Managing financial resources

Managing financial resources

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Different sources of fiance available to business...................................................................3
1.2Implication of source of finance.............................................................................................4
1.3 Evaluating range of appropriate sources of finance ..............................................................5
TASK 2............................................................................................................................................6
2.1 Analyzing the costs o different sources of finance................................................................6
2.2Importance of financial planning............................................................................................7
2.3 Identifying main decision makers and assessing their financial information needs..............7
2.4 Impact of finance on financial statements.............................................................................8
TASK 3 ...........................................................................................................................................9
3.1 (a )Preparing and analyzing cash budget...............................................................................9
3.1(b) Recommending General Sportswear to bring improvement in cash budget...................10
3.2 Finding the unit cost in both the options .............................................................................10
3.3 Calculating the cost of each project ....................................................................................11
TASK 4..........................................................................................................................................12
4.1 Main financial statements....................................................................................................12
4.2 Preparing different financial statement formats for different business ...............................13
4.3 Calculating ratios for Comparator.......................................................................................15
CONCLUSION .............................................................................................................................18
References......................................................................................................................................19
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Illustration Index
Illustration 1: Financial statement for sole trader..........................................................................15
Illustration 2: Financial statement for limited liability company...................................................17
Illustration 3: Financial statement for partnership.........................................................................17
Index of Tables
Table 1: Cash budget.....................................................................................................................10
Table 2: Unit cost...........................................................................................................................11
Table 3: Net present value method................................................................................................12
Table 4: Table 4: Accounting rate of return of both project 1& 2.................................................12
Table 5: Table 5: The pay back period..........................................................................................13
Table 6: Ratio analysis...................................................................................................................18
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INTRODUCTION
Managing financial resources is the key task to give upward direction to business. The
financial department of any organization play vital role in managing all business activities and
bringing positive improvement in the performance of business. Present report is based on case
study of General Sportswear which deals in leading brands and operate on private basis. In this
regard, range of sources of financial are identified which could be used by an organization while
expanding business. Further, different types of cost associated with sources of finance have also
been explained. In addition to this, cash budget has been explained by which cash can be
controlled. Apart from this, interaction of assets and liabilities on the balance sheet and
international equivalents under the International Accounting Standard.
TASK 1
1.1 Different sources of fiance available to business
There are different sources of finance which can be used by business for different
purpose like expansion, for recovering losses or for continue the present business. These sources
can be divided into two parts such as long or short term. These are explained as follows-
Long term sources of finance
Long term source of finance are those which are arranged to fulfill certain requirement of
business. According to the give case study General Sportswear is facing issue related to liquidity
crunch and high overdraft (Bennouna, Meredith and Marchant, 2010). It might affect the future
performance to a great extent. Owing to this different long term sources of finance can be
accessed by the firm. These are explained as follows-
 Bank loan-it is the most effective source of finance because company can access bank
for meeting long term requirement of finance. Under this, several kind of formalities need
to be completed prior to taking loan. Thus, it require extensive time and proper security
on which behalf company can acquire loan (Gitman, 2013).
 Leasing companies-It is the another effective long term source of finance which provide
financial assistance to corporation by providing assets on rental basis. Under this, General
Sportswear can easily get updated technologies so as to speed up in the flow of
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production and meet requirement of customers in an effectual manner. This proves ot be
effective in creating competitive edge of the firm.
 Hire purchase-This is also alternative source of long term finance wherein General
Sportswear can access to hire purchase companies. It helps to provide assets on hire
basis which reduce financial burden of firm for particular time span (Murphy and
Yetmar, 2010). It aids to increase sales turnover and deliver good quality of services with
the incorporation of highly updated technologies.
 Special financial institutions-The special financial institutions are made for providing
assistance to corporation. However, they provide finance on basis of project which is to
be done by the firm. It facilitates to carry out operation of firm effectively. Furthermore
special financial institutions provide full support in the expansion and growth of firm.
Short term source of finance
Short term source of finance are those which are referred to fulfilled short requirement of
firm such as daily business activities and for meet short term liabilities. General Sportswear can
use any of following short term source of finance in order to meet short term requirements-
 Retained profit-it is the amount of profit which is kept aside by the management for the
purpose of reinvestment. It does not require to incur any kind of assets and can be avail n
short time span. However, use of retained profit in another business activities may create
opportunity cost for the firm (Singh, Jain and Yadav, 2012).
 Sale of old assets-Sale of old assets refers to generating short term cash for meeting
requirement of business through selling unused assets of company. It enables corporation
to generate enough cash and ensure optimum utilization of limited resources in order to
fulfill lng as well as short term objectives of the firm (Amendola and et. al., 2011).
 Personal savings-Personal saving here refers to owner capital which is used in own
business. However, use of personal saving in the business may be problematic because
owner's among will be blocked for business purpose for particular time span. Although, it
proves to be effective source in case of liquidity crunch of corporation so that
management can easily manage all business activities in an effectual manner.
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1.2Implication of source of finance
According to the given case study the directors of General Sportswear are having the
negative impression towards debt finance. They consider that it merely increase cost of
production and affect overall performance of the firm. However, there are both positive and
negative aspect of different sources of finance. It is totally based on management that what type
of sources are selected by them to fulfill long or short term requirement of business. For example
bank loan provide both short or long term loan on the basis of fixed interest rate and several
other conditions (Grewal and et. al., 2011). At this juncture management need to ensure that they
are capable to pay the debt on right time. It is because delay in payment may affect credit rating
of firm in negative manner. On the other hand, special financial institutions also require time to
time information with regard to progress of project. Apart from this, retained profit serve as the
most effective source of finance for fulling short term requirement of business. However, by
making use of retained profit, management cannot manage their production process as retained
profit is the single aspect to run business in case of liquidity crunch (Milner and Rosenstreich,
2013).
On the other hand, sale of old assets is the another foremost source of finance which
proves to be effective to manage liquidity crunch of the firm. This is because corporation uses
their unused assets for business purpose only. However, it might be possible that assets is
undervalued for that particular time span (Gaskell and Ashton, 2008). Thus, both positive and
negative aspect need to be kept into mind in order to improve performance and ensure speed up
in the flow of production.
1.3 Evaluating range of appropriate sources of finance
According to the above evaluation appropriate sources of finance can be selected for
expansion purpose of General Sportswear. It assists management to carry out business
effectively and also manage the liquidity crunch. Following appropriate sources have been
mentioned which aid to give upward direction to business. In this regard, following sources will
be accessed-
 Special financial institutions (SFI)-These institutions contribute corporation to expand
in the marketplace and ensure ling term growth with increased rate of return. According
to the give case, General Sportswear can take advantage of special financial institutions
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