Managing Financial Resource and Decision | Clariton Antiques Ltd

Added on -2020-02-17

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ManagingFinancialResource andDecision1
TABLE OF CONTENTSINTRODUCTION................................................................................................................................3TASK 1.................................................................................................................................................31.1 Identification of the sources of finance......................................................................................31.2 Assessment of the implications of internal and external source of finances..............................41.3 Evaluation of the most appropriate sources of finance for Clariton Antiques Ltd.....................4TASK 2.................................................................................................................................................52.1 Analysing the costs of the two sources of finance by considering with reference to dividends,interest and tax..................................................................................................................................52.2 Explanation the important of financial planning for the Clariton Antique Ltd..........................62.3 Assessment of the information that will be needed to make decisions on financing thetakeover.............................................................................................................................................62.4 Explaining the impact on the financial statements of Clariton Antiques Ltd.............................7TASK 3.................................................................................................................................................73.1 Preparing an analysis of the cash budget for Clariton Antiques Ltd and advice on decisionsthat can be taken to improve their financial position........................................................................73.2 Explaining how unit costs will be calculated to make pricing decisions by giving suitableexamples...........................................................................................................................................83.3 Assessment of viability of the project using investment appraisal techniques and stateswhether the options satisfy Peter’s criteria for investment...............................................................9TASK 4...............................................................................................................................................124.1 Discussing the key components of financial statements...........................................................124.2 Comparison of the format by Clariton Antiques Ltd to presenting their financial statementswith sole trader or partnership or both............................................................................................134.3 Interpret the recent financial statement of Clariton Antiques Ltd using appropriate ratios andmaking comparison with the previous years..................................................................................13CONCLUSION..................................................................................................................................14REFERENCES...................................................................................................................................152
INTRODUCTION Finance includes the evaluation, disclosure and management of financial activities in order to makethe business operations more successful. This is important for the businesses to take advantages ofgrowth opportunities (The basics of financial management, 2017). For the firms, there are severaltypes of finance available for them where they can easily raise their capital for different operationalactivities. With the help of the proper financial management, an organization can manage themovement of the money for numerous tasks. This can easily resolve capital related issues of theenterprises. The present research is based on managing financial resources and decision. In order tounderstand its significance, Clariton Antiques Ltd case study is taking into the consideration. Thebusiness has established by four partners. The nature of the firm has unincorporated and it hasgrown with very slow speed. By selling of antique items, company has developed a good reputationin the market place. Cited organization has already 2 branched in London and recently, managementis planning to open a new branch in a building of Birmingham. This project will require £0.5million investment. In the present time, company has few loans which may create a problem forClariton Antiques Ltd to raise the money from different loans sources. So, it has suggested to theenterprise to go for public and raise the funds. TASK 11.1 Identification of the sources of financeUnincorporated business: This can be considered as a commercial organization which is privatelyowned by one or more than one person. It does not have a separate legal identify of owners of thefirm. They have completely responsible for all actions and decisions which they have taken either inthe favour of company or not. Most common examples of unincorporated organizations arepartnership and sole trader (Broadbent and Cullen, 2012). In the case of death of owner, the chancesseizes of it can be possible. The possible sources of finance for such kinds of businesses arepersonal savings, small business loans, retained profit, selling of assets, sale and lease back, hirepurchase etc. Incorporated business: These are also with the name of corporation where the organizations aregetting various benefits such as liability protection etc. Under this, such kinds of companies areeasy to transfer the ownership of business to other parties via selling of shares. Private and publiclimited enterprises come under the incorporated business category. These types of corporations canarrange the funds from friends and family, bank loans, venture capital, government grants etc3
(Conway, 2013). 1.2 Assessment of the implications of internal and external source of financesInternal source of finance: This type of capital generates internally by business such as retainedearnings and profits, selling of asses, reduction in working capital etc. Selection of a right internalsource of finance can help the organizations to manage the requirements of the funds for the presentand future business plans and operations. If Clariton Antiques Ltd raises the capital through retainedearning then it will not create an additional burden over the firm regarding paying interest orinstalment like borrow capital. It is a long term source of finance so it minimizes the compulsorymaturity issues such as in long term loans and debentures (Concept and Determination of Cost ofRetained Earning, 2016). There is a no dilution of control and ownership in business if citedcompany increase the capital for new project from retained earnings. On the other hand, by sale ofassets, Clariton Antiques Ltd can easily generate the sufficient cash for new business expansionplan. Along with this, firm can adopt the option of lease where by giving the useful assets on rent,some good amount can be generated. Although, this method does not able to solve the long termfinance problem but current one can be easily resolved. External source of finance: These are those sources of finance where arrange by the organizationfrom the external world for the business. The examples of external supplies of funds are bank loans,issuing stocks, debentures, equity shares, term loans, venture capital, bank overdraft etc (Rockeyand Collins, 2010). In case, Clariton Antiques Ltd increases its capital for new project then with thehelp of equity shares then it will costly to the business. The reason of this is firm needs to returndividends to shareholders. However, it will increase the capital of the business but it will require lotof legal formalities needed to be completed. On the other hand, debentures are a cheaper mode ofraise the finance for cited organization as compare to equity. The implication of this is it containssome cost of issuing which can affect the amount of raise funds. Apart from this, if ClaritonAntiques Ltd takes the help of term loan for finance of new project then company will have to giveinterest on loan amount for the particular time duration. In against of this, bank will secure someassets of the business as a guarantee (Siano, Kitchen and Giovanna Confetto, 2010). So, theseimplications of diverse external sources of finance may be created a barrier for Clariton AntiquesLtd. 1.3 Evaluation of the most appropriate sources of finance for Clariton Antiques LtdAs per the given case study, it has found that Clariton Antiques Ltd has a partnership firm. So, there4

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