Report | Managing Financial Resources and Decisions
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Added on 2019-12-03
Report | Managing Financial Resources and Decisions
Added on 2019-12-03
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MANAGING FINANCIALRESOURCES ANDDECISIONS
Table of ContentsINTRODUCTION ..........................................................................................................................1Task 1...............................................................................................................................................11.1 Sources of finance available to the business. .......................................................................11.2 implication of various sources..............................................................................................21.3 Sources of finance available to fulfill the following needs...................................................3Task 2...............................................................................................................................................32.1 Cost of different sources of finance. ....................................................................................32.2 Importance of financial planning..........................................................................................42.3 Types of financial information required for decision making purposes..............................42.4 Sample templates of profit and loss account and balance sheet............................................5Task 3 ..............................................................................................................................................83.1 Finding and recommendation for the budgets analyzed.......................................................83.3 Calculation of various ratios in order to find out the best project.........................................83.2 Calculation of different types of unit cost. .........................................................................10Task 4.............................................................................................................................................134.1 Uses and purpose of various types of accounts...................................................................134.2 Difference between different types of organization............................................................144.3 Calculation of different ration in order to find out the companies positions......................14Conclusion ....................................................................................................................................16References......................................................................................................................................16
INTRODUCTION Finance is a science that describes the management of money, credit, investments, banking andassets and liabilities. Finance consists of financial system and financial instruments. Finance isdivided into three categories (i.e. public, personal and corporate finance). The following reportinterprets the various sources of finance available to the business in order to raise capital for theexpansion or starting a new business. This report shows the various implications of finance facedby the business at the time of allocation of the resources. In this report various financialdecisions are also taken after analyzing the various financial accounts. At last financialperformance of the business are also evaluated considering the fixed, variable cost and breakeven. Task 11.1 Sources of finance available to the business. There are different types of sources available with the business in order to raise theircapital. These available sources help to meet short term and long term funds requirement of theorganization.Short term sources of financeBank Loan: - in case of bank loan bank lends small amount of money to the company bycharging the high interest rate (Anheier and Winder, 2007). This method is used by the companywho want to start up a new business or expand its business.Trade Credit: - This is another method used by the company in order to raise its funds.In this case company purchases the assets from the vendor without making him any duepayment. The period for trade credit runs for 28 days only. This method can be used by the inorder to meet its quick requirement of the assets.Long term sources of financeIssue of Shares: - Company can raise its funds by issuing shares to the general public.This method is used by the company in order to expand its business which requires a largeamount of capital.Leasing: - It is a contract made between two parties in order to borrow the assets for sometime period without making the full payment (Barth, 2008). Leasing is a type of rental. It is used1
by the company in order to expand its business. Company leases the property, machine, vehiclesand so on.1.2 implication of various sourcesSourcesAdvantagesDisadvantagesCosts SuitabilityLegal AspectsBank LoanTaxadvantage.High interestrates need to bepaid.Companyprofit marginwill bereducedbecause theyneed to payhigh interestto the bank.For starting upof newbusiness or topay dividendto the shareholders.Bank can sealthe collateralsecurityprovided bythe bank.Trade CreditCompany needto pay interestCompany is notable to availcash discount(Beaver,McNichols andRhie, 2005).Not able toavailablevarious typesof discountprovided bythe suppliers.For meetingquickrequirement ofthe cash.Supplier canfile a caseagainstcustomer fornot paying themoney ontime.Issue OfSharesPermanentsources ofcapital,company doesnot require torefund theamount taken.Dividend has tobe paid to theshareholders.No taxbenefits willbe availed bythe companyon thedividend paidto theshareholders.For expandingits business. Shareholderscan file a caseagainst thecompany ifdividend is notpaid to themeven in thecase of theprofit.LeasingCompany canavail thebenefit ofTotalinstallment costat the end of theMonthly oryearlyexpenses ofFor meetingquickrequirement ofLessor can suethe lessee ifany damage2
assets withoutpurchasing it.leasing periodmay be higherthan thepurchasingcost.the companywill increase(Bellas,Toudas andPapadatos,2007).cash withoutpurchasing itat the sametime.caused to theproperty or iflessor is notable to payinstallmentson time.1.3 Sources of finance available to fulfill the following needs.Different types of sources of finance available in order to meet the following case:-Start up of the new business: - In order to start up a new business an individual or agroup of individual can raise their capital by going through the venture capital or bank loan(Bentz, 2007). These two sources of finance will assist the owner to the business to easily full thequick requirement of cash and assets for a long period of time. Expansion of large business organizational: - One of the best methods which companycan consider is issue of shares and debentures. Company can meet the funds by issuing sharesand debentures. This in turn also assists the benefit to the company for not paying again theamount of money raised by the public.Takeover of the medium scale company by the small group of people: - A smallgroup of people can raise funds by using hire purchase or leasing method in order to take overthe medium scale company (Dontoh, Ronen and Sarath, 2008). Use of this method will aid thecompany to avail the benefits of the asset without purchasing it and without paying anymaintenance cost.Therefore, these are some of the sources of finance through which company or individual canraise their money for meeting short term, medium term and long term business requirements.Task 22.1 Cost of different sources of finance. Bank loan: - Bank loan assist the company to meet its short term requirements of the cashquickly. Company simply raises funds by paying the interest to the bank. But at the same timeuse of this method increases the cost of the business. Company need to pay high interest rates tothe bank in order to avail the cash from the bank. 3
Trade credit: - It also said He Company to meet its short term requirement of the fund.Company can avail this method according to their needs and wants (Eccles and Holt, 2005).Company does not require paying any interest. But at the same time it is also seen that this typeof credit facility is available to the business for a small time period only.Issue of shares: - issue of shares will assist the company to meet it s long termrequirement of the cash. It also helps the company to expand its business by attracting morecustomers. But at the same time it increases the cost of the company. Company need to paydividend to this shareholders and also the decision making power. Leasing: - It said the company to meet to quick requirement of assets. Company can easilyuse the asset without purchasing it (Efendi, Srivastava and Swanson, 2007). But at the sametime it reduces the profitability of the company because company need to pay installment on theregular basis to the lessor which in turn increases the cost of the cost. 2.2 Importance of financial planningMaximum utilization of funds: - Planning of all the financial activities in advance assistthe company to utilize the available resources and funds with the organization to the full extent.Advance planning also said the company to reduce the wastage of the resources. Avoid shocks: - Planning of all the financial activities assist the company to avoid shocksand alteration which could be faced by the company due to sudden change in internal andexternal environment.Helps in maintaining balance between inflow and outflow of cash: - Financial planningaids the company to maintain the balance between the inflow and outflow of the cash fromwithin and outside the organization (Mahotra and Malhotra, 2008). Advance planning help thecompany to reduce the expenses by generating more income. Helps in achieving organization objectives: - Advance planning of all the financialactivities aids the company to move towards the achievement of the organizational objective.Planning of all the activities helps the company to maintain balance between all activities whichin turn assist the company to achieve the set target.2.3 Types of financial information required for decision making purposesDecision maker of the company wants the financial statements and company's audit report inorder to take various decisions.4
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