Financial Planning and Analysis

This assignment delves into the core principles of financial planning and analysis. It examines various financial planning methods, including investment appraisal techniques, short-term financing sources, and cash budgeting. Students will learn to interpret financial statements through ratio analysis and understand their role in evaluating organizational performance. The assignment emphasizes the practical application of financial concepts in diverse business settings.

MANAGING
FINANCIAL
RESOURCES AND
DECISIONS

Table of Contents
INTRODUCTION......................................................................................................................1
TASK 1......................................................................................................................................1
AC 1.1 Finance sources available to a business...............................................................1
AC 1.2 Implication of finance sources.............................................................................2
AC 1.3 Appropriate source of finance..............................................................................4
TASK 2......................................................................................................................................4
AC 2.1 Analyse the cost of identified appropriate finance sources for Sweat Menu
Restaurant.........................................................................................................................4
AC 2.2 Importance of financial planning.........................................................................5
AC 2.3 Information needs of different decision makers...................................................5
AC 2.4 Impact of finance sources on financial statements..............................................6
TASK 3......................................................................................................................................7
AC 3.1 Budget analysis and take appropriate decisions...................................................7
AC 3.2 Calculation of unit cost and make pricing decisions............................................8
AC 3.3 Assessment of the viability of the project by using investment appraisal techniques
...........................................................................................................................................9
TASK 4....................................................................................................................................12
AC 4.1 Discussion of the main financial statements......................................................12
AC 4.2 Difference between major financial statements.................................................12
AC 4.3 Ratio analysis.....................................................................................................13
CONCLUSION........................................................................................................................14
REFERENCES.........................................................................................................................16

INTRODUCTION
Every business corporation requires adequate availability of funds to operate
successfully in the market. The need for funds arises for purchasing purchase premises,
equipment and other capital assets. Moreover, they need working capital to run business
operating functions in an effective way. Thus, it becomes clear that managing financial
resources is very important aspect for organization’s success. Sweat Menu Restaurant Ltd. is
a reputable restaurant business that is based on Gants Hill in East London. The restaurant was
founded 10 years ago. It is a well known business which provides various intercontinental
foods at affordable prices to the customers. Now, the business owner’s wants to take
advantage of the business prospects by opening its two branches in Central London and
Croydon. The business owner requires sufficient funds for opening two branches. Therefore,
the present report will help in identifying the resources available to the restaurant owners for
fulfil their finance requirement. It helps in determining the most appropriate finance source
that can be obtained at minimum cost. Moreover, the role of financial planning will also be
discussed in the report. In addition to it, different management techniques such as budgeting
analysis and investment appraisal techniques will be identified in order to take appropriate
decisions.
TASK 1
AC 1.1 Finance sources available to a business
There are number of sources available to every business organization that satisfy their
financial needs. The sources are mainly categorised into two parts that are internal and
external finance sources. Under the internal financing, sources are available inside the
corporations. However, under the external financing funds are gathered from outside
organizations. Sweat Menu restaurant Ltd. can acquire funds of 300000£ and 500000£ from
both the sources to establish its branches in Central London and Croydon.
Internal sources:
Personal savings: One of the most important internal finance sources is owner’s
personal savings. In context to Sweet Menu Restaurant, all the three business owners can
invest their personal savings in the business. It is an alternative to getting funds from external
investors and loans (Murphy and Yetmar, 2010). It is a cheaper source of finance and
maximizes the entrepreneurs controlling rights over the business.

Retained earnings: Every organization does not distribute all the profits among its
shareholders. Some of the parts are retained in the organization for future. The proportion of
business profits that have not been distributed to shareholders is called retained earnings
(Dada, Azim and Ullah, 2014). Sweat Menu Restaurant business can acquire funds from their
current business retained earnings.
Sale of assets: Business owners can sell its idle assets. The assets that are non
productive assets and unusable can be sold into the market. Sweat Menu Restaurant business
can sell its scrap and disposable equipment in the market and collect funds.
External sources:
Share capital: The SMR can issue both ordinary and preference shares to the
investors. It helps the businesses to gather funds to a great extent. The shareholders are
willing to undertake business risk with an objective of getting high investment returns
(Copeland and Dolgoff 2011).
Loan capital: Banks or other financial institutions provide loan facilities to all the
businesses. The benefits of these sources are that funds can be generated for different time
duration required. Bank provides loans for short term, medium term and long term period.
Overdraft facility: It is the right given to the business to withdraw larger amount of
funds than their account balance. It helps in fulfilling the immediate or urgent finance
requirement.
Debentures: Sweat Menu Restaurant can issue debentures that help to acquire large
amount of funds. The benefit of this source is that it is not secured by the business assets
(Valle, R. and Gomes, 2014). Long term financial need can be highly satisfied through these
sources.
AC 1.2 Implication of finance sources
Each and every finance source implies some kind of obligations upon the
organizations that are described here as under:
Retained earnings: The cost of using business retained earnings includes opportunity
cost. For instance, if the retained earnings were not invested in the business than it can be
used for another purpose which will further help in generating returns. The advantage of this
source is that business is not required to repay the funds. Further, it does not impose any
burden to the business for paying return on it (Nikuchroo, 2014). However, the disadvantage
of this source is that in case of business loss, it will not be available. Moreover, higher
ploughing back of profits may create dissatisfaction among the shareholders.
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Sale of assets: Underused assets can be disposed off at the market place. The cost of
this is that total production capacity may get reduce. The advantage of this source is that no
repayment is needed. Moreover, large funds can be generated without requiring any interest
payment. However, the disadvantage of this source is that it cannot generate required funds.
Further, higher cost may be needed for purchasing the same assets later.
Share capital: Ordinary shareholders are the business owners which invest in the
business for getting higher returns. The cost of this sources involves that restaurant business
require to make dividend payments out of the business profits. The dividend payments are
fixed for the preference share capital. However, equity shareholders do not need fix amount
of dividend payments to bring benefits to the company (Managing Financial Resources and
Decisions. 2013). Moreover, the costs include the expenditures for issuing the shares such as
listing fee, printing, distribution fee and advertising fee. In addition to it, equity shareholders
have voting rights through which they can control business functions.
Loan capital: On the amount of borrowed funds, Sweat Menu restaurant business
needs to pay regular interest to the lenders. Thus, it impose fixed financial burden to the
business. Moreover, the business is required to keep its business assets as security against
loans. Thus, collateral is needed under this finance source. Moreover, the legal implication is
that lenders have legal rights through which they can sell business security in case of any
default. However, the benefit of this source is that lenders do not have controlling rights
(Shim and Siegel, 2007). Therefore, diversification of business control is not required.
Further, large amounts can be borrowed by taking loans. In addition to it, the amount of
interest payments is allowable for tax purpose.
Overdraft: The advantage of this source is it will mitigate the urgent financial needs.
However, the cost of this facility is that bank charges a higher rate of interest on the amount
of overdraft. Further, it will be available up to a certain amount. It is only a short term finance
source which cannot be used for long term perspective.
Debentures: Sweat Menu restaurant business is required to pay fixed interest
payments to the debenture holders. Further, the amount must be repaid after a certain time
period. However, the advantage is that it helps in fulfilling the long term funds need and
collateral is not required on the amount of issued debenture capital.
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AC 1.3 Appropriate source of finance
As per the stated scenario, business requires funds amounted to 300000£ and 500000£
for opening its branches in Central London and Croydon. On the basis of above explained
advantages and disadvantages, Sweat Restaurant Business can identify appropriate source of
finance. Under the internal finance source, the most appropriate finance source will be
personal savings. All the three business owners can invest their own savings for funding
purpose. Moreover, if additional funds will be required than retained earnings can be
invested. Ploughing back of the business returns helps the business in financing the short
term needs. On the other hand, all the financial needs cannot be fulfilled by using only the
internal sources. Therefore, additional financial needs can be accomplished by using external
sources. Under the external finance sources, share capital will be the most appropriate finance
source. Restaurant business can issue ordinary share capital to the investors. The reason for
identified share capital as most appropriate sources is that it does not impose fixed financial
burden to SMR. It can pay dividend at the time of having profits in the business. Moreover,
loan capital also will be the most appropriate finance sources. The reason for this is that it
helps in fulfilling the financial needs for distinct time period. Further, no dilution of control
exists. Only through keeping a collateral security, business can take loans at implied interest
rates.
TASK 2
AC 2.1 Analyse the cost of identified appropriate finance sources for Sweat Menu Restaurant
Identified most appropriate finance sources were personal savings, retained earnings,
share capital and loan capital for Sweat Menu Restaurant business. The cost of all the finance
sources is explained here as under:
Personal savings: The cost of personal savings may include opportunity cost. For
instance, if the business owners do not invest their funds in the business than, they can invest
it in alternative invest and can earn return on it.
Retained earnings: Business does not require paying off its used retained earnings.
Thus, normally it does not impose any cost to the business. However, if the restaurant
business is investing their undistributed profits somewhere else than they can achieve return
on their funds. However, through investing the funds in business they will not be able to get
return on it. Thus, this opportunity cost means loss of incomes which can be generate through
investing retained earnings in profitable investment may arise to SMR.
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Share capital: On the amount of issued share capital, Sweat Menu restaurant business
has to pay return in terms of dividend to their shareholders. However, the rate of dividend is
not fixed on the ordinary share capital. Further, the business equity shareholders have voting
rights that give controlling rights to them. Therefore, dilution of control is existed through
which the shareholders can take part in the managing the operations (Orens and et. al., 2009).
In addition to it, the expenditures that the business will incurred for issuing the shares such as
printing charges, advertisement charges and listing fee will be include in cost of issuing
shares.
Loan capital: Borrowed funds require timely payments of interest to the lenders.
Therefore, the cost is that Sweat Menu restaurant business has to make timely and fixed
interest payments. Moreover, it includes the cost of keeping any business assets as security.
In addition to it, the cost involves the legal rights of the lenders in case of business default.
AC 2.2 Importance of financial planning
Financial planning plays a vital role in the organization as it greatly contributes
towards the organization success. Before opening both of the two branches in Central London
and Crydon, Sweat Menu Restaurant has to make efficient financial planning. It helps to
determine the short term and long term financial goals and make planning in order to achieve
these goals. Initially, it determines the finance requirements so as to establish the business
and running successfully. Thereafter, different financial sources are analysed and select best
among these sources. This in turn, helps to minimize the business finance cost (Jakhotiya,
2002). Moreover, the planning helps to manage the business income more effectively.
Incomes can be managed through allocating the resources efficiently. On contrary, cash flows
can be managed through evaluating the cash revenues and cash expenses. It restricts the
unnecessary cash expenses through monitoring it on a regular basis. This in turn, funds can
be administrated in a proper way. Further, it designs the policies so as to ensure effective
administration of funds helps to use maximum utilization of resources (Booker, 2006). In
addition to it, it manages the business risk and reduces it through taking qualified decisions. It
helps to mitigate the difference between the set targets and actual business results. This in
turn, targets can be achieved. It manages the working capital and liquidity in order to operate
successfully. Well capitalized corporation contributes to achieving greater the business
success (Overton, 2007).
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AC 2.3 Information needs of different decision makers
The success of the organization greatly depends upon the decision making process.
Reliable and prominent information helps to take qualified decisions. There are different
types of decision makers who require numerous information to take strategic business
decisions that are described below:
Managers: Business managers are responsible for smooth functioning of the Sweat
Menu restaurant business. Therefore they need information regarding business expenditures
and incomes. Profitability statements provide such information to the managers. Moreover,
budgets also will be use by the managers to analyse the variances. The managers can
determine the deviations through comparing the budgeted and actual business performance. It
helps to take corrective actions in order to eliminate these variances (Rasid, 2014). Further,
through monitoring the business expenditures, resources can be allocated efficiently. Cash
flow statements help to maintain cash balance through analysing the cash incomes and
expenses. Thus, proper administration of funds helps to decrease the cost and improve
business profitability.
Lenders: Lenders give credit to the Restaurant business on the basis of their financial
performance. They analyse the business cash earning capacity and profitability so as to
determine the business ability to pay the interest at the right time (Wahlen, 2011). Therefore,
they need information about business revenues and expenditures from the profitability
statements.
Investors: They invest their own funds so as to increase their return. Therefore, they
make risk and reward analysis associated with investing funds in the restaurant business.
Investors analyse the business profits as increasing the business profits will attract higher the
investors. Further, they analyse the level of debts as higher the level of debts will create fixed
burden to the organization and bring risk and vice versa.
AC 2.4 Impact of finance sources on financial statements
Every finance source and its cost will be show in the financial statements of the
business. It covers both the profitability statement and statement of financial position. As per
the scenario, most appropriate finance sources in context to Sweat Menu Restaurant business
will be shows in the company's financial statement.
The portion of owner’s personal savings that are invested by the business owners will
be shows under the equities head in the balance sheet. It also will be include in the cash and
bank balance is the assets side. Moreover, the amount of retained earnings and the issued
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share capital will be show under the head equities. Further, in current assets head, it will be
include in the cash and bank balance. However, the amount of dividend payments will be
show under the profit and loss account. It will be show as proposed dividend payments and
subtracted from the total cash balance in assets side. Thus, it can be said that the dividend
payment will reduce company's profitability. However, the printing, listing and advertisement
expenditures will be disclose under the administration expenses hence, decrease profits and
also reduce the cash balances. On contrary, the amount of taken borrowings will be show
under the long term loans in the liability side (Managing Financial Resources and Decisions.
2013). However, in assets side it will increase the current assets through increasing the cash
balance. In addition to it, the cost of loan capital that is interest will shows in the profit and
loss account as interest payments. The interest obligations on loans will reduce SMR's
profitability and increase its long term liabilities. SMR will need to pay the amount of taken
loans at the maturity date. Further, it reduces the cash balance hence, subtracted from the
available cash balance under the current assets head. Thus, it becomes clear that all the
finance sources impact the business financial position and also the profitability.
TASK 3
AC 3.1 Budget analysis and take appropriate decisions
Budget combines all the future estimated revenue and expenditures for a certain
period (Whited, 2014). As per the scenario, Blue Island Restaurant directors prepare budget
for the four months ending on 31st December, 2015. Under the cash budget, directors estimate
the future cash sales and necessary expenses that require to be paid by the business. The
amount of cash sales shows both an upward or downward trend. In the month September, the
cash sales is 15000£ tends to decline by 13.33% in the month October. Therefore, business
sales get decrease to 13000£. Thereafter, it get increased to 15000£ and 18000£ in the month
of November and December.
On contrary, under the cash expenses both the capital and revenue expenditures are
combined. Purchase expenditures remain constant to 3000£ in the month of September and
October without increasing the sales. It leads to decrease the profits margin of the business.
However, in following month purchase payment get increase to 3500£ and 4000£
respectively. In the month of September, Restaurant business need to purchase van and
furniture and fittings amounted to 12000£ and 18000£ respectively. However, the petrol and
insurance expenditures are fixed as it remain constant to 500£ and 350£ in all the months. In
addition to it, the salary and wages expenditures remain fixed to 7500£ in initial two months.
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Then after it get increase to 8500£ and 9000£ respectively. Furthermore, the lighting and
energy expenditures get incline from 500£ to 600£ and 650£ respectively. With the affect of
these changes, total cash expenses get changed from 40850£ to 11630£, 13230£ and 24280£
respectively. The net cash balance is the difference between the total cash revenues and
expenditures. In the month of September, the budget indicates negative cash balance of
25850£. Thereafter, it get improved to 3870£ and 4770£ due to decreasing the expenditures.
However, in the month of December, it again tends to decrease and indicate negative balance
amounted to £4280 respectively. The reason for such decreases is that in this month cash
expenses are increase at higher rate as compared to the sales increase. This in turn, net cash
balance at the end of the month get change from (7350£) to (3480£), 1290£ and (2990£)
respectively.
In addition to it, the prepared inventory budget indicates that supplier gives credit
terms of 1 month for the 40% purchase. Blue Island Restaurant business is paying 60% of the
purchase expenses in same month. However, 40% of the payments have been made in the
following month.
On the basis of above identification, it can be suggested to the directors that they have
to increase the business sales and reduce the expenditures. By doing this, the managers will
be able to increase the cash sources and minimize the business expense that will contributes
to have positive cash balance in the uncertain business environment. Moreover, the managers
are required to maintain proper balance between the cash inflows and outflows so as to have
positive availability of cash for operating successfully. They can manage the cash shortfalls
or deficit balances by monitoring the business expenses on a regular basis. Further,
curtailment of unnecessary expenses leads to decrease the total expenses. This in turn,
restaurant business will be able to generate positive cash balances.
AC 3.2 Calculation of unit cost and make pricing decisions
Unit cost: Per unit cost can be determined through dividing the total business cost to
the number of units produced (Kinney, 2012). As per the scenario, Blue Island Restaurant
business prepares cost sheet by combining cost of different factors. The cost sheet shows the
expenditures of steak, vegetables and other ingredients, labour, overhead and meal cost.
Pricing decision: Cost is a basis of deciding the selling price per unit to get the
desired profits. Business can set the selling prices by adding an appropriate mark up
percentage to the total cost. As per the indicated scenario, Blue Island restaurant business
deciding the selling prices by adding 40% mark up on the cost excluded VAT of 20%.
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Name of Items Costs (In £)
Steak 3
Vegetables and other ingredients 1.5
labour 3.5
Overheads 2
Total Costs 10
Mark Up (40%) 4
VAT (20%) 2
Selling Price 16
Profits (Sales - Cost) 6
Food cost percentage = Total costs of ingredients/Sale prices
Food cost percentage = 10£/16£*100
Food cost percentage = 62.50%
Profit percentage on sales = Profit/sales prices*100
Profit percentage on sales = 6£/16£*100
Profit percentage on sales =37.5%
Thus, it become clear that the total cost is 10£ while the business is charging meal
prices amounted to 16£ per customer. Therefore, the profits will be amounted to 6£ per unit.
However, the cost percentage on the sales is 62.50%. Thus, the business is earning 37.50%
profit on sales.
AC 3.3 Assessment of the viability of the project by using investment appraisal techniques
Investment appraisal technique may be defined as a tool which helps Blue Island
restaurant in assessing the viability of the investment (Götze and et.al, 2007). Blue Island
restaurant have two in retain to the expansion of restaurant. For this, company have
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undertaken the net present value and payback period method to assess the financial viability
of the two different proposals.
Initial Investment:
Proposal 1: £1200
Proposal 2: £1200
Calculation of Net Present Value:
Proposal 1:
Year Inflow
PV Factor
@10%
Inflow by considering pv
factor
0 £1200 1 £1200
1 £800 0.909 £727
2 £600 0.826 £496
3 £400 0.751 £300
4 £200 0.683 £137
5 £50 0.62 £31
Residual value £0.00 0.62 £0.00
Net present value £491.00
Proposal 2:
Year Inflow
PV Factor
@10% Inflow by considering pv factor
0 £1200 1 £1200
1 £300 0.909 £273
2 £400 0.826 £330
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3 £500 0.751 £376
4 £600 0.683 £410
5 £500 0.62 £310
Residual value £50 0.62 £31
Total inflow £1,729.00
Net present value £529.00
Payback Period:
Proposal 1:
Year Inflow Cumulative inflow
0 -£1,200 -£1,200
1 £800 -£400
2 £600 £200
3 £400 £600
4 £200 £800
5 £50 £850
Residual Value £0 £850
Payback Period 1.5 Years
Proposal 2:
Year Inflow Cumulative inflow
0 -£1,200 -£1,200
1 £300 -£900
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2 £400 -£500
3 £500 £0
4 £600 £600
5 £500 £1,100
Residual Value £50 £1,150
Payback Period 3 Years
As per the above calculation it has been assessed that if company make investment in
the proposal 1 then it is able to recover their initial investment within the 1 year and 5
months. On other hand, Blue Island will take 3 years if they invest their money in proposal 2.
On the basis of payback period organization requires to make investment in proposal 1. It
enables them to recover their initial investment within the short period of time (Basic
investment appraisal techniques. 2012).
In addition to this, company will get £491.00 if they make investment in proposal 1.
Whereas they will get £529 after the 5 years if they make investment in proposal 2. Thus,
Blue Island restaurant are required to make investment in the proposal 2 which proves to be
more profitable for an organization. Net present value method undertakes time value of
money concept which helps organization in getting the more realistic view in relation to their
investment (Ismail and Cline, 2005).
TASK 4
AC 4.1 Discussion of the main financial statements
In the present market scenario the organizations operating in corporate world are
required to prepare several financial statements. This is for the purpose of recording the
varied business activities that took place during the financial year (Purpose of Financial
Statements. 2013). The reason behind preparation of all the major financial statements is that
it reveals sufficient and useful information to the stakeholders who are associated with Blue
Island Restaurant. The main financial statements of the cited business have been enumerated
in the manner below: Income statement: The major purpose beside preparation of income statement is that it
acts as an aid in presenting the outcomes of business operations for a particular period
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of time like one year. This statement includes all the income generated by the firm. In
addition to this it also includes all the expenditure made by the organization during
financial year. There is greater need for the business to manage its expenses in
accordance with the income it possess (Komissarov, 2014). This is because it assists
firm in managing and controlling its economic position with effectiveness. Cash flow statement: With the assistance of this position manager of Blue Island
Restaurant can make effective evaluation of the position of cash and cash equivalents
in the organization. In addition to this cash flow statement helps in making evaluation
of inflow and outflow of cash during accounting period. Moreover this statement is
divided into three categories (Eccles and Holt, 2005). This includes cash flow under
operating activities, financing activities as well as investing activities.
 Balance sheet: It is regarded as one of the most essential statement of the organization
that facilitates in making evaluation and analysis of the actual financial position of the
enterprise. This can be presented with the equation that is Assets = Liabilities +
Equities. Moreover with the assistance of balance sheet stakeholders can effectively
make analysis of the information relating to assets owned and liabilities of the firm in
a particular financial year (Herman, 2011). Along with assets are categorized into two
that is current assets and fixed assets. In contrast to this classification of liabilities is
on the basis of short term and long term.
AC 4.2 Difference between major financial statements
There is existence of different businesses in UK that operates at varied level. Further
they are required to prepare several statements of finances in order to record information in
an appropriate and effective manner. Such organization is divided into three segments which
includes the following: Sole trader: It is the kind of business that is owned and managed by the owner on its
own. Under this the owner has no obligation in preparing all the major financial
statements (Wyk and Rossouw, 2009). However the firm only prepare profit and loss
account and record entire information for the purpose of decision making process. Partnership: In this kind of firm in which there is association of two or more person
who agrees to carries out common business with an aim to attain common goal of the
firm. This type of business has to prepare all the financial statements for the purpose
of revealing their financial position (Schulze, 2007). In addition to this partnership
firm is also required to prepare partner's capital account that includes the amount
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contributes by each partner and the proportion in which profit and losses will be
distributed among them.
 Limited companies: It includes all those organizations that are operating on large
scale. For the purpose of satisfying the needs and wants of various stakeholders it is
important for finance manager to prepare all the major financial statements including
cash flow statement, balance sheet as well as income statement (Melo, 2012). It is
essential that all these accounts are prepared in accordance with the international
accounting standards in order to reveal accuracy within the statements.
AC 4.3 Ratio analysis
Ratio analysis is an appropriate analysis tool that is used to analyse the operational
and financial strength of the business (Drake and Fabozzi 2012.). As per the scenario, the
financial statements of Sweet Menu restaurant and Blue Island Restaurant can be analysed by
computing different kind of ratios.
Ratios Formula
Sweet Menu
Restaurant
Blue Island
Restaurant
Profitability ratio
Net Profit margin Net profit/sales 0.01 0.13
Gross Profit margin Gross profit/sales 0.63 0.66
Liquidity ratio
Current Ratio
Current assets/
current liabilities 1.78 0.63
Quick Ratio
Current assets –
Inventory/ current
liabilities 0.63 0.15
Efficiency ratio
Asset Turnover Net sales / net assets 1.79 2.4
Solvency ratio
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Debt/equity ratio Debt/Equity 0.41 0.58
On the basis of above computation, it can be concluded that Blue Island restaurant
business is getting higher the profits from Sweat Menu restaurant business. The reason for
such decision is that both the gross margin and net margin of Blue Island business to 0.66 and
0.13 respectively. Thus, it can be said that operational performance of Blue Island business is
much better as compared to the Sweat Menu restaurant business. However, liquidity analyse
the business ability to discharge companies short term obligations. Both the current and quick
ratio of Sweat Menu restaurant business is higher indicate that this business have greater
availability of liquidity as compared to Blue Island. The current ratio and quick ratio of the
Sweat Menu Restaurant business are 1.78 and 0.63 respectively. Thus, it can be said that the
business is more able to pay off its short term liabilities effectively. On contrary, assets
turnover ratio indicates the business ability to use its assets. The assets turnover ratio of
Sweat Menu Restaurant business and Blue Island are 1.79 and 2.4 respectively. It indicates
that Blue Island business is using its assets more efficiently. In addition to it, the solvency
ratio measures the proportion of debt and equity in the capital structure. Moreover, it
indicates the business ability to discharge its long term financial obligations (Tracy, 2012).
The debt and equity ratio of both the companies are 0.41 and 0.58 respectively. It is higher in
the case of Blue Island business indicates that this business is more able to pay off its long
term liabilities. Thus, it can be interpreted that Blue Island Business is performing much
better than its Competitors.
CONCLUSION
It can be concluded from the study that there is existence of several sources of finance
available with the business. It has been inferred from the report that it is important for the
organization to manage its finances with the aim to attain its objectives in an effective
manner. In this report financial performance of the two different firms has been evaluated.
With the assistance of ratio analysis it has been assessed that current position of Sweet Menu
Restaurant is better than Blue Island Restaurant despite of the low profitability. It has been
inferred from the report that there are different types of business like sole trader, partnership
and limited companies who prepares varied financial statements.
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