 1
Discounted
Factor
@10%
Present
value Proposal 2
Discounted
Factor@10
%
Initial
investment (£1200)
1 £800 0.909 £727.2 £300 0.909
2 £600 0.826 £495.6 £400 0.826
3 £400 0.751 £300.4 £500 0.751
4 £200 0.683 £136.6 £600 0.683
5 £50 0.621 £31.1 £500 0.621
Residual Value £0 0.621 £0 £50 0.621
Net Present
Value £491
Net present value: - From the following computation it can be terminated that Blue should go
with the proposal 2. The proposal 2 will aid the company to generate more return on investment
as compared to proposal 1. This technique is used by the firm to compute the cash flow by
taking into consideration the rate of discounted factor.
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Task 4
4.1 Financial statements
Generally there is types of documents that are equipped by the organisation at the end of
the accounting year.
Income statements: -Income statements is equipped by every organisation with an aim to
compute the earning and expenditure that is incurred by the firm at the end of accounting year.
(Revsine and et.al. 2005). This document is also braced by the company in order to calculate the
amount of dividend which is required to be paid by the organisation to its investors. This
statement also helps the company to conclude whether the company has earned profit or has
suffered the loss.
Financial position statements: - Financial position statements is braced by every
organisation with an aim to conclude the financial performance of the company. By preparing
these documents, the company is able to compute the assets available and liabilities made by the
institution at the end of accounting year.
Cash flow documents - Cash flow documents are equipped by the organization in order to
calculate the flow of money. They statements are bifurcate into three different activities i.e.
operating, financing and investment activities. In this documents all the transaction made in cash
by the company are recorded.
4.2 Various statements prepared by different organization
Partnership firm: - These firms are established by making an agreement between two or
more parties at the time of its start up (Ross, 2008). These types of organisation are obligatory to
alter all type of fiscal documents. Besides this, they are also mandatory to form partners’ capital
account.
Non-profit organisation: - Non- profit organisation operate its business for the betterment
of the community. These types of organisation are also known as the charitable institution. These
organisations are simply requisite to form the receipt and payment account with an aim to
analyse the financial gain generated and expenditure made by the institution.
Individual proprietor: - this is the organisation which is owned and controlled by one
person only. In other words, it can be said that all the transaction of the organisation are
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controlled by an individual (Schroeder, Clark and Cathey, 2011). These organisations only
prepare ledger and trial balance in order to record the daily transaction made by them.
4.3 Computation of different ratios in order to examine which restaurant financial
performance is good.
Ratios Sweet
Restaurant Blue Restaurant
PROFITABILITY RATIO
Gross profit £222,500 £198,000
Net sales £350,000 £299,000
Gross profit ratio
Gross profit
ratio=Gross
profit/Net sales*100
63.57% 66.22%
Net profit £85,000 £94,800
Net sales £350,000 £299,000
Net profit ratio Net profit Ratio=Net
profit/Net sales/100 24.28% 31.70%
SOLVENCY RATIO
Sales £350,000 £299,000
Stock £44,000 £31,000
Stock turnover ratio
Stock turnover
ratio=COGS/Avg
inventory*100
0.12 0.10
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Debt £31,000 £5,000
Equity £164,000 £118,000
Debt equity ratio Debt equity
ratio=Debt/Equity 0.19 0.04
FLUIDITY RATIO
Current assets £68,000 £41,000
Current liability £195,000 £123,000
Current ratio
Current
ratio=Current
assets/Current
liability
0.35 0.33
Liquid assets £24,000 £10,000
Current liability £195,000 £123,000
Quick ratio
Quick ratio=Current
assets-Stock/Current
liability
0.12 0.081
Profitability ratio: - On the basis of the above calculation it could be interpreted that
fiscal perspective of Blue much favourable as compared to Sweet. Higher profitability ratio point
out that an organisation position is groovy. In this case it can be finished that Blue has started
concentration on diminishing cost of manufacture.
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Fluidity ratio: - From the above calculation it can be summed up that fiscal perspective of
Island restaurant is much better against the Menu restaurant. Lower fluidity ratio show that high
amount of cash is available with the company.
Solvency ratio: - From the following computation it can be terminated that solvency ratio
of Blue is good against that of Sweet. The lower solvency ratio figures out that fiscal orientation
of the restaurant is better.
Therefore, at the end it can be depicted that fiscal orientation of Blue is much favourable
as compared to that of Sweet in context of liquidity, profitability and solvency.
INTERPRETATION
As per the above report it can be interpreted that different sources of finance of are
present with the restaurant with an aim to increase its capital. In this, some best sources are
concluded through which Sweet Menu restaurant can increase its funds. In addition to this Effect
of various sources of funds on fiscal document has been identified. In this report various
statements required by the stakeholders is concluded.
In this monetary fund of Blue is also analysed with an aim to examine its present market
performance. It is also concluded that proposal 1 is much favourable against that of proposal 2,
Thus, Island restaurant should move on with proposal 1. Lastly financial ratios are computed to
analyses which restaurant financial performance in the market is good.
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REFERENCES
Books and Journals
Barnes, M.L. and Pancost, N.A., 2010. Internal sources of finance and the Great Recession.
Available at SSRN 1708204.
Bellas, A., Toudas, K. and Papadatos, K., 2007. The consequences of applying International
Accounting Standards (IAS) to the financial statements of Greek companies. In 30th
Annual Congress of European Accounting Association, Lisbon-Portugal.
Bentz, R. P., 2007. Acquiring and managing financial resources.
Bhowmik, S.K. and Saha, D., 2013. Sources of Finance. In Financial Inclusion of the
Marginalised. Springer India.
Cetorelli, N. and Strahan, P.E., 2006. Finance as a barrier to entry: Bank competition and
industry structure in local US markets. The Journal of Finance. 61(1). pp.437-461.
Chandra, P., 2011. Financial management. Tata McGraw-Hill Education.
Kirkos, E., Spathis, C. and Manolopoulos, Y., 2007. Data mining techniques for the detection of
fraudulent financial statements. Expert Systems with Applications. 32(4). pp. 995-1003.
Kumbirai, M. and Webb, R., 2010. A financial ratio analysis of commercial bank performance
in South Africa. African Review of Economics and Finance. 2(1). pp. 30-53.
Mayer, C., Schoors, K. and Yafeh, Y., 2005. Sources of funds and investment activities of
venture capital funds: evidence from Germany, Israel, Japan and the United Kingdom.
Journal of Corporate Finance. 11(3). pp.586-608.
Melis, A., 2007. Financial statements and positive accounting theory: The early contribution of
Aldo Amaduzzi. Accounting, Business & Financial History. 17(1). pp.53-62.
Molly, V., Laveren, E. and Deloof, M., 2010. Family business succession and its impact on
financial structure and performance. Family Business Review, 23(2), pp.131-147.
Muradoglu, G. and Harvey, N. 2012. Behavioural finance: the role of psychological factors in
financial decisions. Review of Behavioural Finance 4 (2). pp.68 – 80.
Paramasivan, C. 2009. Financial management. New age international.
Revsine, L. and et.al., 2005. Financial reporting and analysis. New York, NY: Pearson/Prentice
Hall.
Ross, S. A., 2008. Modern financial management-/Stephen A. Ross...[et al.]. New York [etc.]:
McGraw-Hill/Irwin.
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Schroeder, R. G., Clark, M. W. and Cathey, J. M., 2011. Financial accounting theory and
analysis: text and cases. John Wiley and Sons.
Sueyoshi, T., 2005. Financial ratio analysis of the electric power industry. Asia-Pacific Journal
of Operational Research. 22(03). pp. 349-376.
Online
Vitez, O., 2014. Sources of Finance Medium Term Borrowing[Online]. Available
through:<http://www.ehow.com/facts_5652982_sources-finance-medium-term-
borrowing.html>. [Accessed on 18th January 2016].
Paramasivan,C. and Subramanian,T., n.d. Financial Management [pdf]. Available
through:<http://vcmdrp.tums.ac.ir/files/financial/istgahe_mali/moton_english/
financial_management_%5Bwww.accfile.com%5D.pdf> [Assessed on 18th January 2016]
.
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