Managing Financial Resources and Decisions INTRODUCTION 3 Task 13: Identifying the sources of finances for 31.2 Implication for using 41.3 Appropriate financial source for Clariton Antique Ltd 5 Task
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Managing Financial Resources and Decisions INTRODUCTION 3 TASK 13 1.1 Identify the sources of finances for 3 1.2 Implication for using 4 1.3 Appropriate financial source for Clariton Antique Ltd 5 Task 26 2.1 Costs attached with sources of finance6 2.2 Explanation of financial planning and its importance 7 2.3 Information required for making effective decision8 2.4 Impact of financial sources on accounting statements 8 Task 39 3.1 Cash budget 9 3.2 Calculation of Unit cost 10 3.3 Investment appraisal techniques 11 Task 413 4.1 key components of financial
Managing Financial Resources and Decisions INTRODUCTION 3 Task 13: Identifying the sources of finances for 31.2 Implication for using 41.3 Appropriate financial source for Clariton Antique Ltd 5 Task
Added on 2019-12-18
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TABLE OF CONTENTSINTRODUCTION ..........................................................................................................................3TASK 1............................................................................................................................................31.1 Identify the sources of finances for........................................................................................31.2 Implication for using..............................................................................................................41.3 Appropriate financial source for Clariton Antique Ltd..........................................................5Task 2...............................................................................................................................................62.1 Costs attached with sources of finance..................................................................................62.2 Explanation of financial planning and its importance...........................................................72.3 Information required for making effective decision..............................................................82.4 Impact of financial sources on accounting statements...........................................................8Task 3...............................................................................................................................................93.1 Cash budget............................................................................................................................93.2 Calculation of Unit cost.......................................................................................................103.3 Investment appraisal techniques..........................................................................................11Task 4.............................................................................................................................................134.1 key components of financial statements..............................................................................134.2 Formats of financial statements...........................................................................................144.3 Interpretation of financial ratios...........................................................................................17Conclusion.....................................................................................................................................19References......................................................................................................................................212
INTRODUCTION In order to successfully manage the financial resources within the organization it isessential for management to proper allocate the resources so that they may engage in properoperational activities. With the proper alignment and allocation of the financial resourcescorporation can easily accomplishes their goals and objectives. Along with this, it is alsoassessed that engaging in taking financial decision regarding adequate supply of funds it resultsin overcoming or minimizing the financial risk (Fischer and Marsh, 2015). For the present reportfocuses on considering the case scenario of Clariton Antique Ltd. That is started as the anunincorporated business. The company has effective brand image in the field of selling antiqueitems. Along with this, report will identify the different sources of finance that is available forboth unincorporated and incorporated business so that they can easily source the adequate fundfor operating the business activities (Zerban, Omar and Al Sibani, 2015). In addition to this, itwould also calculate or assess that viability of the undertaking project with the help of differentinvestment appraisals techniques such as IRR, NPV etc.TASK 11.1 Identify the sources of finances fora) Unincorporated business Unincorporated are such entities those do not have their separate legal identification.Sole traders or partnership firms come under such type of business. In such firms, owner has totake responsibility of risk and liability of the organization (Dimmock, Gerken and Grahm, 2015).Financial sources available to unincorporated business are as following:Bank loan: It is one of the most suitable source of finance available to the firms. AsClariton Antique Ltd is working as partnership firm, all four partners are responsible forthe risk of the organization. With the help of this source, cited firm will be able toincrease cash flow in the workplace. Apart from this it can be repaid by borrower easilybecause schedule of repayment is manageable. Long term funds requirement can befulfilled with the help of bank loan (Abazieva and et.al, 2015).3
Third party investors: Venture capitalists is the another source of finance, in this anythird party or investor can invest their money in the firm for getting high revenue. Thishelps in the enhancement of capital of the entity. As high risk is attached with the start upfirms like Clariton Antique Ltd so investors look upon the worthiness of the companythen they invest amount in it (Abraham, 2015). But cited firm will have share ownershipwith them that can influence decision making process of the corporation.b) Incorporated business These are such firms those which have legal structure, firms have to follow legalguidelines. Owner or partners are no responsible for the debt and risk of the organization.Financial sources for incorporated business are discussed below:Retained earning: It is the cheapest form of source of finance, in which organizationsretain own profit for further development of the company (Yildiz, 2014). As per thestatistical facts in UK 80% retained profit reinvested by owners for the growth ofbusiness. In this entrepreneur needs not to pay interest to any lenders thus, liabilityremains in control. Share capital: It is the shareholder's money which they invest in the organization forgetting higher profit. Shareholders get shares of the company and they enjoy preferencerights. It is long term financial source for the company and can help in increasing capitalside of the firm. If entity earns profit then they will get dividend on it (Nan and Wen,2014). 1.2 Implication for usingBoth the sources of finance that is internal and external sources support the businessorganization in raising adequate funds that assists them to operate their business activities in themarket (Aktas and et.al, 2015). There are certain implications of using both the sources that areenumerated as follows- a) Internal sources of finance Implication of using sale of assets: The key internal source of finance is selling ofunwanted assets with the help of this company can easily raise fund for the business. Theimplication for using sale of assets for raising finance results in adding expenses for theorganization (Opitz and Hofmann, 2014). As, for selling the assets such as furniture,4
building etc company requires monetary fund for opting advertisement. On the contraryto this, while selling the building the company also face legal implication as it may notresults in diluting the ownership (Vladimirov, 2015). Implication of using retained earnings: Another internal source of finance includegaining monetary fund through retained earnings these are also termed as the retainedprofit of the business that is used within the business for engaging in the businessactivities (Meyskens and Bird, 2015). There are no financial implication associated withthis form of internal source of finance. b) External sources of finance Implication of taking bank loans: The key external source of finance that is used bycorporation for raising the fund include taking loans from bank. Thus, taking bank loanresults in attaining economical implication for the business as in order to meet the bankloan the company need to repay the interest on the loan taken from the bank. Along withthis, another implication of taking bank loan is that it also act as the expense for the firmas they have to pay certain amount to bank (Atanassov, 2015). In the situation if companyis unable to repay the loan then bank is accountable to cease their operations andactivities. 1.3 Appropriate financial source for Clariton Antique LtdClariton Antique Ltd is aiming to open its second branch and cited firm wants to raisefunds so that it can expand its business globally. For achieving this objective Clariton AntiqueLtd needs huge amount, so bank loan will be the most suitable source of finance for theorganization. Security charges and interest rate of financial institutes are affordable (Florackis,Kanas and Kostakis, 2015). Apart from this cited firm can repay the amount in easy installments.So that risk is limited thus it may give good results to the organization. Though it will increaseliability but Clariton Antique Ltd can manage it and will be able to earn good profit by this way. Retained earning is another option which can give optimistic results to the cited firm. AsClariton Antique Ltd will use its own profit amount so liability will be in control, it can help inincreasing profit of the company. Business can use its own internal amount for furtherdevelopment, by this way owner will not have to share its ownership with third person.Individual will be able to take business decision by own (Acciaro, 2014). It cited firm opt this5
source then risk will be limited and liability will be in control. It will help in accomplishing theobjective of cited firm of raising funds 0.5 million. TASK 22.1 Costs attached with sources of financeWhenever companies opt any source of finance then it has to bear costs which areassociated with them. These costs can increase burden of the entity and can harm its position. Forinstance bank loan is most preferred source but in this firm has to pay interest and documentationfees to financial institutions. That increases financial burden of the company (Petrakis, Kostisand Kafka, 2016). If Clariton Antique Ltd borrow money from banks then interest cots would bethe main cost for the firm. If cited firm opt third party investment or venture capitalists sourcethen owner of the entity will have to pay dividend to the investor. It increases profit and raisefunds and on raised capital cite cited firm will have to pay tax. Equity share is another source offiance but in this ownership cost is attached with it. Two main sources are venture capitalist andfinancial broker (Winch and Leiringer, 2016). Broker is the person who helps in lending amountto owner from banks. a) Dividend cost:It is attached with the venture capitalist, in which Clariton Antique Ltd will have to shareits profit in the form of dividend with investors. It reduces profit of the company. “We Financelimited” is the capitalist which has approached to Clariton Antique Ltd. Company is demanding20% stake in the business against its investment. This source of finance can increase burden ofthe firm because 20% is very high and entrepreneur will have to share ownership with theinvestor (Alagathurai, 2014). Dilution of ownership is another cost associated with venturecapitalist.b) Interest cost: It is attached with the bank loan, Clariton Antique Ltd will have to pay interest if it takesmoney from financial institutions. Bank will charge 2% annual interest and 1% will be chargedby broker as commission so overall cost of capital would be 3%. c) Tax costs:Cited firm will have to tax on its surplus amount. For instance; if current tax rate is 20%then it would reduce net profit of the company (El Chami and et.al, 2015). 6
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