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Internal And External Sources Of Finance

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Added on  2020-01-21

Internal And External Sources Of Finance

   Added on 2020-01-21

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MANGING FINANCIALRESOURCES ANDDECISIONS
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Table of ContentsINTRODUCTION ..........................................................................................................................1TASK 1............................................................................................................................................11.1 Internal and external sources of finance available with the business to raise its capital.......11.2 Implications of various sources of finance............................................................................21.3 Appropriate sources of finance for Sweet Island Restaurant to requirement for cash..........3TASK 2............................................................................................................................................42.1 Cost of different sources of finance for Sweet Island Restaurant.........................................42.2 Importance of financial planning for Sweet Island Restaurant.............................................52.3 Information needed by different decision maker of Sweet Island Restaurant.....................52.4 Impact of sources of finance identified on the financial statements of Sweet IslandRestaurant....................................................................................................................................6TASK 3............................................................................................................................................73.1 Analyze of the budgets in order to make appropriate decisions...........................................73.2 Calculation of Unit cost and its relevant pricing decisions...................................................83.3 Viability of the two projects using investment appraisal techniques....................................8TASK 4............................................................................................................................................94.1 Financial statements..............................................................................................................94.2 Different types of accounts prepared by different organization..........................................104.3 Calculation of various ratio.................................................................................................10Conclusion.....................................................................................................................................13References......................................................................................................................................13
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INTRODUCTION Finance is the science that identifies the management of funds, investments, banking,credit and assets and liabilities made by company. In other words, it can be said that finance isthe management of all activities that take place in the organization on cash and credit terms.Finance consists of financial system and financial instruments. The following report is going tointerpret about various internal and external sources of finance which company can undertake inorder to meet its long term, medium term and short term requirements of funds. In this report, importance of financial planning for Sweet Menu Restaurant is discussed.Along with that, impact of various sources of finance on financial statements is explained. Inaddition to this, budget of Blue Island Restaurant is going to be analysed in order to find outcompany’s position. Unit cost of firm is calculated as well. In this, various different types offinancial statements used by different types of business are also discussed. At last, in this report,various ratios related to profitability, solvency, etc. are calculated in order to compare thefinancial position of Sweet Menu Restaurant and Blue Island Restaurant.TASK 11.1 Internal and external sources of finance available with the business to raise its capitalInternal sources of finance:Sale of Stock: - This is one of the methods which are used by company to generate cashby selling out the available assets. Cash generated by selling the stock is used by the firmfor financing the capital needs. This method can be used by the organization to meet itsboth short and long term requirement of cash. But it mainly depends on the type of assetssold. Retained profits: - It is one of the easiest methods which can be used by company tomeet its urgent requirement of funds. This is a type of liquid cash which is kept as areserve by the firm for future use. Retained profit is collected by deducting a smallamount of profit margin that is earned by company every year (Beaver, McNichols andRhie, 2005).External sources of finance:Share capital: - This is the source of finance in which company issues new shares orraises the price of existing shares in order to raise the funds to meet its long term3
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requirement of finance. This method is normally used by company to raise a largeamount of capital. But at the same time, high rate of interest and dividend need to be paidto the shareholders. Loan capital: - This is one of the most common methods used by companies in order toraise its finance (Bellas, Toudas and Papadatos, 2007). It is a form of loan or overdraftfacility which is considered by the organization in order to meet its long, short andmedium term requirement of cash. In this case, overdraft facility is available for shortperiod of time only. Rate of interest charged on this type of loan is very high.1.2 Implications of various sources of financeSOURCESLEGALDILUTIONBANKRUPTCYSale of assetsIn case of sale of assets,company needs to followthe legal procedure. Acontract or agreement willbe made between twoparities which in turnincreases the cost ofcompany (Brigham,2013). Once assets have beensold out to anotherperson, the owner alsochanges. An individualwho has purchased theassets became the actualowner of assets.In case of bankruptcy,assets of company can besold out in order to paycash to all creditors.RetainedprofitCompany is not requiredto follow any legalprocedure while using theretained profit. It isbecause of the reason thatit is company’s ownproperty.In this case, ownershipwill never change. Itwill always remain withthe firm itself.In case of bankruptcy,company will be left withno retained profit. It isbecause; if retained profitis available then in thatcase, condition ofbankruptcy cannot occur.Share capitalA proper legal procedureneed to be followed by thefirm at the time of issuingshares. This in turnOnce shares are issued,ownership changes(Broadbent and Cullen,2012). Those individualsIn case of bankruptcy,company will not be ableto pay dividend to theshareholders.4
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