Corporate finance & Decision Making Report

Corporate finance and
decision making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Sources of finance .................................................................................................................3
1.2 Implication of sources of finance...........................................................................................3
1.3Appropriate sources of finance...............................................................................................3
TASK 2............................................................................................................................................4
2.1 Analyze cost of different sources of finance..........................................................................4
2.2 Importance of finance planning.............................................................................................4
2.3 Assessing financial information needs of three main decision makers................................4
2.4 Impact of finance on financial statement...............................................................................5
TASK 3............................................................................................................................................5
3.1 Preparing cash budget............................................................................................................5
3.2 Unit cost of products..............................................................................................................5
3.3 Calculating cost of each project.............................................................................................6
TASK 4............................................................................................................................................7
4.1 Main financial statements......................................................................................................7
4.2 Compare appropriate formats of financial statements...........................................................7
4.3 Interpreting financial statements using ratio analysis..........................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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ILLUSTRATION INDEX
Illustration 1: Income statement of manufacturer............................................................................8
Illustration 2: Income statement for sole trader...............................................................................9
Illustration 3: Balance sheet of limited company..........................................................................10
INDEX OF TABLES
Table 1: Cash budget.......................................................................................................................6
Table 2: Unit cost of products..........................................................................................................6
Table 3: Payback period...................................................................................................................7
Table 4: Net present value of project 1 & 2.....................................................................................7
Table 5: ARR of project 1 & 2.........................................................................................................7
Table 6: Ratio analysis...................................................................................................................11
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INTRODUCTION
Management of financial resources is crucial task by which company integrate all
business activities in the direction of growth and success of the firm. Present report is based on
General Sportswear private limited company which deals in sportswear of leading brands.
Corporation is having issues related to liquidity crunch and heavy overdraft. In this regard
various cost effective sources of finance are mentioned in the report. Further, budgeting and
costing as effective techniques to control cash and increase profitability have been explained.
TASK 1
1.1 Sources of finance
There are following sources of finance available for General Sportswear-
Long term
The long term sources of finance consists of bank loan, leasing companies and hire
purchase. It aids to expand business and raise long term capital in the direction of growth and
success of the corporation.
Short term
Short term sources of finance consists of retained profit, personal savings and sale of old
assets. It enables management to meet short term requirement of business and ensure consistent
flow of production (Barton, 2001).
1.2 Implication of sources of finance
As per the given scenario, it has been found that directors of General Sportswear were not
in favor of debt finance. They assumed that it merely increases cost whereby profitability go
down. This is because company has to pay cost of finance to out side party. At this juncture, it is
not important that whether corporation is getting profitability or not. This affect performance to a
great extent (Bhowmik and Saha, 2013). For example, if loan is taken by firm then management
need to pay its interest on right time. Also, principle amount need to be paid within stipulated
time.
1.3Appropriate sources of finance
According to the case study General Sportswear is planning to expand in the marketplace.
In this regard appropriate sources of finance are retained profit, leasing companies. It helps to
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