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Analysing Financial Resources

   

Added on  2020-01-16

20 Pages5464 Words170 Views
Managing Financial Resources andDecisions

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................4TASK 1............................................................................................................................................41.1 Identifying sources of finance available to unincorporated and incorporated businesses.....41.2 Assessing the implication for using internal or external sources of finance..........................51.3 Evaluating the most appropriate sources of finance for Clariton Antique Limited...............5TASK 2............................................................................................................................................62.1 Analyzing the costs of two sources of finance.......................................................................62.2 Importance of financial planning for Clariton Antiques Ltd ................................................72.3 Assessing information need for different decision making on financing the takeover byvaried parties................................................................................................................................82.4 Impact of finance on financial statements.............................................................................8TASK 3............................................................................................................................................93.1 Preparing and analyzing the cash budget...............................................................................93.2 Calculating unit cost and making pricing decision..............................................................103.3 Assessing the viability of project using investment appraisal tool......................................11TASK 4..........................................................................................................................................144.1 Discussing the key components of financial statements......................................................144.2 Comparing format of financial statements used by Clariton Antiques Ltd to present theirfinancial statements with sole trader..........................................................................................15....................................................................................................................................................174.3 Interpreting the financial statements of selecting company by using ratios.......................17CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20Index of TablesTable 1: Cash budget.......................................................................................................................9Table 2: Working notes..................................................................................................................10Table 3: Cost and price decision....................................................................................................11Table 4: Payback period of investment 1 & 2................................................................................11Table 5: Accounting rate of return of both investment 1 & 2........................................................12Table 6: Net present value of investment 1 & 2............................................................................13

INTRODUCTIONManaging financial resources is the procedures to acquire important and necessaryresources for production of good quality of services to large number of buyers. It associatesvaried resources through which corporation can carry out all operational activities effectively.Present report is based on Clariton Antique Ltd is operating in London which has 2 branches andit is planning to open its new branch by acquiring in building in Birmingham. Furthermore,sources of finance are explained along with its implication. In addition to this, cost of eachfinancial sources has been analyzed along with importance of financial planning for ClaritonAntique Ltd. Apart from this, cash budget is analyzed along with decision to improve thefinancial position of the business. Moreover, investment appraisal techniques are explained alongwith selection of the best techniques. Furthermore, key components of financial statements arediscussed and financial performance of the firm is interpreted by using ratio analysis.TASK 11.1 Identifying sources of finance available to unincorporated and incorporated businessesThe requirement of all businesses remain same but its nature makes huge different to itsaccess to varied sources. Here, unincorporated business are those which are having their distinctidentity and operate as their own regulations (Seeta Gupta and Bhaskar, U., 2016). On the otherhand, incorporated businesses are those which regulate on the basis of rules and regulation set bythe government. These sources of both types of businesses are explained as follows-Unincorporated businessesThe businesses which are not registered or operating on the business of private ownershiphave some restriction to access sources like issue of equity share and other similar kind ofsources. However, such kind of businesses can easily access to bank loan, bank overdraft andfinancial institutions etc. Along with that, owner's saving, family & friends as well as personalloan can be also be provided (Shaikh, 2017). These sources has different nature and accordinglybusiness access them to meet their long as well as short term requirement.Incorporated businessesIncorporated business can easily access to cost effective sources of finance such as equityshare, bank loan, debentures, leasing companies and hires purchase as well as personal loan etc.

This corporation do not have restriction to utilized varied resources such as retained profit etc.Furthermore, incorporated businesses focuses to make use of issue of share which secures itsposition in the marketplace ans support business to expand itself at local or national level(Massingham, 2014). 1.2 Assessing the implication for using internal or external sources of financeThe implication of using internal or external sources of finance can be understood asfollows-Internal sources of financeThere are varied internal sources of finance such as sale of old assets, personal loan andretained profit as well as friends and relatives. It might be possible to assets which are sold at thetime of requirement of finance not valued correctly (Caniato and et. al., 2016). It tends toincrease loss of the business and affect its operational activities. Furthermore, use of retainedprofit increase the opportunity cost of the business as company lost the chance of using the samein current operational activities.External sources of financeExternal sources of finance like bank loan, issue of equity share increased the higher costfor the corporation. This is because bank loan tend to affect credit rating when its installment isnot paid on right time along with interest. Furthermore, issue of equity share again increases theobligation to pay dividend on right time (Simser, 2011). This in turn affecting entire operation ofthe business. In this manner, sources like leasing companies also require to incur cost by theClariton Antique Limited.1.3 Evaluating the most appropriate sources of finance for Clariton Antique LimitedAccording to the above evaluation different appropriate sources of finance for expansionof Clariton Antique Limited can be selected. These are explained as follows-Bank loan-Under this Clariton Antique Limited can raise long term finance to acquirenew business and start its operation together. However, it is based on management thathow much amount they will get from bank loan but it is effective for long term finance.Retained profit-In this source of finance retained profit can be used by management ofClariton Antique Limited as it is considered as the cost effective source. Also, the timetaken to get finance from this source is also very less. This shows that some amount of

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