Healthcare Financial Management Practices

This assignment delves into the crucial topic of financial management within healthcare organizations. It examines various aspects, including capital budgeting processes, financial planning and control mechanisms, and the impact of external factors on healthcare finances. The analysis considers both traditional approaches and emerging trends in healthcare financial management, highlighting best practices and challenges faced by healthcare providers.

MANAGING FINANCIAL
RESOURCES AND
DECISIONS

Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Sources of finance available for unincorporated and incorporated businesses................3
1.2 Implications of sources of finance on the firm.................................................................4
1.3 Appropriate sources of finance for firm such as Clariton Antiques Ltd..........................5
TASK 2......................................................................................................................................6
2.1 Cost of sources of finance such as bank loan and venture capital...................................6
2.2 Importance of financial planning on the Clariton company.............................................6
2.3 Information’s needed for the firm in order to take financial decisions............................7
2.4 Impact of various sources of finance on financial statement of Clariton Antiques Ltd...7
TASK 3......................................................................................................................................8
3.1 Explaining budget along with its significance for the Clariton Antiques Ltd..................8
3.2 Computation of cost and pricing decisions....................................................................10
3.3 Analysis of project feasibility through capital budgeting..............................................11
TASK 4....................................................................................................................................13
4.1 Explaining important financial statements.....................................................................13
4.2 Comparison of final accounts of partnership & Clariton Antiques Ltd.........................14
4.3 Comparing Clariton’s business performance for two financial years............................16
CONCLUSION........................................................................................................................17
REFERENCES.........................................................................................................................18

INTRODUCTION
Finance is an important element of the firm which is base of each business in order to
come into consideration. Without the financial resources an organisation cannot exist in the
industry where it operates. Further, it is necessary to manage and effectively utilize financial
resources in the business entity. The present case is based on Clariton Antiques Limited firm
which is a partnership business and going to expand business in country Birmingham. In
order to raise fund it uses bank loan as well as venture capital. The report throws light on
different sources of finance and their implications on the company. Further, it describes about
cost of finance and its impact on various financial statements of the Clarion organisation.
Apart from this it focuses on cash budget as well as financial tools used in order to take
investment decisions. At the last it emphasis on financial performance of the Clariton with
help of numerous financial rations.
TASK 1
1.1 Sources of finance available for unincorporated and incorporated businesses
Unincorporated Businesses: Company which not operating in the industry using
legal rules and regulations as well as have not legal identity, known as unincorporated firms.
When this type of entities wants to expand their business then they have different sources of
finance which provide fund (Kumar and Rao, 2016). The sources are such as follows:
 Sale of assets: As per the sources the company sale its assets which are unproductive
as well as unused in the firm. Further, those assets which are not comes into
consideration for generating sales are sold out and amount is to be used in firm for
business expansion. When the company raise fund using the respective financing
source then it helps to reduce level of dent in the financial statements of such firms.
Apart from this it will lead to increase profitability of the company by which financial
performance will improve in the industry. However, it leads to decrease total assets of
the firm as well as valuation of the business entity in the overall industry. Further,
ability to meet with short term obligations reduce ultimately which is loss for the
organisation.
 Personal savings: Every businessman whether he has small or big firm, saving some
amount from his earnings. The saved amount is used in the company which helps to
enhance level of firm and expand as well. It is the sources in which the business not
need to take external help as well as there is not any type financing costs are imposes

on the business. It helps to the owner when emergencies occurs in the company as
well as very typical situations arises. Further, it helps to avoid different types of
indirect expenses such as interest, dividend etc. which lead to make beneficial. Apart
from this it leads to reduce net worth of finance of the owner in his personal life.
 Retained earnings: Profit which remains from net profit after give dividend to
shareholders is known as retained earnings (Malik, Field and Gorwood, 2016). The
amount is used in order to expanding the firm which is widely using source of finance
by most of the firms. It helps to the company in order to make new projects as well as
expand the business in another market. Further, these types of sources are readily
available in the firm as well as it helps to decrease cots of issue shares in the market.
However, when company use such type of source then it leads to increase opportunity
cost by which level of profit get decrease. So, it is adverse as well as disadvantage for
the company.
Incorporated Businesses: The firm which operates using all the rules, laws and
legislations of regulatory body and has legal identity, known as an incorporated company. In
order to raise finance for business expansion of these forms of organizations, there are
sources of finance available which are enumerated below:
 Equity financing: Most of the companies are using such source of finance in order to
raise firm from the market. According to the source organisation issues shares through
IPO and FPO process (Ranjan, 2016). The shares are purchased by investors known
as shareholders and the amount is using for expanding company. It is widely used
source in order to raise fund through external markets. It is beneficial for the company
because it helps to increase stockholders as well as investment in the company. On the
other side if firm issues preference shares then it must give dividend to shareholders
in every financial year. Further, it has to complete all the legal formalities as well as
listing in the stock market as well.
 Bank loan: Another source of finance for incorporated companies is bank loan in
which the firm takes debt amount from commercial banks. It is widely used external
source of finance in order to raise fund in the organisation. As per the source the
company is most beneficial in terms of raising finance because it helps to analyses
valuation of the company in the market. On the other side it provides financial
services to the organisation when it has sufficient ability to pay debt. In case company
is not able to pay all the debts then bank has right to wind up overall firm.

 Venture capital: As per the sources the business takes fund from venture capital
companies. There are many number of venture capital companies which are provide
facilities of finance to the incorporated businesses (Richards, 2015). It provides
amount of fund for expanding business when the company have sufficient return on
investment ratio. If it has not effective return then venture capitalist will not give such
facilities to the company. Apart from this it influences cash flow of the enterprise at
the end of an accounting period.
1.2 Implications of sources of finance on the firm
Internal sources of finance:
Name of source Financial
Implications
Legal Implications Dilution of control
Sales of assets In order to raise fund
through selling
unused assets, it
impacts on balance
of the firm where
assets are decreases.
There are not any
legal implications of
respective sources.
-
Personal savings Due to using
personal fund it not
affects on the
company (Salisbury,
2014).
Not any types of
legal implications are
there.
-
Retained earnings Here company is
reinvest the profit so
it leads to increase
sales in the firm.
Not any legal
formalities or
documentation
process is here.
No dilution of
control.
External sources of finance:
Name of source Financial
Implications
Legal Implications Dilution of control
Equity financing The business has to
give dividend from
profit of the firm to
the shareholders. So,
using the source
profitability is
decreases.
In case of raise fund
through equity, the
company has to
listing in the stock
market and then can
issues shares in the
market (Crosby and
Henneberry, 2016).
Control is with
shareholders because
the firm has to
involve shareholders
and they interfere in
order to take
decisions.
Bank loan The businessman has
to pay interest
amount as a cost of
finance to the bank.
Hence, it affects to
net profit in negative
Here organisation has
to complete
documentation
process, further bank
allows for loan.
Dilution of control is
not in the bank loan.

manner.
Venture capital According to venture
capital he firm has to
give stake from the
company by which
dividend amount
goes to shareholders
and financial position
decreases (Eckerd,
2015).
As per the source
there are some
documents as well as
financial statement
requires, because on
the basis of return on
investment fund is
provided to
company.
Low dilution of
control in this source
of finance.
1.3 Appropriate sources of finance for firm such as Clariton Antiques Ltd.
Venture capital:
Advantages: Due to expertise in the business venture capital is helpful for the
Clariton. Further, another benefit is that the source invests money in terms of equity capital
which is fruitful for such antiques limited company. Apart from this the venture capital
provides various valuable informations as well as resources to the enterprise.
Drawbacks: In contrary of advantages there are various drawbacks such as it is not a
certain form of financing for the firm (Parikh, 2016). Apart from this it takes charges in terms
of stake where the Clariton has to give dividend every year to the stakeholders which affects
profit level of the company.
Bank loan:
Benefits: Very basic advantage of bank loan is that it is short term and easily
available source in order to raise the fund. Further, it provides tax relaxation which lead to
enhance profitability of the Clariton and it can become more financially sound.
Limitations: However, some limitations of bank loan are such as some of the banks
are imposes prepayment penalty on the organisation. Apart from this taking higher the loan
amount is affects to cash flow of the firm in negative manner (Geng, Bose and Chen, 2015).
TASK 2
2.1 Cost of sources of finance such as bank loan and venture capital
Each source of finance takes charges in different forms such as interest, stake,
dividend, tax etc. In the present case Clariton raising fund through bank loan and venture
capital where numerous charges are taken by them, which are described below:
a) Dividend: Talking about venture capital it imposes cost of finance on the Clariton
in terms of stake form the company. Here charges are taken by VC are 20% stake of overall
business. Further, the venture capital converts into shareholders of the Clartiton and then it

has to provide dividend amount to potential shareholders which lead to decrease profit of the
company (Greenbaum, Thakor and Boot, 2015).
b) & c) Interest and tax: Apart from the dividend, another source used by the
Clariton is bank loan where cost of finance is different from dividend. In terms of the bank
loan cost imposes on firm are in form of interest amount which is set out in the economy of
country. Higher the amount of loan is lead to charge higher interest amount. Moreover, there
is a broker who plays role of intermediary between Clariton and bank, known as finance
broker. It also takes charges in terms of percentage of overall loan amount. In the present case
bank imposes 2% interest amount or annual rate over the 10 financial years. On the other side
finance broker imposes cost of service is 1% brokerage amount of 0.5million GBP on the
Clariton.
Moreover, the company is beneficial in terms of tax amount due to provide taxation
allowances. As per the rules and regulations firm which raise fund from bank loan, it has not
require to pay tax amount which lead to enhance profitability of the business such as Clariton
(Matheson and et.al., 2016).
2.2 Importance of financial planning on the Clariton company
Financial plan is most important for the company for smooth functioning of the firm
in market. Significance of the plan for Clariton Antiques limited is enumerated below:
a) Budgeting: Budget is a process in order to forecast financial data for the future
accounting period on the basis of past financial position of the company. Hence, for estimate
future financial performance as well as formulate effective business strategies the financial
plan plays an integral role. If the company not use respective planning process then it is
unable to know future data. Finance organisation that have successfully revamped their
planning processes can today complete a forecast in two days or less and develop an annual
budget in less than three months. These organisations have reduced the time spent on lower
value planning activities and benefited from having prospective information and plan
available earlier in cycle to impact business performance.
b) Implications of failure to finance adequately: Further, adequate financial
resources are help to the business in order to run the company in a smooth way. Due to lack
of financial availability the entity is not able to produce better products and services as well
as run the organisation in proper manner. The management is able to manage and allocate
adequate finance with help of financial plan, so it is very significant (Fallon, 2014). In case of
failure of adequate finance it affects smooth functioning of the Clariton company adversely.

If the company is not able to allocate adequate financial resources to the different
organisational functions then it leads to hamper smooth functioning of the overall Clariton
firm in an adverse manner. If company use this planning in its daily routine surely it can save
money and incurred where it is necessary to be used. This process helps entity to see its short-
term goals which company plan for a better future management.
c) Over trading: It is a situation where the firm enhance its products and services in
comparison to availability of resources and raw material. Overtrading is reduces profit of the
company as well as financial performance in the industry. The management can overcome
such situation using effective and appropriate financial plan where it able to control over the
extra cost and expenses as well as extra production level. It is necessary for the management
to reduce and overcome situation of over trading in the company. The Clariton requires to
control over the cost, needs to increase cash balance, increase account receivables etc. which
helps to overcome such situations. This process includes a large number of planning,
strategies, and policies which us in the future. Financial planning includes tax, education,
estate, investment, saving, risk, and cash-flow planning.
2.3 Information’s needed for the firm in order to take financial decisions
When an organisation is going to take business decisions in terms of finance then
collect or gather appropriate informations. Here the Clariton taking finance from venture
capital and bank loan where it requires necessary informations, which are shown below:
a) Partners: In order to take financial decisions with help of partners of business the
company needs informations such as proportion of the capital amount as well as profit will be
divided according to which one criteria. Further, it needs to take information related to
different rules and regulations impose by regulatory body on partnership business (Kumar
and Rao, 2016).
b) Venture capitalist (We Finance Limited): For raising finance from venture
capital firm such as We Finance Limited the Clariton need information related to various
documentation processes. Further the business needs to collect information for paying the
amount and cost of provided finance to the Clarriton. It is too much necessary to know
information related to cost or charges of the finance provided by the We Finance limited fir
of venture capital.
c) Finance Broker: Further, the business takes finance or fund from bank loan where
a person is hired by the firm who plays role as an intermediary among the bank as well as

organisation. In such case the management requires to take information related to brokerage
charges which are taken by finance broker from the business entity.
2.4 Impact of various sources of finance on financial statement of Clariton Antiques Ltd.
When the company going to raise fund from various sources then it has to pay cost of
finance which lead to affect financial statement of Clariton in following way:
a) Venture capitalist (We Finance Limited): The We Finance Limited charges stake
of the firm and management has to pay dividend amount to its investors or shareholders. This
affects to the income statement in order to reduce total net profit as well as enhance level of
total expenditures in the financial year. On the other hand in the balance sheet assets will be
increase and total liabilities as well because venture capital treated in both side (Ranjan,
2016). Hence, expenses side increases in the profit and loss account as well as total liabilities
and assets of the Clariton will increase in the statement of financial position.
b) Finance broker: Another source is bank loan where it has to give interest from the
operating profit of Clariton. In this the amount of interest is an expense which goes to the
expense side of profit and loss statement by which it affects in negative manner. Apart from
this loan which is taken by the bank is transacted in the liabilities side as a bank loan which
shown in below mentioned balance sheet. Apart from this due to increasing capital assets also
enhances in the balance sheet.
Influences of both the financing sources used by the Clariton on its financial
statements are shown below:
Income Statement
Expenditures side Amount (in GBP) Profits side Amount (in GBP)
To Dividend on
shareholders a/c
xxx
To Interest on bank
loan a/c
xxx
To brokerage on
finance broker a/c
xxx
Balance sheet
Liabilities side Amount (in GBP) Assets side Amount (in GBP)

Bank loan xxx Cash
(Venture capital +
bank loan)
xxx
Venture capital xxx
TASK 3
3.1 Explaining budget along with its significance for the Clariton Antiques Ltd
In the corporations, managers and executives needs to prepare plan regarding future
and budget is the most popular and well-known technique for future planning. Cash budget is
a monetary planning only for cash incoming and its disposal in various business functions
like material purchase, operational as well as capital expenditures and so on (Finkler and
et.al., 2016). In other words, it can be stated that it is prepared on cash concept that records
revenue at the time when they will be available in cash and incorporate expense at the time of
cash outgoing.
Benefits:
 To anticipates cash inflows (cash sales, sales on accounts, investment income) &
outflows (purchase of material, rent, utility & others)
 To determine net cash flow (Deficit/surplus) through subtracting sum of outflows
from inflow (Bogsnes, 2016)
NCF – Sum of cash inflows – Sum of cash outflows
 To ensure optimum and maximum use of cash funds in operations, so that, enough
funds can be maintained after making all payments
With the stated scenario, Clariton’s cash budget to report bank for its cash availability
is prepared below:

Presented cash budgets visualized that first month, cash income of £157,500 is below
the required amount of expenditures of £807,250 caused shortfall of £649,750. Although, this
month’s sales figures were higher to £300,000 than that of previous month of £150,000 but as
per credit based collection policy, Clariton receive only 5% of the current period’s turnover,
hence, the amount of cash incoming was less. Afterwards in February and March, cash
collection goes upward to £285,000 & £435,000 above than the required amount of payments
reported favorable cash or surplus results worth £147,750 & £315,250 respectively. However,
due to high bank overdraft, closing balance remains still negative to £392,000 & £76,750.
Thereafter, in April, sales goes higher to £562,500 reported enough cash funds of £125,250.
Afterwards, in the month of May and June, turnover resulted downward to £345,000 &
£268,500 may be caused due to insufficient demand, poor quality service & high prices, but
still, due to minimized cash payments to £227,250 & £219,750 shown surplus cash of
£166,250 & £215,000.
In the budget, it can be seen that after the month of April, sales shows a declining
trend as it dropped downward to 150000 & 3750 whereas credit sales at 80% came down to
240,000 & 219,750. However, in the last month, 15% credit sales dropped down to 45000 at

a lower cash revenue worth 268500. On the contrary, to this, sudden and rapid increase in the
month of April to 437250 is a sign of heavy cash payments. It may be due to higher supplier
charges, poor controlling over the operations and so on resulted less net balance worth
125250. Moreover, after the period, it shows a declining trend to 117750 & 48750, although,
cash payments came down still less revenue is the reason behind insufficient cash. It indicates
that in future, Clariton may face problems due to cash shortage to carry out regular
operations.
Recommendations to combat shortfall:
 Policymaker needs to alter its credit collection procedures to promote and boost cash
sales and minimize the percentage of sales on account (George, Irwin and Reuvid,
2016). Here, it must be noted that total turnover should not be reduced otherwise;
profitability of the firm will come down. Clariton’s credit policy should be changed to
reduce extensive credit to the receivables & encourage sales on immediate cash
receipts to improve cash incoming.
 Advertisement, cash discounting offers, promotional policy needs to be focused to
attract high-yielding consumers and maximize net profitability. It is because, in order
to get discounts, end-users will be ready or willing to purchase goods on cash basis so
that payments can be reduced.
 Expenditures should be controlled through proper utilization and minimizing wastage.
In such respect, managers must consistently look to the regular business functions
carrying out by their subordinates and make appropriate plans to allign all the regular
functioning with the set targets so that goals can be attained.
3.2 Computation of cost and pricing decisions
Fixed cost refers to the expenditures that remains constant over and have no relations
with the goods produced and service delivered. However, in contrast to this, variable
expenditures are regarded as payments that are directly related to the productions and
services delivery system (Rehan and et.al., 2016). With reference to chosen scenario, it
specializes in antiques delivery, henceforth; it can compute cost as follows:
Designing: £20000
Labor cost: £8000
Marketing: £5000
Electricity: £2000

Rent: £1500
Miscellaneous: £1500
Total cost £38000
Number of items delivered: 190
Cost of one antique delivering = £38000/190
= £200
Selling price – Cost + profit
= £200 + (£200 * 25%)
= £200 + £50
= £250
Results of the data reveals that Clariton can charge £250 as a price for each antique
item supplied to get 25% profit on cost (20% on sales) via adding a mark-up.
3.3 Analysis of project feasibility through capital budgeting
Payback period (PP) is a measurement of required time that is intended to be taken by
the project for the beginning investment fund recovery (Johnson and Pfeiffer, 2016).
Benefits:
 Easier way to assess project viability
 Identify recovery time of length of initial investment
 Easy to calculate
Drawbacks:
 Ignore time value of predicted cash flows
 Ignore post-payback period cash inflows
Accounting/average rate of return quantitatively express the net return on total
investment (Mukherjee, Al-Rahahleh and Lane, 2016).
Benefits:
 Determine project’s profitability percentage
 Often use to meet out shareholder’s return expectations
Drawbacks:
 Avoid money’s time value

 Consider profitability instead of cash inflows
Inv. 1 CCF Inv. 2 CCF
Beginning
Investment -8.6 -8.6 -4.4 -4.4
1 1.6 -7 0.8 -3.6
2 2.8 -4.2 1.4 -2.2
3 3.4 -0.8 2 -0.2
4 3.6 2.8 2.4 2.2
5 4 6.8 2.3 4.5
6 4.2 11 2.6 7.1
Total inflow 19.6 11.5
Calculations of payback period
Inv. 1 = 3 + (£0.8/£3.6) = 3.22 years
Inv. 2 = 3 + (£0.2/£2) = 3.08 years
Calculations of ARR
Formula – Average annual return/beginning investment *100
Inv. 1 = (£19.6/6 years)/ £8.6*100 = 37.98%
Inv. 2 = (£11.5/6 years)/ £4.4*100 = 43.56%
Net present value or worth is surplus or shortfall of discounted cash inflows over
required investment.
Benefits:
 Discounting technique preferred to determine present value of cash inflows &
outflows
 Compute that whether Clariton will have positive return or not after getting back
money put in the project
Drawbacks:
 Quite difficult to make realistic assumptions about discounting rate due to volatile
interest rate & so on
Year Inv. 1 Inv. 2 Discounted
value of 1
pound
PV (Inv. 1) PV (Inv. 2)

@14%
Up to 4
decimals
Up to 4
decimals
Up to 4
decimals
1 1.6 0.8 0.8772 1.4035 0.7018
2 2.8 1.4 0.7695 2.1545 1.0773
3 3.4 2 0.6750 2.2949 1.3499
4 3.6 2.4 0.5921 2.1315 1.4210
5 4 2.3 0.5194 2.0775 1.1945
6 4.2 2.6 0.4556 1.9135 1.1845
Total discounted values 11.9753 6.9290
Less: Beginning cash
outlay -8.6 -4.4
NPV/NPW 3.3753 2.5290
Interpretations:
Targets Inv. 1 Inv. 2
Payback period: 3.5 years 3.22 yr 3.08 yr
ARR: 35% 37.98% 43.56%
NPV: 2m pound £3.3753 £2.5290
Looking to the table, it is visible that Inv. 2 shows lowest PP and greater ARR of 3.08
yr and 43.56%. However, NPV shows contradictory results as Inv. 1 depicts more NPV
whilst in other option, it is comparatively less to £2.5290. As NPV considers time value and
measure net return henceforth, it is the best method, therefore, on the basis of it, Clariton can
be suggested to put money in 1st investment proposal to gain better yield in future.
TASK 4
4.1 Explaining important financial statements
Statement of comprehensive income (SOCI):
Being a commercialized firm, Clariton Antiques aims at maximizing their net
earnings, henceforth, in order to determine the results of their regular functions, they prepare
SOCI (Hoskin, Fizzell and Cherry, 2014). In this, it report all the income as well as
expenditures that are of revenue nature, high income indicates profit whereas overspending is
a sign of net loss. Income comprises various components such as sales net of sales return,
however, expenditures includes purchase of material, labour’s wages, rent, depreciation &

many others. It is prepared with following the principles of accrual cash concept hence
includes both the cash & non-cash expenditures used to know the net earnings or net loss.
Net profit = Total revenues – Total expenditures
Gross profit = Sales – cost of goods sold
Statement of financial position (SOFP):
SOFP is prepared to analyze and examine liquidity & solvency position so as to assess
financial health. Assets and liabilities are the key components of SOFP, in which, assets
demonstrates owners authority whilst liabilities indicates promises made by Clariton to pay
money to external parties like payable, debt-holders & others. In the current assets, accounts
receivables, inventories & cash and cash equivalents are disclosed whereas non-current assets
includes property, plant and machinery and many others that company will use for longer-
term assets. On the contrary to this, current liabilities includes accounts payable, overdraft,
short-term loans and others whereas non-current obligations includes long-term liabilities and
others. Total assets net of total liabilities is called net assets and financed through equity
share capital, reserve & surplus and others used to determine financial status.
Statement of cash flow (SOCF):
SOCI is constructed approaching accrual concept, therefore, in order to determine net
cash funds, Clariton needs to make SOCF to report about cash incoming & its uses or
disposal in investing, operating as well as financing activities (Horngren and et.al., 2013). It
targeted at determining ending cash position & examining the reasons for change in cash
between two reporting years.
Cash flows from operating activities: Regular business activities, functions such as selling
& purchase of goods, wages payment & others.
Cash flows from investing activities: It includes acquisition & disposal of fixed assets like
property, plant and machinery & many others.
Cash flows from financing activities: It encompasses collection & repayment of long-term
capital like equity share capital & long-term debt
Statement of change in equity & retained earnings:
It shows total capital invested, issue of more shares & its repayment, retained profits
and change in reserves and surplus to determine closing balance of shareholders/proprietors
fund (Hoskin, Fizzell and Cherry, 2014). It is used to determine the amount of capital
invested by the proprietors, shareholders.
Explanatory notes:

It gives necessary information and the basis of final accounts preparation like
accounting policies, recognition of income & spending, GAAP principles, accounting
standards, segmental revenues, financial year and others.
4.2 Comparison of final accounts of partnership & Clariton Antiques Ltd
Basis of difference Partnership Clariton Antiques
Financial
statements
 Partner’s capital and
current account
 P&L account
 P&L appropriation a/c
 Balance sheet
 SOCI
 SOFP
 SOCF
 Statement of change in
retained earnings
 Notes to accounting
Legal compulsion Not necessary to prepare all the
statements
Legal obligations to maintain
proper records of accounting
information through preparing
above statements (Hayre, 2013)
Format of final
accounts
Not decided by law Needs to prepare accounts as per
the schedules mentioned under CA,
2006
Capital Money invested & contributed
by every partner
Equity share capital along with the
balance of reserve & surplus
Cost of debt Shown as interest It is reported as financing cost and
subtracted from EBIT to know the
balance on which, tax duties will be
levied.
Owner’s return Share in profit & loss of business
is shown under P&L
appropriation a/c
Dividend is subtracted from net
earnings to know the amount of
retained yield (Henderson and
et.al., 2015)
Audit requirement No legal obligations Legally necessary
Publication Not required Legally necessary
There are differences in the financial statement of partnership firms & Clariton
Antiques ltd, one is partnership prepare P&L appropriation account, in which, debit side
indicates distribution of remuneration, interest to the partners on their capital invested and
profit distribution. However, there is no need for the companies to prepare such statement
because all the remainder of revenues after making payment of expenses is available to the
owners henceforth disclosed in balance sheet under the proprietor’s capital. Further,
partnership firms do not need to create cash flow statements whereas Clariton needs to
prepare it to determine the change in cash position as a result of operating, investing &
financing activities. Partnership firms prepare statements just following the accounting
principles without any agreed format, whereas company prepared it in prescribed format
given under the company act of UK, 2006. In the balance sheet, partner’s capital indicates

owner rights whereas Clariton’s balance sheet reports about equity share capital invested
inclusive reserves, surplus & gains. Clariton also adhere with the International Financial
Reporting standards and report the final account in agreed or specified format so as to
maximize transparency and harmonizing the reporting practices.
4.3 Comparing Clariton’s business performance for two financial years
Profitability ratios
Decline in gross profit ratio to 14.18% is a negative sign of Clariton’s profit generated
via add-up on cost. Though, sales gone upward this year, but sudden and high growth in cost
caused decline in gross yield (Smith and et.al., 2016). In contrast, net profit ratio rose up to
2.63% because of exceeding net results by 10000 GBP in 2016 that is the result of better and
strong control over expenditures. It clearly presents that Clariton performed good this year by
getting more net earnings.
Efficiency/activity ratios

In current year, assets turnover ratio shows little improvement from 1.55 to 1.60 times
shows higher efficiency of the departmental managers to utilize assets optimally (Hoskin,
Fizzell and Cherry, 2014). Similarly, inventory/stock turnover ratio also goes up from 26.52
to 26.70 very little growth posses that although, mangers use inventory in a better way but
still, reported growth is not good. Henceforth, managers must make decisions for the better
and appropriate use of stock for the superb growth in revenues.
Liquidity/creditworthiness ratios:
Clariton Antiques requires to ensure enough and sufficient working capital to meet
their short-term liquidity position effectively. In this year, rapid growth in cash & its
equivalent caused increase in CA to 0.33:1 is a sign of good liquidity. Moreover, high trade
payables is an indication of extended credit period to improve liquidity position, so that
customers can be paid on right time. Furthermore, quick ratio also rose up to 0.18:1
demonstrates that it enhanced their resources to make deferral outstanding liabilities to
creditors as per the agreed conditions.
Solvency ratios
It pays attention to capital structure so as to assess investment risk and measure firm’s
strength to meet their long-term obligations (Shibata and Nishihara, 2015). Reduced CR to
0.55:1 is a sign of lower risk due to improved proprietor’s fund and fluctuations in long-term
debt. Though equity capital remains constant but surplus movement declined the ratio,
however, on the other hand, it is still greater than the target ratio of 0.50:1. Further, interest
burden payment capabilities to pay fixed monetary liabilities rose up to 5.7 times reflects that
firm strengthen their ability to pay due interest on right-time.
CONCLUSION
In conclusion of the above project report, it can be concluded that financial
managements through budgeting is of extreme significance for the monetary growth and
success of Clariton. Moreover, investigation also founded Inv. 1st more profitable and yield
worthy that will drive maximum return. However, budgeting results observed that managers
need to pay concern to credit policy and effective use of resources, so that, shortfall can be
eliminated. At the end, comparative performance evaluation observed that Clariton’s
executives & managers have to make policies & strategies regarding promotion, prices & cost
reduction to bring significant growth in profitability. Moreover, it also can be suggested to
improve current assets and minimize payables to enhance liquidity position. This will enable
firm to maximize its performance and assure stability & sustainability.

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