Financial Sources of Clariton Antiques limited | Report
Added on 2020-02-05
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MANAGING FINANCIALRESOURCES ANDDECISIONS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Financial sources which are available for different firms................................................11.2 Implications of financial sources on business..................................................................21.3 Most suitable financial sources for Clariton Antiques Limited........................................4TASK 2............................................................................................................................................42.1 Cost of Venture capital and bank loan.............................................................................42.2 Significance of financial planning on the firm Clariton Antiques Ltd.............................52.3 Informations which will be needed in order to take financing decisions.........................62.4 Influences of financial statements of Clariton while using financial sources..................6TASK 3............................................................................................................................................73.1 Preparation of cash budget for Clariton and its analysis..................................................73.2 Method to derive cost and price per unit with an example...............................................93.3 Assess the viability of investment with help of financial tools......................................10TASK 4..........................................................................................................................................124.1 Key elements of various financial statements................................................................124.2 Comparison between financial formates of Clariton and sole trader.............................134.3 Interpretation of financial performance of Clariton with helps to financial ratios.........14CONCLUSION..............................................................................................................................17REFERENCES..............................................................................................................................19
INTRODUCTIONIn the corporate world, finance plays an important role and helps to entrepreneur in orderto establish business in the industry. If fund is not available then he cannot exist in the market swell as operate in proper way. Further, it is too much necessary to take effective businessdecisions for sustain smooth functioning of the organisation. In the present case a ClaritonAntiques limited is expanding its business in another country such as Birmingham. For this itneeds finance which is provided by several sources of finance. The report throws light onfinancial sources as well as its impact on the firm. Apart from this, it shows cash budget andfinancial tools which help to take better business decisions and formulate strategies. Beside it,the report emphasis on financial performance of the Clariton with help of different financialratios.TASK 11.1 Financial sources which are available for different firmsa.)Unincorporated business: A firm which not possess legal identity in the corporate world andnot require to follow rules and regulations of the authority, identified as an unincorporatedcompany (Greene, Brush and Brown, 2015). Further, it includes sole trader firm where all theliabilities of business is with owner or proprietor. For this available financial sources are such asfollows:Owner's fund: As per respective source the entrepreneur use its own fund which is savedin his personal life. It can be know as a personal savings which are drawn in the businessfor expanding in another market. For this he has not pay any cost after raising fund.Selling the assets: Another source is sale of assets where the business sale those assetswhich are unused as well as not help to firm for generating sales and revenue. Theamount which comes after sale those assets is drawn in the firm for raising fund.Retained profit: According to this profit which is remaining after paying dividend amountto shareholders is used in the business (Post and Byron, 2015).b.) Incorporated business: Those firms which cannot establish and run business in the industrywithout following legal rule and regulations, that are known as an incorporated company. In this1
the entrepreneur needs to follow all the laws and legislations which are set out by regulatorybodies. In order to raise fund for such firms, financial sources are mentioned below:Bank loan: As per the external sources of finance the business can take loan fromcommercial banks in order to raise fund. Further, it takes interest amount as a cost offinance from the business entity.Leasing: Another source of finance for incorporated businesses is leasing where companycan lease small part of the firm or particular item to external party (Bogsnes, 2016). Inthis case firm has not pay any cost of finance as well as it is the cheapest way to raisefinance.Government or EU grant: Further, European Union grant is provide funds to the UKcompanies for business expansion. It is one type of loan from government or EU whichcharges lower interest compare to commercial banks.1.2 Implications of financial sources on businessSources of financeFinancial implicationLegal implicationDilution of controlInternal sources offinanceforunincorporatedfirms:Owner's fundAs per the sourcesthere are any cost isnot to be given.In this case there isnot any legal rules areapplied.-Selling assetsThe firm should notpay cost of fund but itleads to reduce assetsin balance sheet offirm (Shibata andNishihara, 2015).Here government orregulatory body notinterfere for rainingfund.-Retained profitUsingcompany'sprofit there is not anyfinancial impacts onDue to internalsources there are anyrules are not imposes.No dilution of controlis here.2
the business.External sources offinanceforincorporated firms:Bank loanAs per this the firmhas to pay interestamount which impacton net profit innegative way.In order to raisingfund from banks firmmust complete all theformalitiesanddocumentationprocess. Further, ithas to provide valueof the firm to bank(Johnson and Pfeiffer,2016).Very low dilution ofcontrol.LeasingHere the firm not paycost or charges butdue to givingparticular asset toexternal party it leadsto decrease total assetsof company.The company has tocompletedocumentationprocess and fulfil allthe rules and then canraise fund.Dilution of control isnot there in leasingsource.Government or EUgrantFurther, the EU grantorgovernmentimposes interest on thefirm in order to raisingfund by whichfinancial performanceisreduced(Mukherjee,AlRahahleh and Lane,2016).The business whichtakes loan from EUgrant then it needs toshow its financialposition to thegovernment.Dilution of control isin hand of EU grant.3
1.3 Most suitable financial sources for Clariton Antiques LimitedAs per the present scenario Clariton is going to expand the business for which suitablesources of finance are venture capital and bank loan which are elaborated below:Bank Loan: Very main advantage of the financial source is that it is based on the valueof business as well as helps to identify ability of firm to generate profit. Further it is mostbeneficial order to expand the company in another new market. However, it imposes highercharges in terms of interest on the loan which lead to decrease profitability to the Clariton. Apartfrom this sometimes bank demand for repayment which affects to the firm adversely in order togenerating sales (Geng, Bose and Chen, 2015).Venture capital: Another appropriate financial sources for firm Clariton is venturecapital which is very helpful for it in order to expanding business. Further, it is beneficial forfirm due to increase shareholders in the market which lead to increase fund smoothly. On theother side after using the source there are some limitations such as the firm become moredepended on the venture capital because of providing better ideas due to having expertise inbusiness. Further it takes dividend in terms of cost of finance which is adverse for Clariton.TASK 22.1 Cost of Venture capital and bank loanEach sources of finance charging cost after providing financial services to the firm indifferent forms which is described below:A) Dividends: When the firm taking finance from external sources then it imposesvarious types of costs. Here Clariton is raising fund using venture capital firm such as WeFinance Limited which is taking charges in terms of stake (Greenbaum, Thakor and Boot, 2015).Further, it turns into shareholder where Clariton has to give dividend amount. Hence, dividend isa cost which is imposes by venture capital on the firm that is 20% stake of overall amount suchas 0.5m GBP.B) Interest:Further, another cost of finance is in terms of interest amount which is takenby the commercial banks for providing financial services to Clariton. As per the present scenariothe bank is charging 2% annual interest rest of the loan amount 0.5m GBP over the period of 10year. Higher the rate of interest is lead to reduce net profit of Clariton which highly affects4
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