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MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business

   

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MANAGING FINANCIALRESOURCES AND DECISIONMAKING
MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Sources of finance available to business...............................................................................31.2 Implications of different source of finance...........................................................................31.3 Appropriate source of finance for business project ..............................................................4TASK 2............................................................................................................................................52.1 Cost of different source of finance........................................................................................52.2 Importance of financial planning .........................................................................................52.3 Information needs of different decision makers....................................................................52.4 Impact of finance on financial statements ............................................................................6TASK 3............................................................................................................................................73.1 Analysis of budgets...............................................................................................................73.2 Calculation of unit cost and pricing decisions......................................................................73.3 Viability of project ...............................................................................................................8TASK 4............................................................................................................................................94.1 Main financial statements.....................................................................................................94.2 Format of financial statements............................................................................................10.......................................................................................................................................114.3 Ratio analysis......................................................................................................................18CONCLSUION..............................................................................................................................20REFERENCES..............................................................................................................................21INDEX OF TABLESTable 1: Analysis of company budget.............................................................................................8Table 2: Payback period...................................................................................................................9Table 3: Calculation of ARR...........................................................................................................9Table 4: Calculation of NPV..........................................................................................................10Table 5: Calculation of IRR...........................................................................................................10Table 6: Ratio analysis of Sainsbury.............................................................................................18ILLUSTRATION INDEXIllustration 1: P&L account for partner..........................................................................................11
MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business_2
Illustration 2: P&L account for sole proprietor..............................................................................14Illustration 3: P&L account for company......................................................................................15Illustration 4: Balance sheet of company.......................................................................................12Illustration 5: Balance sheet for partners.......................................................................................16Illustration 6: Balance sheet for sole trader...................................................................................17
MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business_3
INTRODUCTIONFinance is a life blood for an organization and no one can survive without it. In this reportsources of finance are discussed in detail. On the basis of evaluation of business best source offinance is selected for the firm. In the report, cost of different source of finance is also explained.Along with this, financial planning is discussed briefly in the report. In the middle part of thereport project evaluation technique is applied and best project is selected for the firm. At the endof the report, ratio analysis is done and comments are done on the firm performance.TASK 11.1 Sources of finance available to businessSome of the sources of finance that are available to Aquapet are as follows:Bank loan- The investment is small from business point of view and due to this reason,bank loan will be appropriate for the firm. Under this, Aquapet needs to prepareprojections for income, expenditure and cash flows. On that basis, banks measureviability of the firm project and will avail loan facility to Aquapet. While taking bankloan, firm must abstain from taking a loan at the flexible interest rate (Baker andMukherjee, 2007). This is because if loan will be taken at this rate and interest rate getselevated then finance cost of the firm will increase. Hence, firm must take loan at fixedinterest rate. Overdraft facility- Aquapet can make the use of overdraft facility. Under this, mentionedfirm can withdraw an amount that is more than bank deposit value. By using this, it canfinance its working capital needs. Thus, firm must wisely use this alternative source offinance.Consortium finance- In this, several banks will join hands in order to finance Aquapetoperations (DIAW, 2015). By doing this, Aquapet can easily raise debt amount from thebanks. Hence, Aquapet can use consortium finance in order to fund its business.1.2 Implications of different source of financeImplications of different sources of finance are as follows.Bank loan- In case of bank loan, there are many positive and negative points. There aretwo types of interest rate in bank loan including fixed and flexible. In case of fixed rate,finance cost remains same but, in case of flexible interest rate, finance cost keeps on
MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business_4
changing. Hence, Aquapet must take loan at fixed interest rate. Control of existingshareholders does not get diluted in case of bank loan (Duxbury, 2015). In order to takebank loan, Aquapet will need to complete some paper formalities with banks. Withoutsuch formalities, it cannot get loan from the banks.Overdraft facility- In case of overdraft, control of existing shareholding will also not getdiluted in the firm (Du and Girma, 2007). Moreover, by completing some paperformalities, firm can easily get overdraft from banks. In return, bank will charge someinterest on overdraft amount from the firm. Apart from this, there are no seriousimplications of overdraft for Aquapet.Consortium finance- Like bank loan, there are also some legal implications in case ofconsortium finance. For using this source of finance, Aquapet needs to present some ofthe paper documents related to company’s performance. Those banks that are providingfinance to the firm will also share company’s information with each other before giving adebt amount (Hall, 2009). Interest will be charged on Aquapet for the debt taken by same.On the other hand, no dilution of control will take place in case of this source of finance.Thus, it can be said that there are more complex legal implications in case of consortiumfinance than bank loan.1.3 Appropriate source of finance for business project Bank loan is one of the most appropriate sources of finance for Aquapet. This is becausefirm is at initial stage and it does not have high level of credibility among the banks. Due to thisreason, it becomes very difficult for Aquapet to use consortium finance for business projects.This source of finance can be used only when company has a long term business relation withthe banks and it should be good credibility among the bank. But, here the case is different asAquapet is a newly opened start up and due to this reason, it does not have good image amongthe banks (Haugh, 2005). However, banks do not have sufficient information and thus, they arenot in position to share company related information with each other. Hence, Aquapet cannot getfund through consortium finance. On the other hand, in case of banks loan it is easy to raise debt.This is because that Aquapet does not need too much big amount. There is no need ofinformation sharing with other banks. In other words, there is not a complex procedure likeconsortium finance in case of bank loan. This is the reason due to which bank loan is the bestsource of finance for the firm. Overdraft facility can be readily available from banks in order to
MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business_5
finance working capital needs. Hence, it can be said that bank loan and overdraft both are theappropriate sources of finance for Aquapet. TASK 22.1 Cost of different source of financeBank loan, overdraft and consortium finance are sources of finance which are debt innature. Interest is one of the costs that are charged on all these sources of finance. The main thingthat managers of Aquapet need to keep in mind is that they have to make sure that business is nottaking loan at flexible interest rate. In case of flexible interest rate, there are large chances ofreduction and increment in finance cost. If, interest rate is increased by the central bank, then thebank from which firm has taken loan will also increase rate (Hogan and Hutson, 2005). If, thiswill happen then finance cost for the firm will be elevated. Thus, it will be better to take loan atfixed interest rate. If, this will be done then even interest rate will increase by the central bank,but finance cost for the Aquapet will not change. Thus, it would be better to take loan at fixedinterest rate.2.2 Importance of financial planning Financial planning is importance because it is a tool by using which the best use of fundscan be made. Aquapet is newly opened business and it needs to finance its internal and externaloperations as well as invest in financial instruments. In order to make good financial plan, firmwill look after its projections that are prepared by using financial modeling techniques. By usingthese, cost sheet will be prepared and by considering this sheet, allocation for finance ofcompany internal and external operations will be made. Remaining amount will be invested inthe finance instruments (Soni and Vohra, 2014). In this section, fund will be further dividedamong investment in shares and derivative contracts. By using these contracts, firm will hedgeitself from fluctuations in the commodity market. This in turn will save a large amount of moneyand business will also in position to generate positive returns on the investment. In this way,financial planning will help firm in making the best possible sue of funds in order to financebusiness operations and investment needs. 2.3 Information needs of different decision makersFollowing are the decisions makers of the firms.
MANAGING FINANCIAL RESOURCES AND DECISION MAKING TABLE OF CONTENTS INTRODUCTION 3 TASK 13 1.1 Sources of finance available to business_6

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