Report on Managing Financial Resources & Decisions

MANAGING FINANCIAL
RESOURCES AND
DECISIONS

TABLE OF CONTENTS
1. Introduction............................................................................................................................................3
2. Sources of finance for business..............................................................................................................3
2.1. Type of business..............................................................................................................................3
2.2. Sources of Funds.............................................................................................................................3
2.3. Comparing and contrasting right issue of shares and loan notes....................................................6
2.4. Source which proves to be more suitable for raising finance.........................................................7
2.5. Advising source of finance for working capital to the board of directors ......................................7
3. Financial statements...............................................................................................................................8
3.1 Statement of profit and loss.............................................................................................................8
3.2 Statement of balance sheet...............................................................................................................8
3.3 Statement of cash flow statement.....................................................................................................9
3.4 Advising board of director in relation to the financial planning which proves to be more
beneficial for Taste PLC.........................................................................................................................9
3.5 Calculation of company's current earnings per share.......................................................................9
4. Investment appriasal............................................................................................................................10
4.1 Benefits of net present value method of investment appraisal.......................................................10
4.3 Calculation of the payback period and net present value for European investment opportunity. .10
4.4 Recommending the board of directors by evaluating investment opportunities............................11
4.5 Defining the concept of unit cost ..................................................................................................12
4.6 Factors needs to be considered while setting prices for their output.............................................12
5. Cash flow vs profit...............................................................................................................................13
5.1 Main trends which are in the cash flow of organization................................................................13
5.2 Importance of the financial planning.............................................................................................13
5.3 Reason due to which company faces the liquidity issues or problems..........................................13
5.4 Users of financial statements and their needs...............................................................................14
6. Interpretation of the financial statements.............................................................................................15
6. Ratio analysis of Taste PLC.............................................................................................................15
Interpretation of ratios..........................................................................................................................15
6.2 Overall opinion on the company's current performance................................................................16
7. Differences in financial statements of sole traders, partnership and limited companies.................16
CONCLUSION........................................................................................................................................17
REFERENCES.........................................................................................................................................18

1. INTRODUCTION
Successful run of a business enterprise depends upon the level of financial stability that
company maintains. However, looking at the present corporate environment in UK, it is important for
companies to manage their financial position in order to maintain competitive edge. Present report
focuses on evaluating and analysing the financial aspects of various PLC's such as Taste and Drink.
Hence, sources of finance required by the firm to carry out its business and its implications to select the
appropriate source for the investment are discussed in the report (Herman, 2011). Thereafter, researcher
suggests three different financial plans for the benefit of shareholders by using WACC. Along with this,
investigator calculates the current earnings per share of Taste PLC so that shareholders can make smart
and effective judgement regarding future contingency.
Thereafter, report focuses on different appraisal methods to evaluate and analyse the reliability
and validity of investment. Concept of unit costs has been considered and the factors that management
should consider while setting the prices of their products and services are focussed here. Further,
research illustrates the reason by which company can be profitable but run into problems with its
liquidity in terms of financial planning. Lastly, by using four financial ratios, researcher will analyse
the profitability and liquidity performance of Taste plc and differences in the financial statements
between sole traders, partnerships and limited companies.
2. SOURCES OF FINANCE FOR BUSINESS
2.1. Type of business
There are various types of business organizations such as sole proprietorship firm, partnership
firm as well as public and private limited organization. As per the case scenario, Taste plc is the public
limited organization whose main objective is to maximize the benefit by satisfying the needs of
customers.
2.2. Sources of Funds
In order to expand the business, it is essential for the firm to raise funds so that effective
expansion can be carried out. By operating in catering business, constantly increasing competition is
enforcing the firm to enhance their business operations for maintaining their competitive edge. There
are several sources of finance available to the top level management of Taste PLC through the help of
which they can easily carry out expansion strategy in an effective and efficient manner. However,
management is intended to invest $1000000 in buildings and non-current assets. Thus, various
available sources are as follows:

Long term sources of
finance
Features Benefits Drawbacks
Bank loan There are several
financial institutions
available that are
providing corporate
loans for companies at
affordable interest rates
(Bratton and Gold,
2012).
The main benefit of this
source is that it can be
generated easily as
company has to
complete mere legal
formalities. Along with
this, repayment of loan
is based on monthly
instalments which are
feasible for the working
capital perspective of
Taste PLC.
The major drawback of
this source is that
company has to make
payment of interest even
if they are in economic
crisis. This leads to
make the financial
position unstable and
increases the amount of
debt for the firm.
Issue of shares Being a public limited
firm, it is relatively easy
for Taste plc to either
issue IPO or FPO. Both
issuing does not have
major differences but
one of the main
differences is that IPO is
issued to attract new
shareholders while, on
the other hand, FPO is
used to raise funds from
existing shareholders.
Thus, through the means
of this source,
management of Taste
PLC can generate
intended large amount
There are various
benefits of raising funds
through shares such as
amount generated is not
repaid to shareholders as
well as no major
liability arises on the
functioning of company
(Mitchell, 2013).
While on the other hand,
drawback of this source
is that company has to
make the payment of
dividend to its
shareholders as the part
of profit. This may lead
to decrease in net profit
margin of the firm.