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Managing Finanacial Resources and Decisions- Clariton Antiques Limited

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Added on  2020-02-03

Managing Finanacial Resources and Decisions- Clariton Antiques Limited

   Added on 2020-02-03

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MANAGING FINANCIALRESOURCES ANDDECISIONS
Managing Finanacial Resources and Decisions- Clariton Antiques Limited_1
ContentsINTRODUCTION......................................................................................................................3TASK 1......................................................................................................................................31.1 Sources of finance available for unincorporated and incorporated businesses................31.2 Implications of sources of finance on the firm.................................................................41.3 Appropriate sources of finance for firm such as Clariton Antiques Ltd..........................5TASK 2......................................................................................................................................62.1 Cost of sources of finance such as bank loan and venture capital...................................62.2 Importance of financial planning on the Clariton company.............................................62.3 Information’s needed for the firm in order to take financial decisions............................72.4 Impact of various sources of finance on financial statement of Clariton Antiques Ltd...7TASK 3......................................................................................................................................83.1 Explaining budget along with its significance for the Clariton Antiques Ltd..................83.2 Computation of cost and pricing decisions....................................................................103.3 Analysis of project feasibility through capital budgeting..............................................11TASK 4....................................................................................................................................134.1 Explaining important financial statements.....................................................................134.2 Comparison of final accounts of partnership & Clariton Antiques Ltd.........................144.3 Comparing Clariton’s business performance for two financial years............................16CONCLUSION........................................................................................................................17REFERENCES.........................................................................................................................18
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INTRODUCTIONFinance is an important element of the firm which is base of each business in order tocome into consideration. Without the financial resources an organisation cannot exist in theindustry where it operates. Further, it is necessary to manage and effectively utilize financialresources in the business entity. The present case is based on Clariton Antiques Limited firmwhich is a partnership business and going to expand business in country Birmingham. Inorder to raise fund it uses bank loan as well as venture capital. The report throws light ondifferent sources of finance and their implications on the company. Further, it describes aboutcost 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 takeinvestment decisions. At the last it emphasis on financial performance of the Clariton withhelp of numerous financial rations.TASK 11.1 Sources of finance available for unincorporated and incorporated businessesUnincorporated Businesses: Company which not operating in the industry usinglegal 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 offinance 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 unproductiveas well as unused in the firm. Further, those assets which are not comes intoconsideration for generating sales are sold out and amount is to be used in firm forbusiness expansion. When the company raise fund using the respective financingsource 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 financialperformance will improve in the industry. However, it leads to decrease total assets ofthe 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 theorganisation.Personal savings: Every businessman whether he has small or big firm, saving someamount from his earnings. The saved amount is used in the company which helps toenhance level of firm and expand as well. It is the sources in which the business notneed to take external help as well as there is not any type financing costs are imposes
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on the business. It helps to the owner when emergencies occurs in the company aswell as very typical situations arises. Further, it helps to avoid different types ofindirect expenses such as interest, dividend etc. which lead to make beneficial. Apartfrom 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 toshareholders is known as retained earnings (Malik, Field and Gorwood, 2016). Theamount is used in order to expanding the firm which is widely using source of financeby most of the firms. It helps to the company in order to make new projects as well asexpand the business in another market. Further, these types of sources are readilyavailable 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 opportunitycost by which level of profit get decrease. So, it is adverse as well as disadvantage forthe company.Incorporated Businesses: The firm which operates using all the rules, laws andlegislations of regulatory body and has legal identity, known as an incorporated company. Inorder to raise finance for business expansion of these forms of organizations, there aresources of finance available which are enumerated below:Equity financing: Most of the companies are using such source of finance in order toraise firm from the market. According to the source organisation issues shares throughIPO and FPO process (Ranjan, 2016). The shares are purchased by investors knownas shareholders and the amount is using for expanding company. It is widely usedsource in order to raise fund through external markets. It is beneficial for the companybecause it helps to increase stockholders as well as investment in the company. On theother side if firm issues preference shares then it must give dividend to shareholdersin every financial year. Further, it has to complete all the legal formalities as well aslisting in the stock market as well.Bank loan: Another source of finance for incorporated companies is bank loan inwhich the firm takes debt amount from commercial banks. It is widely used externalsource of finance in order to raise fund in the organisation. As per the source thecompany is most beneficial in terms of raising finance because it helps to analysesvaluation of the company in the market. On the other side it provides financialservices to the organisation when it has sufficient ability to pay debt. In case companyis not able to pay all the debts then bank has right to wind up overall firm.
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Venture capital: As per the sources the business takes fund from venture capitalcompanies. There are many number of venture capital companies which are providefacilities of finance to the incorporated businesses (Richards, 2015). It providesamount of fund for expanding business when the company have sufficient return oninvestment ratio. If it has not effective return then venture capitalist will not give suchfacilities to the company. Apart from this it influences cash flow of the enterprise atthe end of an accounting period.1.2 Implications of sources of finance on the firmInternal sources of finance:Name of sourceFinancialImplicationsLegal ImplicationsDilution of controlSales of assetsIn order to raise fundthrough sellingunused assets, itimpacts on balanceof the firm whereassets are decreases.There are not anylegal implications ofrespective sources.-Personal savingsDue to usingpersonal fund it notaffects on thecompany (Salisbury,2014).Not any types oflegal implications arethere.-Retained earningsHere company isreinvest the profit soit leads to increasesales in the firm.Not any legalformalities ordocumentationprocess is here.No dilution ofcontrol.External sources of finance:Name of sourceFinancialImplicationsLegal ImplicationsDilution of controlEquity financingThe business has togive dividend fromprofit of the firm tothe shareholders. So,using the sourceprofitability isdecreases.In case of raise fundthrough equity, thecompany has tolisting in the stockmarket and then canissues shares in themarket (Crosby andHenneberry, 2016).Control is withshareholders becausethe firm has toinvolve shareholdersand they interfere inorder to takedecisions.Bank loanThe businessman hasto pay interestamount as a cost offinance to the bank.Hence, it affects tonet profit in negativeHere organisation hastocompletedocumentationprocess, further bankallows for loan.Dilution of control isnot in the bank loan.
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manner.Venture capitalAccording to venturecapital he firm has togive stake from thecompany by whichdividend amountgoes to shareholdersand financial positiondecreases (Eckerd,2015).As per the sourcethere are somedocuments as well asfinancial statementrequires, because onthe basis of return oninvestment fund isprovidedtocompany.Low dilution ofcontrol in this sourceof 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 theClariton. Further, another benefit is that the source invests money in terms of equity capitalwhich is fruitful for such antiques limited company. Apart from this the venture capitalprovides various valuable informations as well as resources to the enterprise.Drawbacks:In contrary of advantages there are various drawbacks such as it is not acertain form of financing for the firm (Parikh, 2016). Apart from this it takes charges in termsof stake where the Clariton has to give dividend every year to the stakeholders which affectsprofit level of the company.Bank loan:Benefits: Very basic advantage of bank loan is that it is short term and easilyavailable source in order to raise the fund. Further, it provides tax relaxation which lead toenhance profitability of the Clariton and it can become more financially sound.Limitations: However, some limitations of bank loan are such as some of the banksare imposes prepayment penalty on the organisation. Apart from this taking higher the loanamount is affects to cash flow of the firm in negative manner (Geng, Bose and Chen, 2015).TASK 22.1 Cost of sources of finance such as bank loan and venture capitalEach 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 venturecapital where numerous charges are taken by them, which are described below:a)Dividend: Talking about venture capital it imposes cost of finance on the Claritonin terms of stake form the company. Here charges are taken by VC are 20% stake of overallbusiness. Further, the venture capital converts into shareholders of the Clartiton and then it
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