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Different Financial Sources- Report

   

Added on  2020-02-05

18 Pages4678 Words50 Views
Managing FinancialResources and Decisions1

Table of ContentsINTRODUCTION ..........................................................................................................................3TASK 1............................................................................................................................................3AC 1.1 Identify the sources of finance available to a business ..................................................3AC 1.2 Assess the implications of the different sources of finance identified ...........................4AC 1.3 Evaluate appropriate sources of finance for business project ........................................5TASK 2............................................................................................................................................6AC 2.1 Analyse the costs of each of sources of finance which are identified ............................6AC 2.2 Explain the importance of financial planning and give details of how this financialplanning undertaken.....................................................................................................................6AC 2.3 Identify and assess the information needs of internal and external decision makers......7AC 2.4 Explain the impact of finance on the financial statements..............................................8TASK 3............................................................................................................................................8AC 3.1 Projected budgets and appropriate decision towards the chosen contract .....................8AC 3.2 Calculation of unit costs for the chosen contract and make pricing decisions usingrelevant information.....................................................................................................................9AC 3.3 Viability of the chosen contract using different investment appraisal techniques.......10TASK 4..........................................................................................................................................13AC 4.1 Main financial statements by explaining what they contain, their purposes and whomakes use of them......................................................................................................................13AC 4.2 Compare the formats of main financial statements for different types of businesses ..14AC 4.3 Interpret financial statements and ratio calculation of Sainsbury Plc...........................14CONCLUSION .............................................................................................................................16REFERENCES .............................................................................................................................172

INTRODUCTION Financial decision making is pivotal for business as it directly links with the profitabilityand financial performance of an organization. In order to gain success in the corporate world,businesses focus on management of financial resources (Hill, 2007). For gaining higher profitsand maintaining a smooth financial performance, companies use various financial tools. Thismanuscript is based on a case scenario in which an entrepreneur requires bidding on a businessproject but there are not enough financial resources to invest into project, therefore, varioussources of finance need to be searched. The report herewith is going to discuss about differentfinancial sources that can be used for raising funds for investing into proposed business.Furthermore, the report represents implication of chosen sources of finance along with their cost.This unit also represents the importance of financial planning and impact of finance on thefinancial statements. Moreover, financial ratio analysis is done for the purpose of interpretingfinancial statements and assessing profitability, liquidity, efficiency and investment performanceof J Sainsbury Plc.TASK 1AC 1.1 Identify the sources of finance available to a businessAccording to the given business scenario, an entrepreneur requires total £300,000 for thepurpose of investing into a business project. However, only £20,000 is with him to invest intobusiness, therefore, the balance needs to be borrowed. For this purpose, entrepreneur is lookingfor various sources of finance that could meet the financial needs. Internal and external are twomajor sources of finance that could be used; internal sources are those which are acquired fromthe business, on the other hand external sources are those sources in which business raises fundsfrom outside (Zoan, 2014.). Here are some sources of finance that could be used by theentrepreneur:Personal capital: The saving available with the business owner can be used to invest innew project. This will be an internal source of finance for which the business is not required topay the financial cost. The cited source of finance is easily available and provides cost benefits. 3

Retained earnings: Retained earnings are the part of previous year’s profits and are keptsafe by the business for the purpose of using it in the future. This source of finance can only beused for existing business and which had earned profits in last year. This is also an internalsource of finance however; its uses are limited in the present case scenario (Wildavsky, 2006). Issues of shares : Equity financing or issue of share is the external sources of finance inwhich company offers shares to public and raises funds to invest in business activities. Throughsuch sources, large funds can be accessed; however, company has to share ownership withshareholders (Sources of finance, 2013).Issues of debenture: Debt issuing is a kind of loan for the company in which debentureholders are to be paid with interest against their amount. However, business has to do manyformalities to raise funds from such sources.Bank loan: The organizations or business owners can take loan from financial instituteshowever; they have to put securities against loan taken and have to pay the interest. Venture capital: Venture capitalistic firms provide finance to the business holdersagainst their unique business idea or a profitable business deal. But, from these sources limitedamount of fund can be raised.Government grants: The business entities can also raise funds in the form ofgovernment grants, however, there are huge competition in market for acquiring governmentgrants is the limitation of this source (Cox and Fardon, 2003). AC 1.2 Assess the implications of the different sources of finance identified Sources Legal Dilution of Ownership Bankruptcy Owner's capital No legal restriction offund generation The power ofcontrolling will bediluted. The business entity willbe financial obliged forusing such sources fornot getting in thesituation of insolvency Shareholders andBoard of membersNo change incontrolling position Being a part of reserveand surplus, there are no4

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