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Managing financial resources and decisions (mfrd)

   

Added on  2020-01-07

21 Pages5735 Words228 Views
Managing financialresources anddecisions1

Table of ContentsINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Different financial sources.....................................................................................................31.2 Implications of financial sources...........................................................................................41.3 Selection of best suitable financial sources...........................................................................52.1 Cost analysis for each financial source..................................................................................52.2 Significance of financial planning.........................................................................................62.3 Information needs for internal and external decision makers................................................72.4 Impact of finance on financial statements and importance of financial sources to influencestatements.....................................................................................................................................83.1 Budgeting and forecasting for next six months' business operations...................................83.2 Unit cost calculation for establishing Osborne restaurant and pricing decisions................103.3 Investment appraisal techniques for choosing best project..................................................10TASK 2..........................................................................................................................................124.1 Different financial statements and their objectives..............................................................124.2 Comparing financial statement to be prepared for different types of businesses................134.3 Ratio analysis.......................................................................................................................13CONCLUSION..............................................................................................................................15REFERENCE.................................................................................................................................162

Illustration IndexIllustration 1: Budget for Osborne restaurant................................................................................12Illustration 2: Unit cost and pricing decisions...............................................................................13Illustration 3: Pay back period for further investment...................................................................14Illustration 4: ARR as investment appraisal technique..................................................................14Illustration 5: NPV for selecting best project................................................................................15Illustration 6: Ratio analysis of Sainsbury.....................................................................................173

INTRODUCTIONManaging financial resources and decision is key component for operating furtherbusiness activities. It is effective for analyzing actual financial position on the basis of whichplans are prepared for organization's effectiveness of organization and improving efficiencies athigh level. The present report is to understand different aspects of financial resources anddecisions for establishing Osborne Terrace Restaurant. It is contract finder opportunity foraccomplishing task related to operating small business entity at large scale by 2020. In thisregard, different financial sources including critical evaluation on them can be described.However, importance of financial planning for decision makers and finance significance toprepare statement is to be expressed through this assignment. Including this, budgeting andforecasting plan entity's commencement can be understood for decision making to expandbusiness firm. Along with this, investment appraisal techniques to select appropriate project is tobe introduced that leads to following on decided plans. Thus, students are able to understandimportance of managing financial resources and decision for commencement of organization anddifferent tools for business operations through this report.TASK 11.1 Different financial sourcesThere are different kinds of financial sources to grab opportunity to establish Osbornerestaurant. Therefore, entrepreneur can use various sources to establish Osborne. Some of themare expressed as underInternal sourcesExternal sourcesInternal sourcesFund can be allocate from following sources internally:Personal sources: The owner put its own capital into the business. This is the cheapestsource of finance which is readily available. It includes savings, personal cash balance,borrowing from friends and family (Bakand, Hayes and Dechsakulthorn, 2012). Itincludes getting financed from family and friends and involving them in day to dayactivities of the business with a percentage of profit sharing that the business earns.4

However, for affirmative results, it requires their agreement on the decision. Some maynot be ready to put their money and get involved in extra business. External financial sources:At external level, finance for organization's establishment can be gained throughfollowing sources:Bank loan: Loans are provided by bank at a specific rate of interest and fir the specifictime frame. Bank requires a guarantor who guarantees that you will return the principalamount with the specified interest in specified time period. However, much flexibility isnot provided to borrower in terms of interest and time duration (Cheng, Ioannou andSerafeim, 2014). Share capital: Share capital consist of all funds raised by companies in exchange ofeither common or shared preferred stock. The amount of share capital or equity financethat company can change over a period of time as per market requirement and companyobjectives. Venture capital: Professional investors manage this kind of fund. A specific kind ofinvestment is made by them and it is managed by professional investors (Pasquariello,2014). If the investor like your business idea he will invest in your business with the factthat they may demand a certain percentage of profit or decision making is some areas ofbusiness depending up on the contract.Lease: It is a contractual agreement between the two parties where one party gives rightto the other party to use the asset in return to some rental payment. Osborne can take itsfixed assets on lease (Midrigan and Xu, 2014). Since, fixed asset demands heavyinvestment, it will reduce the burden from the companyBank Overdrafts: It is a short term source of finance. It allows the business to makepayments from their current bank accounts even if the necessary balance is not availablein the bank account. There is a certain limit specified by every bank to while availing thisfacility. Bank charge interest on the overdrawn amount (Battiston and et.al., 2016).1.2 Implications of financial sourcesAs per critical evaluation on financial sources, some implications are obtained for gettingsources that can be expressed as follows:-5

SourcesFinancialimplicationsLegalimplicationsBankruptcyDilution ofcontrolBank LoanHuge financialimplication asbank possess theproperty againstloan. Subject to assetsseize in case ofdefaults. Total risk ofbankruptcy ifpayment of loanis failed forbusiness projectsas seized assetswill be auctionedto recover bankloan amountNo dilution ofcontrol share capital Percentage ofprofit would bededicated toinvestor in sharecapital accordingto investment inshare which willbe return incontract and theywill startreceiving it asthey achievebreak evenIn case of sharecapital legalagreement isrequired andsigned by boththe parties and.Each stack holderhas a right to castthe vote in boarelection tomanage themeeting. In case ofbankruptcypayment tooutsiders first willbe made andsuppliers and theninternalsettlement ismade. There will becase of dilution ofcontrol in sharecapitalLeaseIn assets leaseGST is chargedon monthly leaserental and on theresidual value atthe end of theLease agreementdocuments isrequired.In this bankruptcysuppliers mustfile case for firstpayment.Dilution ofcontrol overcompany is notdiluted but pullout of assets incase of default6

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