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Managing Financial Resources and Decisions INTRODUCTION 3 Task 13

   

Added on  2019-12-18

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Managing Financial Resources andDecisions

TABLE OF CONTENTSIntroduction......................................................................................................................................3Task 1...............................................................................................................................................31.1 The sources of finance available to .......................................................................................31.2 Assess the implication for using............................................................................................41.3 Most appropriate sources of finance for Clariton Antiques Ltd............................................4Task 2...............................................................................................................................................52.1 Costs of finance......................................................................................................................52.2 Importance of financial planning...........................................................................................52.3 Information needed to make decisions on financing.............................................................62.4 Impact on financial statements...............................................................................................7Task 3...............................................................................................................................................83.1 Preparation of Cash budget....................................................................................................83.2 Calculation of unit cost..........................................................................................................93.3 Investment appraisal techniques..........................................................................................10Task 4.............................................................................................................................................124.1 Key components of financial statements.............................................................................124.2 Comparison of formats of financial statements...................................................................124.3 Interpretation of financial statement of Clariton Antiques Ltd............................................13Conclusion.....................................................................................................................................16References......................................................................................................................................172

INTRODUCTIONFinancial management is the major part of the businesses, it includes planning, directingand controlling of monitory resources. For raising funds in an organization it is essential to takeappropriate decisions regarding financing, investment and returns. The main objective offinancial management is to ensure adequate supply of funds so that business can run smoothly. Itsupports to utilize the available resources effectively. Maintaining proper cash flow,minimization of capital cost and wealth maximization are major areas of financial management.Present report is based on Clariton Antiques Ltd, it started as unincorporated business but lateron it grown well (Acquaah, 2012). Current assignment will discuss the various sources of financeavailable for the entity and their implications. Importance of economic forecasting will becovered in this study. To make effective pricing decisions, unit cost calculation will be done inthis report. TASK 11.1 The sources of finance available to a) Unincorporated businessIt is defined as an commercial undertaking that is closely-held by different parties.According to the case Clariton Antiques Ltd. was started as unincorporated business whose keydisadvantage was that it results in unlimited liability for their proprietor as it is not beenregistered formally as the corporation (Strange, 2015). The key sources of finance that isavailable for unincorporated business is sourcing monetary resource with the help of investor inwhich they allocate capital with the key expectation of attaining financial return in the future.The key advantage of this source of finance is that it is cost effective source through which theinvestor can easily invest certain amount of funds to the newly start up in the region. b) Incorporated businessIncorporated business is defined as organized corporation that is been formally registered.Along with this it also give certain benefits such as protection of their liabilities as well asdeduction in the tax etc. it has been also assessed that source of finance that is available toincorporated business include raising fund with the help of selling share of the company throughenabling equity financing. Under this source of finance equity share has been allotted to the3

individual and they become shareholder within the company that have key right to engage invoting within the company (Nersesian, 2014). 1.2 Assess the implication for usinga) Internal sources of finance The internal sources of finance are consider as effective sources as they are found in theinternal environment of the business. For instance, the key internal source of finance is personalsaving. The positive implication for using this source of finance is that it ensure no repaymentcosts as under this source owners invest their savings in the business. Along with this, it has beenalso assessed that negative implication for using this source is it ensure limited funding by theindividual or partners (Lazonick, 2012). Along with this, another internal sources of financeinclude selling the discarded assets within the company for raising the funds. It has been assessedthat implication for using this source is that with the sale of assets it diminishes the overall worthof the organization. b) External sources of finance There are some other sources of finance that include using external source that is throughengaging in taking bank loans, venture capital, equity share capital etc. all these sources are usedby the organization for raising the finance. With the help of bank loan business can easily raisethe finance that would carries some financial implication that is it focuses on interest payable bythe owner for the taken loan that act as the risk or financial expenses for the firm. On the otherhand, another external source of finance is engaging application of equity share for raising thefinance (O’Sullivan and et.al, 2013). The financial implication that has been assessed for usingthis source is that it increases the cost of organization as they have to return or pay certainamount to shareholder in form of dividends. 1.3 Most appropriate sources of finance for Clariton Antiques LtdAs Clariton Antiques Ltd needs to generate funds in the organization to open morebranches. So it can be possible if it selects equity shares as source of fiance. By this way aim ofthe firm will be achieved easily. As with this type of sources there is no cost of repayment isattached so not burden occur on the organization. It should select public issue of equity share sothat it will be able to accomplish its objective to great extent. 4

Apart from this Bank loans will be another best suitable source of fiance for theorganization by this way it will be able to gather huge amount easily and repayment schedule isquit easy (Jones, 2012). TASK 22.1 Costs of financeShare capital is the part of capital which comes by issuing shares of the company or it canbe explained as invested money by shareholders.. After investing amount in the organization,capitalist expects some positive return on its money. So expected return is the amount which aninvestor expect to get. It is based on the previous profitability records of the company.Dividends: As venture capitalist has approached to the Clariton Antiques Ltd, here it isWe finance limited. Cited firm will have to give share against the invested money andalso investors become the shareholders of the company. So entity will have o paydividends to them it is cost for the organization. As We finance company is asking for20% stake which is too high (Freitas, Geuna and Rossi, 2013). Interest and Tax: As Clariton Antiques Ltd has taken loans from the financial institutesso it will have to pay time o time interest to banks. That is cost for the company andincrease liability for longer duration. As finance brokers arranges loans for the cited firmbut they charge commission or brokerage which is 1%, so it is cost for the organization.Whenever entity borrow money as loan from banks then tax benefits are attached with itwhich is good for the organization. 2.2 Importance of financial planningFinancial planning (FP) is the most required activity in an organization, its a process offraming the policies which can assist to take proper decisions related to investments. AsClaritonAntiques Ltd wants to raise funds, it can only possible by proper economic forecasting.Importance of FP are as below:Reduce uncertainties: With the help of effective financial planning Clariton AntiquesLtd will be able to minimize business risks this chances of getting failure will getminimized to great extent (Gatti, 2013). As cited firm will be able to access the riskinvolved in investments and will take proper decisions so that such kind of uncertainties5

will be reduced to great extent. So it will be able to measure that venture capital will givereturns or not. Budgeting: budget can be explained as economic plan for future period. Estimation ofincome and expenditures of the organization in particular accounting period is called asbudget. ◦It is beneficial tool and helps to entity in achieving goal of the company. It assists inmeasuring performance of the entity. As it provides guidance for future activitiesthus, company can make strategies accordingly. ◦By preparing budget Clariton Antiques Ltd will be able to forecast the things thus, itwould be able to minimize future uncertainties. Effective control is the main benefitof budget Financial planning can be done effectively with the help of budgeting andissues like shortage of funds or surplus can be minimized to great extent. Financialplanning is very essential for the Clariton Antiques Ltd as it is a medium sizedcompany so for each activity it has to decide budget and allocate funds. With theassistance of economic forecasting accurate budget will be prepared by the financemanger. This will help to manage cash well, as not over or shortage will take place.As with the help of economic forecasting Clariton Antiques Ltd will be able to makeeffective control over the financial activities, this will be beneficial in takerappropriate investment decisions (Prakash, 2014).◦Implication to failure to finance adequately: With the help of financial planning citedfirm will be able to utilize its funds well thus, chances of getting failure will getreduced. Without planning organization can not assume future uncertainties thus itcan affect the business, economic forecasting assist to forecast the future thuseffective utilization of sources can be minimized. Minimize over trading: It is very important for Clariton Antiques Ltd to analyses the eachactivity effectively by proper financial planning it will be able to run business smoothly.It will help to generate funds and manage cash flow well in the organization. By this wayissue of over trading will be minimized to great extent. Over trading: It is the situationwhen firm produces goods more than its actual demand. It is the big issue and candecrease profitability of the company. To reduce such type of problems it is very6

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