Managing Financial Resources Decisions: Assignment
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Added on 2019-12-28
Managing Financial Resources Decisions: Assignment
Added on 2019-12-28
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Managing FinancialResources and Decision
Table of ContentsINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................41.1 Identify the sources of finance available...............................................................................41.2 Assessment of the implications for using Internal and External sources of finance.............51.3 Evaluation of the most appropriate sources of finance for Clariton Antiques Ltd...............7TASK 2 ..........................................................................................................................................82.1 Analysis of the costs of the two sources of finance under consideration.............................82.2 Explain the importance of financial planning for Clariton Antiques Ltd............................92.3 assessment of the information that will be needed to make decision on financing............102.4 Impact on the financial statements through Venture capitalist (We Finance Limited) andFinance broker...........................................................................................................................11TASK 3..........................................................................................................................................123.1..............................................................................................................................................123.2.........................................................................................................................................133.3..............................................................................................................................................14TASK 4 .........................................................................................................................................164.1 key components of financial statements.............................................................................164.2 Comparison of formats used by Clariton Antiques Ltd to present its financial statementswith that of sole trader or partnership firm...............................................................................174.3..............................................................................................................................................18CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20
INTRODUCTIONFinancial resources are soul of the business enterprise. In this report, very financialresources that an entity can opt for managing its business operations. Further, report talks aboutincorporated and unincorporated organisations and their financial resources. Clariton AntiqueLtd was started by four partners. It has its two branches which are situated at London, furtherthey are also willing to establish another branch at Birmingham. This report also contains adetailed analysis of offer which is given by We Finance Limited to Clariton Antiques Ltd toexpand its business structure. The report contains a detailed analysis regarding the cost of twosources of finance in reference to dividend, interest and tax. Besides this, the reader will knowthe importance of financial planning for cited entity and they can also derive importantknowledge regarding key components of the financial statements.TASK 11.1 Identify the sources of finance availableThere are certain sources of finance which are available for various types of entities.Weather it is an unincorporated entity or an incorporated entity; they both require funds to carryout business activities(Brammer and et.al, 2012). But the sources which are appropriate for themmay be different. The various types of financial sources which are available for unincorporatedand incorporated entities are as follows:Unincorporated Entities: A business organisation which does not have a separate legalidentity. If such entity is not following a separate legal concept of accounting then it willbe considered as an unincorporated association or entity. In such entity, owner possessesall liabilities which are related with the business enterprise. Sole proprietors, partnershipfirms can be considered as unincorporated entities(Brigham and Ehrhardt, 2013). Thesources of finance which are available for unincorporated entities are as follows :◦Personal Savings: For the organisations like partnership firms and sole proprietors,personal savings can be a major source of finance. Though this, they can fund theirday to day activities(Chandra, 2011).◦Small Business Loan: Unincorporated entities can seek for small business loans tofinance their business requirements. Management of the cited entity can approachtowards bank and other financial institutes.
◦Small Business Line of Credit: Unincorporated entities can apply for business line ofcredit. It is almost same as a small business loan. If the repayment of small businessloan is compared with small business line credit then it is almost same. Cited entitycan take loan in instalments rather than taking it in lump-sum. Incorporated Entities: Those enterprises which are registered and have separate legalentity from that of its owner is known as the incorporated entities. The sources of financewhich are available to them are mentioned below :◦Retained earnings: The retained earnings are the most usual source of finance for anyincorporated entity(DRURY, 2013). Companies earn profit and they retain certainprofits which can be used by them for meeting their future needs and requirements.These savings are termed as the retained earnings. Clariton Antiques Ltd is anincorporated entity hence it can finance the short term requirements like funding ofworking capital through retained earnings.◦Bank loans: Just like unincorporated entities, cited entity can also borrow moneythrough banks and other financial institutions.◦Equity shares: A company can issue shares in public so that they can get adequatefinance(Ebrahimnejad and et.al, 2010).◦Debentures and Bonds: Incorporated entities can issue debentures in the public tofinance their business activities. Debentures and bonds are long term business loanwhich bears a fix rate of interest. ◦Venture Capitalists: Cited entity can finance their projects through venture capitalist.Venture capitalist is considered as an investor who either provides finance to newlyestablished venture or to start a new project in the existing venture.1.2 Assessment of the implications for using Internal and External sources of financeSources of finance regulates the activities of a business enterprise. An entity requiresfunds to conduct its day to day activities(Gregory and et.al, 2012). For getting funds for thefulfilment of business needs, cited entity, firstly needs to assess various sources of finance. Thereare mainly two category of finance and these are mentioned below :Sources of finance Implications regarding finance Legal implicationsInternal source of finance :
Retained EarningRetained earning is that part ofprofit which is retained out ofit after giving dividend to theshareholders. An entity can useretained earning to meet thecurrentneedsandrequirements.There are no such legalimplications of retainedearnings.Working capitalWorking capital can indirectlybe a source of finance. As if acompany reduces the fundsemployed in its workingcapital then that amount can beused for other purpose(Pfohland et.al, 2010).Working capital bear no anylegal implicationsSale of assetscited entity can generate fundsthrough selling out its assets.The sale proceeds can be usedas the source of finance. Butcited entity needs to analysethe use of assets before sellingthem. So that working capacityof cited entity cannot beaffected.It doesn't attracts any legalimplications.Account receivablesFurther debtors and otheraccount receivables can alsobe classified as internal sourceof financeDebtors and other accountreceivables are outsiders hencethey have certain legalimplications.External Sources :Bank Loan and mortgageCited entity can acquire fundsthrough loan from bank andother similar financialIt has certain legalimplications. Cited entityneeds to meet out all the
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