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MANAGING FINANCIAL RRESOURCES AND DECISIONS TABLE OF CONTENTS INTRODUCTION

   

Added on  2019-12-03

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MANAGING FINANCIALRESOURCES ANDDECISIONS1 | P a g e

TABLE OF CONTENTSINTRODUCTION......................................................................................................................1TASK 1......................................................................................................................................1AC 1.1 Types of finance sources...........................................................................................1AC 1.2 Implication of each finance sources..........................................................................1AC 1.3 Case study examples.................................................................................................2TASK 2......................................................................................................................................2AC 2.1 cost of finance sources to raise the funds..................................................................2AC 2.2 Importance of financial planning..............................................................................3AC 2.3 Types of financial information required for decision making purpose.....................4AC 2.4 Financial statements of the organizations.................................................................4TASK 3......................................................................................................................................5AC 3.1 Analysis of sales budget and cash budget ................................................................5AC 3.3 Investment appraisal techniques...............................................................................5AC 3.2 Contribution, profit, breakeven point and margin of safety......................................6TASK 4....................................................................................................................................11AC 4.1 Purpose and use of different statements of the organization..................................11AC 4.2 Financial statements of different types of organization..........................................12AC 4.3 Analysis of financial statements.............................................................................13CONCLUSION........................................................................................................................14REFERENCES.........................................................................................................................142 | P a g e

INDEX OF TABLESTable 1: Calculation of payback period and accounting rate of return (In £)............................6Table 2: Calculation of NPV and IRR (In £)..............................................................................6Table 3: Calculation of BEP, Profits and contribution (In £).....................................................7Table 4: Calculation of profit and Break Even point (In £)......................................................7Table 5: Calculation of profit and Break Even point (In £).......................................................8Table 6: Calculation of profit and Break Even point (In £).......................................................8Table 7: Calculation of profit and Break Even point (In £).......................................................9Table 8: Analysis of respective changes on BEP and profits (In £)...........................................9Table 9: Calculation of selling prices for different order (In £)...............................................10Table 10: Calculation of total profits (In £).............................................................................10Table 11: Financial statement analysis by ratio analysis method............................................133 | P a g e

INTRODUCTIONFinance plays a vital role for all the organization whether it is new business or alreadyexisted and large or small sized business. New business organization require finance sourcesto establish in the market while existed business organization require finance for differentpurposes such as to make payments for both revenue and capital expenditures. They alsoneed finance to expand their operations to occupy a large market share with the objective ofincreasing the business growth. This report determine that how different organizations canfulfil its capital requirement by using both internal and external finance sources. TASK 1AC 1.1 Types of finance sourcesThere are two types of finance sources available to the organization internal andexternal. By using both the sources organizations can fulfil its short term, medium term andlong term financial needs. New business organizations: The need of finance arises for establishment purpose.Personal savings can be used for such purpose. Business owner can invest his funds andmitigate their finance requirement. In addition, loans from relatives can also be taken(Brigham and Ehrhardt, 2013). Bank loans are also available to fulfil its short term andmedium term requirement up to a limited extent on the basis of owner’s ability to pay it onright time. Old organizations: it requires operational finance to manage the business operations.For that purpose, organization can issue shares, overdraft facility, lease financing and takebank loans. Both the ordinary and preference shares can be issued by organizations. Further,retained earnings are also available to fulfil their financial needs. Large organization: The organizations that have a good market share and provideservices to a larger scale can gather funds from different sources. It includes debentures, bankloans, share capital, overdraft and use of retained earnings (Altman and Hotchkiss, 2010).Moreover, venture capital and other business profits are also available to such organizations. Small organizations: Bank loans, share capital, retained earnings and return frominvestment in other organizations can be used by these organizations. Moreover, funds canbe generated from overdraft and cash squeezing operations. 4 | P a g e

AC 1.2 Implication of each finance sourcesFinance sourceAdvantage DisadvantageShare capital Large funds requirements canbe fulfil by issuing sharecapital and the company isnot liable to pay regularlydividend to the shareholders. Shareholders have votingrights and they play a majorrole in business decisions. Debt capitalShort term and long termboth finance requirement canbe fulfil by using debt capital.The company is obliged topay timely the interest andinstalment. OverdraftUrgent or immediate fundsrequirement can be generatedby bank overdraft.Business has to pay a highinterest amount on thesefacilities. Cost and Legal Aspect:SourcesCost Legal aspectsBank LoansCharged interest rate by thebanks.The business has to keep anyassets for securing the loan.Share capital Shareholders return The business has to followrespective corporate law forissuing share capital.Retained earningsNo costNo legal formalities only aresolution to be passed inannual general meeting.M2 This task has been covered in AC 1.3 AC 1.3 Case study examplesCaseFinance sourceAppropriate sourceXYZ Ltd. wantsto start up anew business, Personal savings, loan fromrelatives and bank loans to a limitedamount.Personal savings will be consideredas the most appropriate financesource for small or new businessenterprises. The reason behind thisthat it will be available at cheaper5 | P a g e

rate and without any cost. However,other finance source such as loanimpose fixed financial burden to theorganizations. Large businessexpansionBank loans, share capital, retainedearnings, issuing debenturesoverdraft, other business profits,sale of unusable assets and venturecapital.Share capital will be considered asan appropriate financial source forthe business expansion. It providesfunds in a large amount hence; itfulfils long term financial need. Small group ofpeople wants tobuy an existingmedium sizedbusinessLoans from relatives, bank loans,their own capital and overdraft.Loan from relatives and banks willbe considered as the mostappropriate finance source for smallgroup of people. It provides fundsfor short-term and long-term financesource. TASK 2AC 2.1 Cost of finance sources to raise the fundsSource of finance costDebt capitalThe amount of interest that the company isliable to pay on respective loan amount. Share capitalShareholders return in terms of dividend alsoenhances their share values.Retained earningAs internal sources, it can be used by theorganizations. No amount of cost is involved.OverdraftInterest Amount Dispose of the assetsThe efforts that the organization has to makefor sale the assets in the market.AC 2.2 Importance of financial planningFinancial planning is considered as a special financial instrument that helps in makingeffective business decisions for different purposes (Hayre, 2013). 6 | P a g e

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