Financial Planning and Investment Analysis

A financial analysis report for two investment options: JURA and NUOVA. The report highlights the importance of resource management and financial planning in making informed business decisions. The net present value (NPV) calculation shows that investing in NUOVA is more profitable, with an NPV of £1577.7 compared to £1294.2 for JURA. The report also discusses various financial analysis techniques such as BEP analysis, investment appraisal, and cost budgeting. It concludes that these tools are essential in preparing a successful financial plan.

MANAGING FINANCIAL RESOURCES AND
DECISIONS

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 2...............................................................................................................................................3
2.1 Analyses the costs of different sources
of finance....................................................................................................................................3
2.2 Importance of financial
planning(FP)...............................................................................................................................4
2.3 Information needs of
different decision makers............................................................................................................5
Task 3...............................................................................................................................................5
3.1 Cash budgeting.......................................................................................................................5
3.2 Calculations of unit costs
and make pricing decisions.........................................................................................................6
3.3 Investment appraisal..............................................................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

INTRODUCTION
Resource management and financial decisions are the main aspects of any business.
Without efficient management company finds difficulty to achieve goal and it has to face many
difficulties to run its business operations. Business entities or decision maker play an important
role in establishing and understanding the financial resources. Present study will cover
importance and need of financial planning (Johnston and Nedelescu, 2006). Financial
performance and budgeting will be discussed in the present report with the help of cash
budgeting, investment appraisal techniques.
TASK 2
2.1 Analyses the costs of different sources
of finance
Starting an independent coffee shop is not an easy task; it requires lots of different
resources. There are diverse sources of finance which are as below:
 Internal sources External sources
Internal sources: It involves various sources; Retained earnings, sales of fixed assets,
Business revenues.
External sources: It includes; bank loans, franchising, government sources, preserved
earnings, issue of debentures, issue of share capital etc. are some sources which are required to
start and run business.
Cost of equity: It refers as rate of return of share holder on equity investment. Rate of return
can be earned by investing equal money into different investment and with equal risk (Murphy
and Yetmar, 2010).
Cost of equity= (Annual dividend for next year/ present inventory price)+Growth rate of
dividend
Or Capital Asset Pricing Model (CAPM) determines the cost of equity:
ra = rf + Ba (rm-rf)
Here, rf= return rates on risk free securities
Ba= the beta of the investment in question

rm = market's overall expected return
Cost of retained earnings: It can be measured by two various situations:
1) No flotation cost and personal tax applicable for shareholders
Cost of retained earnings (kr) = Cost of equity (ke) = (D1/NP) + g
Where,
D1= expected dividend per share
NP= current selling price or net proceed
2) flotation in cost and personal tax rate applicable
Cost of retained earnings (kr) = Cost of equity (ke) x 1-fp) (1-tp)
Where,
fp = flotation cost on re-investment (in fraction) by shareholders
tp = Shareholders' personal tax rate
2.2 Importance of financial planning(FP)
Financial planning is the systematic process which helps to meet with the objective of the
business and clarify the business policies, budgeting and investment of organization (Orens and
et.al, 2009). For getting profit, FP is important through which investment can be suitably
structured.
Cash flow: Tax plan, expenditure plan, prudent budget are involved in the financial
planning. It helps to increase cash flow in the organization. Coffee shop is required to plan
overall machines required, cost of machines, rents etc. expenditure are managed by such
financial planning.
Income: Through appropriate planning, company can control income efficiency.
Investment: Decision related to investment and expenses can be taken by close
supervision so that the organization can grow.
Capital: It helps in building strong capital foundation. As if plan is proper then, it
increases cash flow in the organization and if cash flow increased then capital will also increase.
By proper financial planning, saving can be raised and that will help in future difficulties (Tsai
and et.al, 2011).
Cash management: It helps to manage cash in various critical situations.

Long range view: If person wants to run business for long period, then it is essential that
effective financial planning takes place.
Standards of living: It will increase the living standard if proper planning takes place.
Then it will further help to identify the future problems and ways of increase cash. Thus saving
will be increased.
2.3 Information needs of different decision makers
Decision makers needs various information for successful financial planning.
Accounting for finance: Different types of financial investment takes place to start a
coffee shop. Assets liability management is an important part of such planning. Decision maker
need all related information like total capital, assets, liability so that he can make a good and
strong business plan which can give success to the organization. Interaction of assets liability
should be in proper manner so that it can sustain in the market for long period.
Stakeholder information: Internal and external stakeholder information is required for
making decision. Like employees and their skills, salary offered to them, Management team who
can assess the financial position of the firm and calculate the performance. Investors, vendors,
supplier’s information is needed by the decision maker (Tracy, 2012).
TASK 3
3.1 Cash budgeting
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Receipts 0 500 600 850 1000 1000 950 900
Payment
s
Rent £2,000.0
0
£400.00 £400.00 £400.00 £400.00 £400.00 £400.00 £400.00
Wages £525.00 £525.00 £525.00 £525.00 £525.00 £525.00 £525.00 £525.00
Tables/
chairs/
cash
till
£2,000.0
0
Electricit £200.00 £200.00

y
Coffee 350
Coffee
machine
hire
£542.00 £42.00 £42.00 £42.00 £42.00 £42.00 £42.00 £42.00
Sugar £35.00 £35.00
Cups £120.00 £120.00 £120.00
Serviette
s
£100.00 £100.00
Cleaning
and
other
materials
£50.00 £50.00 £50.00 £50.00 £50.00 £50.00 £50.00 £50.00
Total
payment
s:
5722 1017 1017 1337 1052 1017 1017 1437
Net cash
flow
517 417 487 52 17 67 537
Opening
cash
5000 -722 -205 212 699 751 768 835
Closing
cash
-722 -205 212 699 751 768 835 1372
3.2 Calculations of unit costs
and make pricing decisions
BEP=Total Fixed cost (TFC)/Sales- total variable cost (TVC) (Harper, D., 2014.
Financial Statements: Long-Term Liabilities, 2015).
(A)Break even quantity of cups of coffee to be sold
TFC
Rent 400
coffee machine hire 42
electricity 50

cleaning material 35
wages 525
TFC 1052
selling price 2.25 2.4 2.8
variable cost
premium coffee
0.34388888
89
0.34388888
89
0.34388888
89
milk 1 1 1
sugar 0.00799 0.00799 0.00799
kraft ripple coffee
cup 0.07126 0.07126 0.07126
serviettes 0.02904 0.02904 0.02904
TVC
1.45217888
89
1.45217888
89
1.45217888
89
contribution
0.79782111
11
0.94782111
11
1.34782111
11
BEP (2.25)
1318.59132
99974
BEP (2.4)
1109.91408
36468
BEP (2.8) 780.52
(B) Calculation of unit costs
=Cost/Total number of units to be sold
variable cost
premium coffee 309.5
milk 900
sugar 7.191
Kraft ripple coffee
cup 64.134
serviettes 26.136
TVC 1306.961
TFC
Rent 400
coffee machine hire 42

electricity 50
cleaning material 35
wages 525
TFC 1052
TC 2358.961
Number of cups 900
Unit cost
2.62106777
78
(C)Margin of safety
Margin of safety is the sales above the beak even point (Siano and et. al, 2010).
Margin of safety
-
418.591329
9974
(D) Agree with the pricing or not
No, such cannot be agreed upon as it is recommended that by increasing sales company
can get profit and if it sells each cup for £2.80 then also it can sustain.
3.3 Investment appraisal
JURA Year 0 Year 1 Year 2 Year 3 Year 4
Capital
expenditure
2000
Net cash
inflow
550 490 360 0
PV factors @
8%
1 0.93 0.86 0.79 0.74
Discounted
cash flow to
nearest £
2000 509.3 421.4 284.4 0
Net present
value
1294.2
NUOVA Year 0 Year 1 Year 2 Year 3 Year 4
Capital 3000

expenditure
Net cash
inflow
550 490 360 280
PV factors @
8%
1 0.93 0.86 0.79 0.74
Discounted
cash flow to
nearest £
3000 509.3 421.4 284.4 207.2
Net present
value
1577.7
So he should invest in NUOVA because net present value is higher than JURA and this
will be more profitable so he must invest in such machinery.
CONCLUSION
It can be concluded that resource management and financial planning are important
factors in any business. To operate business, it is necessary that decision makers should have all
necessary information regarding assets, liabilities, capital, finance so that better and successful
financial plan can be made. To prepare financial plan and to take financial decisions, various
analysis has been discussed in the above report. These are BEP analysis, Investment appraisal
techniques, cost budgeting.

REFERENCES
Books and Journals
Johnston, R., B. and Nedelescu, O., M., 2006. The impact of terrorism on financial markets.
Journal of Financial Crime. 13(1). pp.7–25.
Murphy, D., S. and Yetmar, S.,2010. Personal financial planning attitudes: a preliminary study
of graduate students. Management Research Review. 33(8). pp.811–817.
Orens, R. and et. Al., 2009. Intellectual capital disclosure, cost of finance and firm value.
Management Decision. 47(10). pp.1536-1554.
Siano, A. and et. al., 2010. Financial resources and corporate reputation: Toward common
management principles for managing corporate reputation. Corporate Communications: An
International Journal. 15(1). pp.68–82.
Tracy, A., 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to
Analyse Any Business on the Planet. RatioAnalysis.net.
Tsai, H. and et.al., 2011. Recent research in hospitality financial management. International
Journal of Contemporary Hospitality Management. 23(7). pp.941–971.
Valle, A., G., R., M. and Gomes, R., C., 2014. Analyzing the importance of financial resources
for educational effectiveness: The case of Brazil. International Journal of Productivity and
Performance Management. 63 (1). pp.4–21.
Online
Harper, D., 2014. Financial Statements: Long-Term Liabilities, 2015. [Online]. Available
through: <
http://www.investopedia.com/university/financialstatements/financialstatements8.asp>.
[Accessed on 13th August, 2016].