Introduction of finance

This project discusses the sources of finance available to businesses, and evaluates the appropriate sources for a given project. It also includes an analysis of financial performance, and covers topics such as business budgets, unit cost calculation, financial statements, and ratio analysis. The project concludes with a case study of Hamleys Group Ltd.

Introduction of finance

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Suggesting the sources of funds ..................................................................................................3
TASK 2............................................................................................................................................5
1. Analysation of different types of business budgets and recommendation to partner for
informed decision-making...........................................................................................................5
2. Calculation of unit-cost............................................................................................................5
3. Comparison between the financial statements of sole trader and partnership.........................6
4. Consideration to be made for sale at 50%...............................................................................7
5. Calculation of payback and NPV and recommendations........................................................7
6. Financial statements for Hamleys Group Ltd..........................................................................9
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Finance as a term is the creation and supply of the money and investments which helps
the organization in reach its goals. In this project the given scenario is about the WoodyTrain
organization which is looking for financial funds from the addition of as partner This project will
help in understanding the sources of finance available to the business. It is the evaluation of the
appropiate sources of finance for the business project. This project will help in making better
financial decision on the basis of the given financial informations. In this project the financial
performance of the business has been analysed.
MAIN BODY
TASK 1
Suggesting the sources of funds
In the given scenario the business needs to raise he finances of £20000 for the start of its
business. Thus, the following sources of funding can be suggested to the friend which is eager to
start the business of Florist,
Personal Investment :
Before starting of the business the first investment which the business should consider
needs to be the cash or collateral assets which has been saved by the business. Investing own
savings and assests shows long term commitment of the business and prepares the business for
the being ready to take risk. In this investment the risk is with the investor but they do not have
to repay the investment amount.
Friendship Money :

This is the investment which can be borrowed from any family member or friend. It
might not require any sort of interest during its repayment however, the investor might be
interested in the having an equity on the business. Business relationship can ruin the relationship
with the friends and family (Drobetz and Johns, 2018).
Venture Capital :
There are some venture capitalists in the market which are looking for innovative ideas to
invest in, specially in a technology driven business which has the potential of high growth. These
capitalists makes high investment in the business and also desire high returns. As the company
starts growing they start selling of its shares for their own profit. Such an investment is good for
generating large amount of finances.
Angels :
These individual's also look for investing in the business but generally of small size. They
are seen to finance the business in their early stages. In return of the money invested in the
organization they desire the rights and supervision of the company's managemen practices.
Government Grants and Subsidies :
Government agencies also provides finances and grants to certain business which are in
the comprehensive listing of the different government program which at the federal and
provincial level are considered to be the criteria which can grant success to the organization.
These investments are not to be repayable but are hard to take as the government wants detailed
description and explanation to the benefits of the project and also requires different procedures.
Bank Loans :
One of the most common moethods of investment used by the sources of funding in the
small and medium sized business. The procedure towards taking the bank loan is also little
lengthy but it garantees safe money for investment in the organization (Lamperti and et.al.,
2019). The downside of this investment is that it needs the business to repay the amount along
with the interest. Paying of the interest helps the business to record and customize the repayment
of the organization.

TASK 2
1. Analysation of different types of business budgets and recommendation to partner for
informed decision-making
The following business budgets can be used by WoodyTrain for their business
operations,
Cash Flow Budget :
This type of budget is for planning on how the cash will be coming into the operation or
leaving them in the terms of inflow and outflow of cash. It helps the business for the projection
of anticipate cash receipts and disbursements in a business towards monthly basis.
Operating Budget :
Operating budget is the detailed overview of the projection of the company's expectations
of revenue and expenses in the given period. It prepared for the end of the year and is shown as
the expected activity during the year (Rizvi and Ramesh, 2020).
Financial Budget :
It is the prediction budget which predicts the income and expenses of the business for a
long period. It helps in estimation of firms capital expenditure and balance sheet items such as
asst, liabilities and owner's.
Sales Budget :
It is the estimation of management towards the future sales for the given period.
Company utilizes this budget for setting the departmental goals for their estimation and earning
and forecasting the production requirement.
The partner's inclusion in the business of WoodyTrain will open up doors for different
opportunities, for which this organization can use the Cash flow Budget which is very efficient
for meeting the short term obligation.
2. Calculation of unit-cost
Different methods of calculating the unit cost of this organization are,
Variable and Fixed Unit Costs :
It works as the unit cost does not change due to the change in variable cost because fixed
cost is what is needed to be paid despite the production of anything. The variable cost of the
business can fluctuate. Labour cost and material cost are the two variable cost which with
addition can be divided with the number of units for producing the per unit cost of production.

Unit cost on Financial statements :
For this method the financial statement can be used as the internal management analysis.
In this method the fixed and variable cost can be directly be associated with the production of the
products which are used (Liao, J., and et.al., 2020). This method can be used by WoodyTrain for
the manufacturing of the toys.
Break-even Analysis :
This method is successful in the calculation of the break-even point as it is the minimum
point through which the business can sell its products for avoiding any losses. This point is the
situation at which there is no profit no loss. Thus, selling the products at higher price above the
break-even point can guarantee profit for the business.
3. Comparison between the financial statements of sole trader and partnership
The difference between the financial statement of the sole trader, partnership and limited
company are,
Sole trader Partnership Limited company
Financial statement for sole
trader has only one item in the
equity which is the owner's
equity.
The equity shares capital
contains the capital of all the
partner of the firm.
For the limited company the
shareholders capital includes
share capital, retained earning,
other revenues and capital
reserve.
In this statement the entire
profit goes to the sole owner of
the organization.
The profit is split either
equally or as per the
predetermined terms of the
owners.
The profit generates can be
declared as the dividend to the
shareholders, if not invested in
the company itself (What are
the differences and similarities
between a sole-proprietorship,
partnership, corporation, and
trust?, 2020).
The prepared financial
statement is not subjected to
all sorts of audit
The requirement of the audit is
dependable on the size of the
business which can influence
Audit is considered to be very
important for the limited
organization as it provides the

the decision of preparation of
financial statements.
business necessities to follow
the strict rules and regulations.
4. Consideration to be made for sale at 50%
For selling the WoodyTrain toys at 50% price it is important for the organization to
consider the following,
Cost :
The main aim of the organization is to earn profit, thus it is important for the organization
to consider the cost of production of each unit for ensuring the 50% discount which is providing
the profit for the organization despite the discount.
Profit margin :
Just considering that the business is in profit is not enough, it is essential for the
organization to also make sure that the profit margin of the company is present. It is important
for the business to make sure the profit is above the desired for meeting its obligation (Bell,
2017).
Quantity :
Quantity or the number of units is also very important for deciding whether the
transaction is profitable for the organization or not. Thus, quantity is a very important aspect of
consideration for determination of the profit.
5. Calculation of payback and NPV and recommendations
PAYBACK PERIOD :
PAYBACK PERIOD Cash Inflows
Toy Store A cumulative Toy Store B cumulative
Initial investment 375000 425000
1 200000 200000 200000 200000
2 110000 310000 150000 350000
3 220000 530000 300000 650000
4 130000 660000 250000 900000

Toy Store A 65000
0.295454545
5 2.29yrs
Toy Store B 75000 0.25 2.25yrs
In the above calculation of Payback period the time taken for recovering the investment
amount for the two stores option of WoodyTrain has been shown. Out of the two stores option
the organization should chose the Toy store B as it recovers the investment fasted in 2.25 years.
NPV :
Net present value of the organization is the different between the present value of cash
inflow and future value of cash over a period (Valaskova and et.al.,2020).
NPV Cash Inflows Initial investment 375000
Year Toy Store A NPV rate @12% PV
£
1 200000 0.893 178571.429
2 110000 0.797 87691.327
3 220000 0.712 156591.655
4 130000 0.636 82617.350
Total discounted cash
inflows Total PV 505471.760
Less: Initial investment 130471.760
NPV 375000.000
NPV Cash Inflows Initial investment 425000

Year Toy Store B NPV rate @12% PV
£
1 200000 0.893 178571.429
2 150000 0.797
Bell, P., 2017.
Example of a
Rising NPV
Profile for a
Mining
Project.119579.0
82
3 300000 0.712 213534.074
4 250000 0.636 158879.520
Total discounted cash
inflows Total PV 670564.104
Less: Initial investment 245564.104
NPV 425000.000
In the above calculation the difference between the NPV of Toy store A and B is
calculated. Thus, the better option for investment is Toy Store B as it has more value even after
the same amount of time.
6. Financial statements for Hamleys Group Ltd
The financial statements of Harnleys group shows that the they are not following the
proper method of preparing the the financial statements. As per the evaluation of the different
strategies in the financial statement it has been noticed this organization is not following the
standards which are explained by the IFRS and the IAS department (Kim and et.al.,2017). The
vertical format of the financial statement has been followed by this organization for the
preparation of their financial accounts. However the lack of detailing has forced them to failure
towards explaining certain details such as the stock, direct and indirect expenses and also other
information which are very important for the preparation of the financial accounts and the details
to their business. The following example of the financial statement can be followed by Harnley's
Group.

Ratio Analysis is a tool used for the analysation of the organization for understanding the
financial health (Enyi, 2019). Ratio analysis helps an organization for the performance analysis
on the basis of the following ratios.
Profitability Ratio :
It is the ratio which defines the class of the financial metrics of the organization which is
used for assessing the ability of the company in the generation of the earning in relation to its
operating costs, balance sheet or the shareholders equity.
EBIT * (1-tax rate)/ (value of debt + value of equity)
Loss before tax -49000
Rate of tax 0
Value of debt 30123
Value of equity -1472
Profitability ratio -1.71
The calculation of the profitability ratio from the information about Harnley's group is
negative which shows it has the potential for increasing the revenue with increased efficiency.
Liquidity Ratio
It is the ratio which with the help of financial metrics shows the ability of the debtor to
pay off the current debt obligations of the organization without raising the external capital of the
organization.
(Current assets – Inventory)/Current Liabilities
Current assets 4437
Inventory 0

Current Liabilities 30123
Liquidity ratio 0.15
This calculation shows that the capability of Harnley group is to pay of the company
short term obligation from selling off its assests is just 0.15.
Efficiency ratio :
It is the measurement of the company's ability to utilize the assests for the generation of
the income (Niezgoda, 2017). It shows the efficiency of the resources of the organization and
their productivity as well.
(Total revenue/Total assets)
Revenue 0
Total assets 28651
Efficiency ratio 0
The calculated efficiency ration of the Harnley's group is 0, which indicates that the
business is not efficient enough and requires changes in its business operations.
Current ratio :
It is the comparison between all the company's current assests to its current liabilities
which is generally defined as the measurement of the short term obligation paying capacicty of
the organization (Rivenbark, Afonso and Roenigk, 2018).
(Current assets/Current liabilities)
Current assets 4437
Current liabilities 30123

Capital Ratio 0.15
The following ratio of Harney's group explains the ability of the organization in paying of
the short term obligation of the organization which is helpful in analysing the risk.
Investors ratio :
This the ratio which is used by the investors for the evaluation of the company and also
its ability for the generation of the return on investment (Kahn and Baum, 2020). It is also useful
for the organization for understanding how efficiently have they managed the business.
(Investment gain/Investment base)
Investment gain 0
Investment base 25533
Investor ratio 0
As this ratio shows the performance of the organization which according to the above
calculation shows that the business is suffering loss as the investor ratio is 0.
CONCLUSION
With the help of this project it can be concluded that finance is very important for the
efficiency of an organization. This project explains the differnent sources of funds which can be
useful for raising the amount. This project also provides an analysation of the different types of
the business budgets which can be utilized by Mr. Neil. In the project the comparison between
the financial statements of sole trader, partnership and limited company has been made. It
explains the required considerations for the sale of the products on 50% discount. This project
helps the WoodyTrain to make a decision between the Toy store A and Toy store B of the
organization with the help of capital budegeting methods. It also provides the financial analysis
on the Harney's group along with the calculation of their ratio analysis.

REFERENCES
Books and Journals
Bell, P., 2017. Example of a Rising NPV Profile for a Mining Project.. pp.35-31.
Drobetz, W. and Johns, M., 2018. The evolution of modern ship finance. In Finance and risk
management for international logistics and the supply chain (pp. 85-108). Elsevier.
Enyi, E.P., 2019. Relational Trend Analysis: A Simple and Effective Way To Detect Financial
Statements Fraud. Enyi, E. P,(2019). Relational Trend Analysis: A simple and
effective way to detect financial statements fraud, International Journal of Scientific
and Research Publications. 9(2). pp.538-546.
Kahn, M.J. and Baum, N., 2020. Basic accounting and interpretation of financial statements.
In The Business Basics of Building and Managing a Healthcare Practice (pp. 13-18).
Springer, Cham.
Kim, M.S.,and et.al.,2017. A study on the analysis of stability indicators in financial statements
using fuzzy c-means clustering. International Journal of Applied Engineering
Research. 12(20). pp.9863-9865.
Lamperti, F., and et.al., 2019. The Green Transition: Public Policy, Finance, and the Role of the
State. Vierteljahrshefte zur Wirtschaftsforschung. 88(2). pp.73-88.
Liao, J., and et.al., 2020. Quantitative analysis and calculation of traffic social cost during the
construction of open-cut subway station. In IOP Conference Series: Materials Science
and Engineering (Vol. 741, No. 1, p. 012032). IOP Publishing.
Niezgoda, J., 2017. The use of statistical process control tools for analysing financial
statements. Folia Oeconomica Stetinensia. 17(1). pp.129-137.
Rivenbark, W.C., Afonso, W. and Roenigk, D.J., 2018. Capital spending in local government:
Providing context through the lens of government-wide financial statements. Journal of
Public Budgeting, Accounting & Financial Management.
Rizvi, N. and Ramesh, D., 2020. Fair budget constrained workflow scheduling approach for
heterogeneous clouds. Cluster Computing. 23(4). pp.3185-3201.
Valaskova, K., and et.al.,2020. Financial compass for Slovak enterprises: modeling economic
stability of agricultural entities. Journal of Risk and Financial management. 13(5).
p.92.

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