Analysis of Investment Decisions and Financial Performance

The assignment content provides an analysis of two investments, Investment 1 and Investment 2, to determine their payback periods and average rates of return. The results show that Investment 1 has a shorter payback period of 1.2 years, making it more ideal for the company's investment decisions. Additionally, the liquidity ratio analysis indicates that the organization is improving its financial health with increasing current and quick ratios. Furthermore, the profitability analysis reveals that the organization's return on equity (ROE) and return on assets (ROA) are growing each year, suggesting a beneficial venture.

Financial Resource and Decision Making; Case look at
of Clariton Antiques Ltd

Table of Contents
Financial Resource and Decision Making; Case look at of Clariton Antiques Ltd.........................1
Task 1; The sources of finance available to;...................................................................................2
Unincorporated Business.................................................................................................................2
Internal Source.............................................................................................................................2
Share capital.............................................................................................................................2
Retained earning.......................................................................................................................2
External Sources..............................................................................................................................2
Bank loans....................................................................................................................................2
Bank overdrafts............................................................................................................................3
Share capital.................................................................................................................................3
Business Angels...........................................................................................................................3
B) Incorporated business.................................................................................................................4
1.2 The implications for the use of;.................................................................................................4
A.) Internal resources of finance..................................................................................................4
Internal Funding in preference to Bank Financing......................................................................4
Internal Funding versus Offering Stock.......................................................................................4
Internal Funding as opposed to Government Grants...................................................................4
Internal Funding instead of Offering Assets................................................................................5
B) External deliver of fund..............................................................................................................5
Safeguarding the Resources.........................................................................................................5
Growth.........................................................................................................................................5
Ownership....................................................................................................................................6
Interest..........................................................................................................................................6
1.Three The maximum suitable sources of finance for Clariton Antiques Ltd...............................6
Working with Investors................................................................................................................6
Crowd financing...........................................................................................................................7
Debt Based Financing..................................................................................................................7
Task 2...............................................................................................................................................7

Analyse the costs of the two sources of finance under consideration.............................................7
2.2 The importance of financial planning for Clariton Antiques Ltd..............................................8
A) Budgeting................................................................................................................................8
B) Implications of inability to returned satisfactorily..................................................................9
C) Overtrading...........................................................................................................................10
2.3 Assessment of the information that will be needed to make decision on financing the
takeover by.....................................................................................................................................10
a) The patners.............................................................................................................................10
Venture capitalist (We Finance Limited)...................................................................................11
Finance brokers..........................................................................................................................11
2.4 The impact on the financial statements if Clariton Antiques Ltd choose to go with...............11
Venture capitalist.......................................................................................................................11
Finance brokers..........................................................................................................................12
Task 3.............................................................................................................................................13
3.1 Analyses of the cash budget for Clariton Antiques.................................................................13
3.2 How unit costs will be calculated to make pricing decisions..................................................13
3.3 The viability of the projects using NPV investment appraisal techniques..............................13
NPV............................................................................................................................................13
Pay back, period.........................................................................................................................14
Average Rate of Return..............................................................................................................15
Task 4.........................................................................................................................................16
4.1 Discuss the key components of financial statements...........................................................16
Income statement.......................................................................................................................16
Statement of cash flows.............................................................................................................16
Statement of adjustments in equity and profits..........................................................................16
Statement of cash flow...............................................................................................................16
Notes to the economic statement.............................................................................................17
4.2 Comparing the format used by Clariton Antiques Ltd to presenting their financial statement
with that of a partnership...............................................................................................................17
The Statement of Equity............................................................................................................17
The Income Statement...............................................................................................................18

The Cash Flow Statement..........................................................................................................18
4.3 Interpreting the recent financial statement of Clariton Antiques Ltd using appropriate ratios
and making comparison with the previous year............................................................................18
Task 1; the sources of finance available to;
A,) unincorporated business
1.) Internal source
Retained incomes
This is the cash that is produced when business makes profits (Gross income less expense n tax
and Dividends). Retain earning is deem as the best and cheapest source of capital for the
company.
Share capital
The shareholder of a start up company is required under the company law to provide partner’s
capital for the business based on agreed capital contribution ratio to finance the business
operations
External sources
A bank loan
Bank loan offers a long time type of finance for a start-up, with the financial institution
expressing the settled period over which the credit is given (e.g. 10 years), amount of loan and
principle sum. The bank will typically requires that the start-up to provide some safety to the
loan, in spite of the reality that this safety commonly comes as individual assurances with the aid
of the Audited financial statement in order for the bank to evaluate the business performance and
whether it is viable to be given loan (Ehrhardt, 2016). Financial institution credit is useful for
financing interest in settled resources and is for the most component at lower rates.

A financial institution overdraft
This is a short time period kind of finance that's broadly used by new companies and
independent organizations. An overdraft is absolutely a loan facility, the bank offers the business
"a chance to owe it cash” while the bank stability goes below 0, as an end-result of charging an
excessive rate of high rate. In the end, an overdraft is an adaptable source of lower finance; it's
far simply applied when needed. Bank overdrafts are extremely good for helping a business take
care of everyday vacillations in profits or when the business keeps running into right here and
now earnings issues.
Share capital
That is external source of capital for a start ups. The main source of finance is founders and
shareholders of the company. There is mixed reaction by expert on whether founders should be
advised to put resources into a new business. The company may request capital inform of unpaid
up share capital, share re-purchase or IPO to fund the capital projects.
B) Incorporated business
1. They make advantage by way of presenting an item for more than it fees. This is the most
important source of property for any organization and ideally the method that acquires the vital
cash.
2. Like human beings, agencies can get cash. This should be possible by way of financial
institution credit, or may be possible explicitly through a debt issue. The limitation of this
method of getting cash is the high rate that must be paid to the lenders of the loan.
3. An organisation can generate cash by providing a part of it as shares to investors, which is
called value financing. The advantage of this kind of capital sourcing is that investor’s s doesn’t
require interest instalments like bondholders do. The drawback is that further Assets are not
shared amongst all shareholders.

In a perfect word, a corporation would get most people of its cash simply with the aid of offering
shares and ventures for assets. However, because the business wants to use cash to make profit,
the company must consider choosing ht best source of capital that is cheap in terms of low cost
with a high value to the firm.
While assessing companies, it is vital to take a gander on the balance of the real source of
financing. For case, a lot of debt can reason organization harm. On the other hand, a business
may additionally miss development possibilities at the off chance that it would not utilize cash
that it is able to collect.
1.2 The implications for the use of;
A.) internal resources of finance
Internal financing originates from overabundance cash after prices. This implies the business
utilize Assets to subsidize the investment. The organisation can likewise get extra property from
sale of its Asset. This reduces the responsibilities and in this way offers the organization a
chance to maintain greater cash to spend on the business enterprise.
Internal Funding versus Bank Financing
When the corporation make use of organization budget, the organization do not want to income
interest to the financial institution (Floyd, 2005). The business additionally don't need to process
of Applying, which may be costly at the expense that the organisation need to employ an expert
to devise Assets and limitation, assertion of financial positions and different documentation
required by using the financial institution.
Internal Funding versus Offering Shares
One technique to elevate cash for the business ventures is to offer shares to investors. This offers
them element responsibility for company. Using internal financing gives the advantage of

maintaining control the internal business operation of the company by way of voting rights of
shareholders.
Internal Funding versus Government Grants
A business can also meet all requirements for government specific conditions. The compliance
with the sets standard by the government may makes the company get rewards for being keen
environmentally standards. The application procedure can be vast and high-priced. The fee
originates from putting in the documentation for these offers. The business need to win the
endorsement of the workplace which this consist of many people and councils. With internal
financing, the employer can start on the project right away, with no endorsement required apart
from that of the management and the shareholders
Internal Funding versus Offering Assets
Some companies attempt to finance new expenditure by providing resources. This reduces the
evaluation of the organization and may cause exchange prices, and rates to reduce. Internal
financing remains with all Assets and incurs no more costs unless the fee of the venture itself.
b) External source of fund
Safeguarding the Resources
One of the Assets of external financing is that it lets in the company to utilize internal cash for
specific purposes. Using the external financing for business operations is ideal for business
growth and increase in profit and dividend to its shareholders. The business can likewise set
aside the internal cash to help improves the business enterprise’s credit rating.
Growth
The reason why a company uses the external financing is to ensure that the internal finance
sources for different projects and business activities is invested for other business operations. If
the business anticipates that there the corporation require greater manufacturing space to

maintain speed with demand in the market, external financing can assist the business get the
financing for the capital expansion. External financing can likewise be applied for making big
capital investment to motivate development expansion very fast.
Ownership
Some source of external financing, for example investor’s s and shareholders, oblige the business
to surrender a section of the proprietorship in the corporation in return for the financing. The
organisation may additionally keep in mind that tremendous deluge of cash that the organization
ought to sell new item, yet part of the financing statement is that investors is authorized to vote
on organization selections. Company initially had for the organization when the company
established it.
Interest
Banks will add interest to a business credit, and financial investors will request a rate of return in
their investment. Premium adds to the general price of the project and may make the external
financing even more a costly.
1.3 The most appropriate sources of finance for Clariton Antiques Ltd.
Clariton Antiques ltd may additionally use the source of capital that is deeming the best for the
business improvement.
Business advance
In spite of a fall in loaning, the conventional business credit course is still a well known
alternative for new businesses, and you have the benefit of holding value in your business. Begin
off by perusing Start-ups’ well ordered manual for getting a bank advance for an unmistakable
manual for augmenting your odds of endorsement (Harold Bierman, 2003). The legislature is
pushing hard to expand the accessibility of these advances for private company, through

activities, for example, Funding for Lending, Start-Up Loans and the Business Bank. Ensure you
know the intricate details of these as they could speak to an essential help for your start-up.
2. Small business grants
As anyone might expect, new company stipends are very looked for after, and subsequently hard
to obtain. In the event that you can acquire one, be that as it may, the advantages are clear and
various – begin by perusing our manual for the distinctive sorts of gifts accessible, and find out
about the diverse foundations that give them.
3. Invoice finance or factoring
Invoice finance, or considering, is a prevalent choice for organizations with unpaid solicitations
to get to working capital rapidly. In case you're new to this financing strategy, realize what it is
and the amount you can raise (Harold Bierman, 2003). As the dominant part of suppliers will
make you focus on an arrangement for 12 months or more, ensure you know how to pick the
correct one.
Crowd funding
Crowd funding permit individuals from the general population to pool their assets, putting as
meagre as £11 each in new businesses. In case you're new to this undeniably famous strategy,
read more about what it is and get the lowdown on the distinctive crowd funding stages
accessible. New businesses has different aides on the most proficient method to crowd fund,
including Modwenna Rees-Mogg's guide on the best way to make a crowd funding effort
alluring to general society.

Task 2
2.2 The importance of financial planning for Clariton Antiques Ltd
The following are some of the key reason for financial planning that Clariton Antiques ltd is
observe
 The organization needs to want to ensure they aggregate only the perfect measure of
assets. Too minimal expenditure is awful and in addition a lot of it. Arranging helps in
social occasion, putting away and utilizing only the perfect measure of assets.
 How are these assets going to be raised? Is the organization going to issue shares, will
they issue obligation, or will they take advances from banks? When this choice is made,
the organization needs to choose to whom they need to issue the shares and the
obligation, and which banks they need to approach for credits. Since most organizations
utilize a blend of every one of these roads to raise stores, arranging gets to be distinctly
broad and entangled.
 At any given point in time, an organization may have two, three or perhaps more
speculation proposition. They have to choose which among them is the most moderate,
the most beneficial and has the most noteworthy shot of accomplishment. At that point
they can put resources into those recommendations.
 Each venture needs a sizeable quantum of assets for everyday operations, and the bigger
the endeavour, the more the cash required (Madura, 2007). Finance needs to ceaselessly
stream into the business with the goal that operations continue unhindered, and at no time
of time is there a lack of crude materials or a stoppage underway.
 Budgetary arranging is likewise the base for cash related control. Unless the fund groups
know how much cash has been allotted and to which movement, they can't know whether

they are going over-spending plan or are under-spending plan. On the off chance that
healing move should be made, they will have a base for taking remedial measures.
 Each business needs to confront unexpected costs, emergency circumstances and
occasions over which they have no control. Crisis assets are expected to hold over these
extreme stages. One of the parts of monetary arranging is to ensure that there are
sufficient stores for such events, and that these stores are ceaselessly re-established as and
when they get exhausted.
 An organization needs to continually choose which division gets how much cash. Each
division like creation, deals, promoting and so on, would have their own particular
spending plan of the amount they require. Be that as it may, would it be a good idea for
them to be given the assets they are requesting? There will be times when the showcasing
office may require progressively and there will be times when the HR division may
require more. Who gets how much subsidizes and when in time is a steady action for the
cash related organizers.
 Cash related arranging additionally guarantees consistency of objectives, adjusting the
development destinations of the venture with its budgetary prerequisites. For example,
going for a higher deals target may require eating into the net revenue of items and
administrations by reducing costs.
 Cash related arranging additionally bolsters the vital development of the association, by
considering dangers, capital planning assessments, and openings in new markets.

2.3 Assessment of the information that will be needed to make decision on financing the
takeover by
a) The partners
The partners should survey the reminder and article of relationship to audit the phrases and
circumstance with understand to benefit sharing and capital commitment by way of the use of
partners preserving in thoughts the give up aim to audit the diploma of capital that each
accomplice will add to the enterprise (Moyer, 2015) The partners will need to review the
memorandum and article of association to examine the phrases and situation close to earnings
sharing and capital contribution via way of partners so that you can evaluation the quantity of
capital that each accomplice will contribute to the enterprise
Venture capitalist (We Finance Limited)
Venture capital can be keen on appraising the business organization annual report to envision the
liquidity chance and valuation of the organization as a way to confirm the level of chance that we
finance constrained might be exposing itself even as getting into the agreement to provide a loan
of 0.5 million
Finance brokers
Since the financial brokers is hobby with hobby on loan, the primary information want is the
business enterprise’s income statement t overall performance and whether or not the organization
has been a growth in earnings after tax each cash length (Vance, 2002). This is a hallmark of
industrial corporation viability and organizing the extent of liquidity risk that is proper for
finance brokers while you consider that, it'll offer a pinnacle level view of the quantity of hazard
interact with the Business and provide the idea of creating loan agreement with the business
enterprise.

Task 3
3.1 Analyses of the cash budget for Clariton Antiques
November December Jan-17 February March April May June
Sales
£
150,000
£
300,000
£
300,000
£
450,000
£
600,000
£
300,000
£
300,000
£
75,0
Collection
5% first
month
£
7,500.00
£
15,000.00
£
15,000.00
£
22,500.00
£
30,000.00
£
15,000.00
£
15,000.00
£
3,75
80%
Second
Month
£
120,000
£
240,000
£
240,000
£
360,000
£
480,000
£
240,000
£
240
15% third
Month
£
22,500
£
45,000
£
45,000
£
67,500
£
90,000
£
45,0
£
7,500.00
£
135,000.00
£
277,500.00
£
307,500.00
£
435,000.00
£
562,500.00
£
345,000.00
£
288
Opening
cash
£
110,000.00
£
117,500.00
£
252,500.00
-£
277,250.00
-£
107,000.00
£
208,250.00
£
333,500.00
£
451
Expense
£
807,250.00 137,250 119,750 437,250 227,250 219
Closing
cash
£
117,500.00
£
252,500.00
-£
277,250.00
-£
107,000.00
£
208,250.00
£
333,500.00
£
451,250.00
£
520
3.2 How unit costs will be calculated to make pricing decisions
The unit cost will be worked out by using the ABC system whereby cost is assigned to each
division based on hours required.
3.3 The viability of the projects using NPV investment appraisal techniques
NPV
Criteria; Accept NPV of 2m
Investment 2 Investment 1
Years £m
P.V.I.F
14%
Discounted
cash flow Years £m P.V.I.F 14%
1 0.8 0.8772
£
0.70
£
0.70 1 1.6 0.87719
£
1.40
2 1.4 0.7695
£
1.08
£
1.78 2 2.8 0.76947
£
2.15
3 2 0.6750
£
1.35 3 3.4 0.67497
£
2.29
4 2.4 0.5921 £ 4 3.6 0.59208 £

1.42 2.13
5 2.3 0.5194
£
1.19 5 4 0.51937
£
2.08
6 2.6 0.4556
£
1.18 6 4.2 0.45559
£
1.91
Initial
Outlay
-£
4.40 Initial Outlay
-£
8.60
NPV
£
2.53 NPV
£
3.38
The above table depict an evaluation of the NPV for two investments. It can be concluded that
the company should invest in Investment one due to high positive NPV unlike the NPV of
investment two.
Payback period
Decision criteria; Accept the project if takes less 3.5 years
Investment 1
Years £m P.V.I.F 14%
1 1.6 0.87719 £ 1.40 £ 1.40
2 2.8 0.76947 £ 2.15 £ 3.56
3 3.4 0.67497 £ 2.29
4 3.6 0.59208 £ 2.13
5 4 0.51937 £ 2.08
6 4.2 0.45559 £ 1.91
Initial Outlay -£ 8.60
NPV £ 3.38
Payback period = (1years+{2-1.4/2.29)=1.3Years

Investment 2
Years £m
P.V.I.F
14%
Discounted
cash flow
1 0.8 0.8772
£
0.70
£
0.70
2 1.4 0.7695
£
1.08
£
1.78
3 2 0.6750
£
1.35
£
2.43
4 2.4 0.5921
£
1.42
5 2.3 0.5194
£
1.19
6 2.6 0.4556
£
1.18
Initial
Outlay
-£
4.40
NPV
£
2.53
Payback period= (2years+{2-1.78/1.35)=1.2 Years
The workings of the Payback period for the two investment depicts that investment one will be
ideal since, it will take the shortest time of 1,2 years to recover the invested capital. This time is
ideal considering the fact that the investment decision with regards to Payback period is that the
company will only accept the project if it’s Payback period is 3.5 years or less.
Average Rate of Return
Investment 2 Investment 1
Years £m P.V.I.F 14%
Discounted
cash flow Years £m P.V.I.F 14%
1 0.8 0.8772
£
0.70 1 1.6 0.87719
£
1.40
2 1.4 0.7695
£
1.08 2 2.8 0.76947
£
2.15
3 2 0.6750
£
1.35 3 3.4 0.67497
£
2.29

4 2.4 0.5921
£
1.42 4 3.6 0.59208
£
2.13
5 2.3 0.5194
£
1.19 5 4 0.51937
£
2.08
6 2.6 0.4556
£
1.18 6 4.2 0.45559
£
1.91
£
6.93
£
11.98
Initial Outlay
£
4.40 Initial Outlay
£
8.60
ARR 1.57 ARR 1.39

Task 4
4.1 Discuss the key components of financial statements
Income Statement
The income statement summarizes an organization's business and costs. The last net figure is
either benefit (if aggregate of incomes is more than Expenses) or liabilities (if costs is more than
revenues).The Asset or liabilities appeared
Balance sheet
A Balance sheet summarizes an organization's Assets, liabilities and shareholders' value at a
particular point in time. These three accounting report sections give financial specialists a
thought in the matter of what the organization claims and owes, and additionally the sum
contributed by the shareholders.
Cash flow statement
Profits and cash are not the same. A statement that shows Actual cash inflows and how the same
has been utilized is known as the cash flow statement. It manages liquidity. Being profitable does
not really mean being fluid (Sarnat, 2007). An organization can fall due to a lack of cash, even
while profitable. So to examine the monetary substances, cash flow statements are important and
hence prepared.
Notes to the financial statement
Organizations can choose the accounting standard on which to base their financial statements.
The notes to the financial statements informs users what strategy decisions have been made, and
also other data that can be key to a total comprehension of the financial explanations

4.2 Comparing the format used by Clariton Antiques Ltd to presenting their financial
statement with that of a partnership
Limited company
 Shareholders finance which contains numerous classifications like share capital, held
profit, other income and capital stores.
 Unlike partnership which has tax collection on the individual partners, a limited company
is forced assessment as it is a different lawful element
 Additionally, demonstrate a Statement of Changes in Equity where changes in share
capital, benefit, income and other capital stores amid the year.
 As shareholder assets
 Statement of Changes in Equity
Partnership
 More than one capital record. The quantity of capital record relies on upon the quantity of
partners in the partnership concern.
 Assets and liabilities are circulated to the partners' capital record as indicated by the
concurred proportion (Vikram, 2004). The income statement of the partnership
demonstrates a calendar on how the net benefit/misfortune is dispersed to the partners.
 The accounting report demonstrates the adjustment of the capital measure of each
accomplice characterized under proprietor's value.
 Other than the income statement and the balance sheets, a statement of partner's equity is
likewise arranged to demonstrate the changes in value of each accomplice since the start
of the year.

4.3 Interpreting the recent financial statement of Clariton Antiques Ltd
using appropriate ratios and making comparison with the previous year
Liquidity/Financial Health 2006 2015
Current Ratio Current Asset/Current Liability 0.3312 0.2298
Quick Ratio Current Asset-shares/Current
Liability 0.1830 0.0809
Profitability
Return on Assets
% Net income /total Asset 0.0599 0.0459
Return on Equity
% Net Income/shareholder's equity 0.3133 0.2400
From the liquidity ratio Analysis, it is apparent that the organization is having an improvement in
its financial health. This is delineated by the development in current ratio and Quick ratio which
suggests that the capacity of the organization to finance its short term obligation when they fall
due is achievable (Ehrhardt, 2016). As to profitability of the organization, it is apparent that the
ROE and ROA of the organization is growing each year inferring that the organization is
beneficial for venture.

Reference list
Ehrhardt, M. (2016) Corporate Finance: A Focused Approach - Page 575, New York: Springer.
Few, C. (2009) Advances in Investment Analysis and Portfolio Management - Volume 9, New
York: Cengage Learning.
Floyd, D. (2005) Financing International Projects - Page 3, New York: Springer.
Harold Bierman (2003) Financial Management for Decision Making, Sydney: Pearson
Education.
Madura, J. (2007) International Financial Management - Page 483, London: Cingage Learning.
Moyer, C. (2015) Contemporary Financial Management - Page 561, London: Cengage
Learning.
Sarnat, M. (2007) Financial Decision Making Under Uncertainty, New york: Springer.
Vance, D. (2002) Financial Analysis and Decision Making, london: John wiley.
Vikram, N. (2004) Finance for Strategic Decision-Making: What Non-Financial Managers, New
York: Cengage Learning.