Financial Planning and Analysis
Added on 2020-01-16
14 Pages3981 Words193 Views
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Managing FinancialResources1
TABLE OF CONTENTSIntroduction......................................................................................................................................3Task 1...............................................................................................................................................31.1 Identifying the sources of finance available to a business.....................................................31.2 Assessing the implications of different sources of finance....................................................41.3 Evaluating appropriate sources of finance for a business project..........................................4Task 2...............................................................................................................................................52.1 Analyses the cost of different source of finance....................................................................52.2 Explain the importance of financial planning and how this financial planning is undertaken......................................................................................................................................................52.3 Assess the information needs of internal and external decision maker 52.4 Explain the impact of finance on the financial statement .....................................................6Task 4...............................................................................................................................................64.1 Discussing the main financial statements by explaining what they contain and theirpurpose.........................................................................................................................................64.2 Compare appropriate formats of a financial statement for different type of business..........74.3 Interpret financial statement using a appropriate ratio .........................................................7Task 3.............................................................................................................................................103.1 Analyses a budget and make appropriate decision .............................................................103.2 The calculation of unit cost for contract .............................................................................113.3 Asses the viability of chosen contract.................................................................................11Conclusion.....................................................................................................................................13References ....................................................................................................................................142
INTRODUCTIONFinancial management is planning, controlling and directing the financial activities such asbrutalization of fund for launching a new project. Financial planning helps the company inmanaging all financial activities within a business. The present report is based on an ABClimited company. The present report covers the cost of different sources of finance is analysed.Along with this, the impact of finance on a financial statement is explained. Apart from that, thesources of finance available to a business is identifiedTASK 11.1 Identifying the sources of finance available to a businessAccording to the given scenario, ABC Company wants to launch a business projectwhich can be both demanding and rewarding. For this purpose, it is required to understand thesources of finance which are available to business. There are two types of sources of finance, thatis, both long term and short term. Some of them are discussed as below:-Equity share: Equity shares are the main sources of finance for any organisation. ABCCompany is launching a new project (Rossouw, 2016). So, it can raise funds from the public inthe form of equity share capital. Further, the company also pays a dividend to its shareholders inreturn when they earn a profit.Loan from financial institution: ABC Company can take the loan from the financialinstitutions. There are various financial institutions which are established by the government aswell as they are private too. Companies can take the loan from them for a long period or formshort duration as well (Poynton, Lapan and Marcotte, 2015). They provide the loan to acompany after checking their financial stability. Further, they also check a managerial viabilityof a project which ABC Company is launching.Bank loan: Organization can take the loan from a bank as well by keeping the securitydeposit. If the company takes the loan from a bank, then it can easily be paid with a low rate ininstalments. There are different kinds of loan which banks provide to the organisation that aresingle, a line of credit and end of period payment loan (Arrondel, Debbich and Savignac, 2014).For example: if ABC company takes loan form a bank for one year, then it needs to pay the samewith interest within specified duration.3
Bank overdraft: Bank overdraft is another source of finance which a company take forlaunching its project. However, bank charges a high rate of interest on overdraft and it can onlybe paid on the amount of overdraft.1.2 Assessing the implications of different sources of financeEvery source of finance has its own implications on the business. Among different stated sourcesof finance, implications of some are like:Equity share: There are some advantages and disadvantages of issuing equity shares. Itcan be stated that if ABC Company does not earn a sufficient profit, then it cannot pay attractivedividends to the shareholders (Agarwal and Evanoff, 2015.). Further, there are some of the costswhich are associated with the issue of equity shares which further can become a hugeexpenditure for the company. Bank loan: Bank loan is an appropriate source of finance for a firm but company needsto pay instalment regularly to a bank. Further, the bank only provides loan after completing a fullprocedure which may take time. However, if ABC Company would not be able to pay the loanamount back to the bank on time then it will show that firm is not earning the profit, and in thissituation, bankruptcy may arise. If the company is unable to pay the loan due to insufficientprofit, a bank will sell all company assets which it kept for security at the time of loan as well asit will pay its pending payment.Overdraft: It is a short term source of finance, and its implication is that interest ischarged at higher rate. But it is flexible in nature so; the company can take the same whenever itis required within the short period. 1.3 Evaluating appropriate sources of finance for a business projectAs per the given scenario, ABC limited company is launching a new project for which it needsto select the best sources for collecting fund. For a selection of appropriate sources of finance, itis necessary to understand the nature of business. Bank loan is an appropriate source of financefor the organisation because, in this, the company needs to pay the instalment on a monthly basis(Rehan, Ungerand Haas, 2015). The company can easily buy assets from that loan andeffectually start its business. Along with this, the company can also take overdraft facilitybecause it is not a time-consuming process and funds can be easily available within one or two4
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