Financial Planning and Managerial Techniques : Assignment
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Added on 2020-01-21
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This report is on "differences in the financial reporting". This report will guide an individual about various ways through which they can gather money to meet out their financial commitments. Along with this, the report will guide various managerial techniques that how money can be managed properly through financial planning and cash budgeting. A formal or structured presentation of business financial activities and functions so that it can easily understand by all the stakeholders is called a financial statement. For a better understanding of the report, you can also check the management accounting of Radisson Plc.
Financial Planning and Managerial Techniques : Assignment
Added on 2020-01-21
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Table of ContentsINTRODUCTION...........................................................................................................................................3TASK 1..........................................................................................................................................................3A..............................................................................................................................................................3B...............................................................................................................................................................6TASK 2..........................................................................................................................................................6A..............................................................................................................................................................6B...............................................................................................................................................................7C. .............................................................................................................................................................9TASK 3..........................................................................................................................................................9A..............................................................................................................................................................9B.............................................................................................................................................................11C. ...........................................................................................................................................................12TASK 4........................................................................................................................................................14A............................................................................................................................................................14B.............................................................................................................................................................164C...........................................................................................................................................................17CONCLUSION.............................................................................................................................................19REFERENCES..............................................................................................................................................20
INTRODUCTIONFinancial planning refers to the process of procurement, utilization and propermanagement of money to control overspending, meet capital as well as daily business need,maintain cash surplus and so on. Every company involves in such activities may be either to starta new business or expand existing business in new markets. This assignment will guide anindividual about various ways through which they can gather money to meet out their financialcommitments. Moreover, the report will also highlight the key differences among all the sourceson the basis of legal, financial, dilution, and bankruptcy implications to identify the best sourceof money. Along with this, report will guide about various managerial techniques that howmoney can be managed properly through financial planning and cash budgeting. Apart from this,sometimes, businesses require huge amount of funds to pay capital expenditures like to buyproperty, machinery and equipments. It can drive both the risks and return to the entity,henceforth, companies have to identify the project that will yield better return. In order to fulfillthat objective, project evaluation techniques will be considered best as it examine both the riskinherited and possibility of return so as to determine the most profitable and beneficial project.At the closure of the report, it will analyze differences in the financial reporting requirement ofdifferent organizations i.e. sole trader, partnership and company.TASK 1AIn order to finance long-term contract, Radisson Plc can choose any of the belowmentioned sources or combination of one or more financial source depending upon the timeperiod and amount of money. It can be categorized into three parts, that are explained hereunder:Traditional financial sources:Retained profits: Sum of profits that not had been reinvested or distributed amongshareholders by Radisson Plc is called retained or residual yield (Broadbent and Cullen 2012). Itcan be used by the company to meet out their capital need for the contract without any legalobligation and financial cost.
Ownership capital: It refers to the money invested by shareholders and can be used forlarge expenditures, new product development, setting new plant and business expansion. In suchregards, listed companies can opt for either right issue or deferred ordinary shares to raisemoney, whereas unquoted companies can issue shares over the counter market. There are twooptions available to Raddison Plc, one is issuance of ordinary shares and second is preferenceshares. Out of these, ordinary investors have right to vote and share company’s profits, however,preference share holders are just entitled to get a fixed rate of dividend. Non-ownership capital:Bank loan: Radisson Plc can typically borrow money from the lenders and meet theirfinancial commitments. In this, money can be raised at a predetermined interest rate along with afixed schedule of repayment. Hire purchase: It allows business unit to use an asset in regular operations without therequirement of paying complete buying price at the point of purchase. It is because; companyjust need to pay some amount of money as initial or down payment and remainder can be paid inequal periodical instalments. Factoring: Radisson Plc can discount their outstanding invoices to raise money, generallyused to resolve the financial difficulties of cash shortage. In this, factoring company chargessome interest and repays remaining balance that is generally equal to 85% of the total invoiceamount. Implications of financial sources: SourceLegalFinancialControl transferBankruptcyRetained profit No legalobligationsexists. No financil costinvolved inutilizing profits. Ownership rightsare available toshareholdersonly. No bankruptcy. Owners capital Following stockexchangeregulations andaltering theauthorizedcapital clause inmemorandum ofDividend to theshareholders tofulfill their returnexpectations. Onprefernce share, itis fixed, whereas,equity shares haveEquity orordinaryshareholdershave authority tomake businessdecisions,henceforth, itOwners haveliability to repaycapital to thelenders, creditorsand otherexternal parties,after that, firstly,
association. ownership overresidual earnings(Huang, Ritter andZhang, 016)..Moreover, cost ofissuing shares,printing andadministrative feesare also included infinancial cost. transfercontrollingpower to owners.capital will berepaid to preferenceshare holders andremmainingmoney isavailable toequityshareholders. Bank loan Legal formalitieswith bank loanprocessing andproceduralrequirement isnecessary (Drury,2013). Moreover,Radisson Plcmay be require tofile their finacialstatements andkeep any assetsas collateralsecurity toprovide financialsecurity tolenders.Interest needs topaid on right timewhich may be fixedor fluctuating. On short-term loanperiod, bankcharges a low rateof interest,however, on long-term they chargehigher interest rate. Lenders have noauthority to votein the boardmeetings,henceforth, theydo not have rightto take corporatedecisions. Lenders are thefirst priority,henceforht, ifRadisson Plcdeclaredbanckruptinvestors will paymoney first to thelenders. Hire purchase Vendor andRadisson Plcneeds to arrangea contract,containing all theterms andconditions. Interest on theamount ofinstallmentsdepending upon theduration of rentingis financialobligations.Not exists.Original assetowner can getback their assets,if business goesbanktupt (Huang,Ritter and Zhang,016).. Factoring Factoringcompany andRadisson Plcagree with eachother to discountoutstandinginvoices. A discount that ischarges by thefactoringorganization todeliver fund beforematurity date is itsfinancialimplication. Not exists. They have rightto receive moneyfrom the originaldebtors.
BOut of above discussed sources, loans are considered suitable for Radisson Plc. Thereason behind this is although loan impose liability to the company to pay a fixed rate of intereston a right time. But still, if corporate manage profitability and cash flows accordingly, than it canmeet out their debt obligations and minimize tax obligations also. It is because in UK, taxationauthority Her Majesty Revenue and Customer (HMRC) declare that the amount of taxes whichcompanies paid on their borrowings will not be taxed, alternatively, we can say interest asdeductible or allowable expenditures (Drury, 2013). One more reasons for suggesting loans is thatif owner wants to put their control over business functioning than they can easily do it with debtutilization. It is because; it prevents transfer of ownership to the others, as a result, managers canmake decisions by themselves without any involvement of external parties such as lenders. TASK 2ACost of equity versus debt financing: As said earlier, that on equity share capital,Radisson Plc is not liable to pay predetermined rate of return (Huang, Ritter and Zhang, 2016).Moreover, the cost of issuing and printing shares, listing fees in stock exchange andadministrative fees are also included in cost. However, on the other side, on the borrowedmoney, Radisson Plc’s financial executives have to manage cash flows so as to pay installmentson due date and repay borrowed money on maturity date. It also has to file its annual accounts torepresent information to the lenders about their financial status, profitability, solvency, debtburden capacity, interest payment ability and credit worthiness (Sources of funds, 2014). Although,rate of dividend on equity is not fixed, while on debt capital, it is fixed, but still, loans areconsidered beneficial because tax benefits are available on loan facilities. Moreover, equitycapital transfer controlling power to owners whereas it is not so with the borrowed money. Allthe evaluation clealry depicts that loan financing are considered cheaper source of finance ascompared to equity, therefore, Radisson Plc must chose this source. Interest is the cost of debt as Radisson Plc will be requires to pay dividend to the debtholders as per their loan repayment schedule. However, it provides tax benefits to the fim asHMRC consider payment of loan as an allowed expense for tax determination.
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