Managing Financial Resources and Decisions
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Added on 2020-01-07
Managing Financial Resources and Decisions
Added on 2020-01-07
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Managing Financial Resources andDecisions
ContentsIntroduction.................................................................................................................................................4Task 1...........................................................................................................................................................41.1 Sources of finance..............................................................................................................................41.2 Implications of different sources.......................................................................................................51.3 Appropriate source of finance for Clariton Antiques Ltd...................................................................6Task 2...........................................................................................................................................................62.1 Cost of financial sources....................................................................................................................62.2 Importance of financial planning.......................................................................................................72.3 information require to make effective decision.................................................................................82.4 Impact of sources on financial statements........................................................................................9Task 3.........................................................................................................................................................103.1 Prepare cash budget .......................................................................................................................103.2 Unit cost and pricing decisions of Clariton Antiques Ltd..................................................................113.3 Financial analyses of two investment projects................................................................................12Task 4.........................................................................................................................................................144.1 Key components of financial statements.........................................................................................144.2 Comparison of financial formats of sole traders and partnership firm............................................154.3 Financial ratios of Clariton Antiques Ltd..........................................................................................15Conclusion.................................................................................................................................................18References.................................................................................................................................................19
IntroductionEfficient management of funds and controlling over economic activities activities aremain aspects of business. Availability of sufficient funds is the life blood of any business, it ispossible with the help of financial management (Osei-Assibey, 2013). It assists in determiningthe capital composition, selecting appropriate source of finance and in taking investmentdecisions. Present report is based on the Clariton Antiques Ltd, it is engaged in selling ofantiques item. Before five years cited firm was started by four partners and currently it hasdeveloped its unique image in the corporate market. Current assignment will discuss theunincorporated and incorporated business and sources of finance for these business units.Discussion upon appropriate source of finance for Clariton will be done in this study. Cost ofdividend, interest and tax will be illustrated in this report. Impact of venture capital and financebroker on accounting statements will be described in this assignment. Cash budget and financialanalyses of two investment projects will be done in this report. In addition, report will compareyear2016 financial ratios of Clariton with previous year (Bahar, M.N. and Kheradmand, 2013).Task 11.1 Sources of financeEvery enterprise needs money to get going and to run their operations well. There are many options available of raising money but firms have to select suitable option (Jirka, Woolf Solomon and Lehmann, 2015).Unincorporated businessThese are commercial entities which do not require any formal legal registration with the government. Owner is the person who is responsible for liability of the organization. Clariton Antiques Ltd is formed by four partners, it is working as unincorporated business (Xiang, Worthington and Higgs, 2015). Sources of finance available for such firms are discussed as below:Personal savings: As Clariton is the partnership firm so all four partners can invest their own capital in the business. It is cheaper financial source as partners need not to repay this amount to any lender so no economical cost is attached with it (Agrawal, Catalini andGoldfarb 2014). For raising money they can also introduce one more partner in the firm,
capital of new partner will help in expanding the business and this amount will be used toopen another branch.Bank loan: Unincorporated business like Clariton can also apply for bank loan. Financial institutes provide money to start up firms at lower interest rate. Cited firm can get tax benefit on it. It is the best way to collect huge amount and repayment is also easy (Chugan and Singh, 2014).a)Incorporated businessThese are formally registered entities, owner is not liable of firm’s liability. Sources of finance are available for such kind of business are as following:Retained earning: It is internal source and profit of the company which is retainedby the firm for further development of the business. As internal funds are its own capital so there is no burden of repayment (Mancusi and Vezzulli, 2014). Venture capital: Investment of investors can raise capital of the organizations. They invest their money for getting high returns and firms have to pay dividend tothem. But they become equity holders in the entity and get rights to take decisionsin the organization, by this way ownership get diluted (Newman, Borgia and Deng, 2013).1.2 Implications of different sourcesa)Internal sourcesInternal sources are funds which are available inside the business and used by owner for expansion of the business. Retained earnings is one of the major economic internal source. In this organization needs not to repay this amount so no economic implication is of this sources. Apart from this no legal consequences have to face by entity while using this source (Rupeika-Apoga, 2014). As it is own capital so ownership does not get diluted. This financial source can generate more earnings in the corporation. Personal saving is another internal source of finance, no economic cost is attached with it.The positive implication of this source is that possession remain to the owner and controlling power does not get shared to others (Tsai, 2015). No legal agreement is required to form by owner. Sales of assets is another source in which owner will not needto pay amount and controlling remains in the same hand. Firm has to give advertisement in new paper regarding selling and have to make contract with purchaser.
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