Managing Financial Resources and Decisions- Report

Managing Financial Resources and
decisions
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Table of Contents
INTRODUCTION................................................................................................................................3
TASK 1.................................................................................................................................................3
1.1.....................................................................................................................................................3
1.2.....................................................................................................................................................4
1.3.....................................................................................................................................................5
TASK 2.................................................................................................................................................6
2.1.....................................................................................................................................................6
2.2.....................................................................................................................................................6
2.3.....................................................................................................................................................7
2.4.....................................................................................................................................................8
TASK 3.................................................................................................................................................8
3.1.....................................................................................................................................................8
3.2...................................................................................................................................................10
3.3...................................................................................................................................................10
TASK 4...............................................................................................................................................12
4.1...................................................................................................................................................12
4.2...................................................................................................................................................12
4.3...................................................................................................................................................13
CONCLUSION..................................................................................................................................15
REFERENCES...................................................................................................................................16
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INTRODUCTION
Money is the primarily need of every new as well as established business organization to run
their operations successfully. Commercial as well as service rendering entrepreneurs need adequate
funds for different purpose i.e. payment of revenue and capital nature expenses, expansion,
investment in profitable purpose and managing financial risk to achieve set targets. There are wide
ranges of resources available to every entrepreneur through which they can gather sufficient amount
of capital resources to meet their financial need. Thus, the present report here emphasizes on
identifying variety of capital sources along with its positive as well as negative impact to Sweet
Menu Restaurant for its expansion programme. It will enable restaurant to select the best source
among all. Moreover, the assignment also aims to evaluating the role and importance of budgetary
analysis in effective financial management. Furthermore, the report also shed light on the
significance of project evaluation techniques, comprising both discounting and non-discounting
methods to test project viability. In the end, operational performance of Sweet Menu Restaurant
(SMR) and Blue Island Restaurant (BLR) will be examined through applying ratio analysis
technique. It will enable restaurant to take necessary decisions for performing well in future period.
TASK 1
1.1
According to the scenario, SMR is a reputable restaurant which is operating in Gants Hill,
East London from past 10 year. It built-up a strong reputation in the market by offering various
inter-continental food items at an acceptable prices. Now, in order to expand operations, it is
planning to begin two branches in Central London and Croydon requiring investment worth
£300,000 and £500,000 respectively. In order to finance its proposed expansion plan, it can gather
funds through following sources:
Debt fund: In UK and all the other countries, commercial banks and financial institutions
provide funding facilities to the corporations to meet their capital need at an interest rate. Thus, one
of the options available to SMR to gather funds is to raise capital through external borrowings.
Hire purchase (HP): At the time of beginning branches in Central London and Croydon,
SMR can decide to use rented office rather than purchasing it (Berger and Black, 2011). In this,
SMR can purchase property on HP system through making some initial down payment and rest in
equal periodical instalments.
Retained earnings: Companies distribute some proportion of their net earnings to
shareholders and rest of the part is called retained earnings. It is another option available to SMR to
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meet their capital requirement through ploughing back their available retains profits in the business
to support proposed expansion plan.
Trade credit: It is an arrangement between manufacturer and creditors, in which, supplier
agrees to deliver material on credit (Brandimarte, 2013). Through this, restaurant can take some
time to make payment to the suppliers after gathering sales revenues.
Overdraft: Commercial banks allow their customers to withdraw some extent amount than
their available balance in account, called overdraft. It can provide huge help to SMR to meet their
urgent short-term capital requirement.
1.2
Sources Financial Legal Control dilution Bankruptcy
Debt Every commercial bank
charges an interest rate on
provided debt services on
the entities that is its
financial implications. It is
necessary for the SMR to
pay their loan instalments
inclusive interest
periodically.
Mortgage and
securities has to be
provided to the bank
to make lenders
relaxed about fund
security (Guariglia,
Liu and Song, 2011).
Lenders have no
authority to take
participation in
business decisions
and cannot control
operations.
It exists,
because if
restaurant goes
for insolvency
than it will have
to sale their
property for
repayment of
loan amount.
HP Instalments which are
decided by assets vendors
always include some
interest charges so as to
get some extra return in
financial terms (Arrondel,
Debbichand Savignac,
2014).
Parties have to follow
decided terms and
conditions and
ownership will not be
transferred to SMR
till the payment of
final instalment.
Vendors have no
power to interfere
in business
decisions.
No bankruptcy
implication
exists.
Retained
earnings
No financial cost. Entrepreneur need to
transfer some amount
in legal reserves.
No dilution as it is
already the part of
owner’s capital
(Vernimmen and
et.al., 2014).
Same as HP.
Trade Creditors charge some Timely payment is It does not transfer Same as above.
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