Managing Financial Resources and Decisions in Clariton
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Added on 2020-01-16
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Managing Financial Resources and Decisions INTRODUCTION 1 TASK 11 1.1 Sources of finance 1 1.2 Implications for using internal and external sources of finance 2 1.3 Appropriate sources of finance for Clariton 3 TASK 24 2.1 Costs of the two sources of finance 4 2.2 Importance of financial planning 5 2.3 Assessing the required information to make decision in financing the takeover 6 2.4 Impact on the financial statements if Clariton Antiques Limited chooses to go with 7 TASK 38 3.1 Analysis of cash budget 8 3.2 Unit cost calculation 10 3.3
Managing Financial Resources and Decisions in Clariton
Added on 2020-01-16
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Managing FinancialResources and Decisions
Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Sources of finance.................................................................................................................11.2 Implications for using internal and external sources of finance...........................................21.3 Appropriate sources of finance for Clariton..........................................................................3TASK 2............................................................................................................................................42.1 Costs of the two sources of finance.......................................................................................42.2 Importance of financial planning..........................................................................................52.3 Assessing the required information to make decision in financing the takeover..................62.4 Impact on the financial statements if Clariton Antiques Limited chooses to go with..........7TASK 3............................................................................................................................................83.1 Analysis of cash budget........................................................................................................83.2 Unit cost calculation............................................................................................................103.3 Assessing the viability of projects using investment appraisal techniques.........................11TASK 4..........................................................................................................................................134.1 Components of financial statements...................................................................................134.2 Comparing the format of Clariton with sole trader or partnership or both.........................144.3 Interpretation of financial statement ..................................................................................15CONCLUSION..............................................................................................................................17REFERENCES .............................................................................................................................19
INTRODUCTIONFinancial management is considered as an effective source of managing funds in such amanner that helps in accomplishing the objectives of firm. It is also considered as crucialfunction which is directly interconnected with the top management. Therefore, it is essential forfirm to take crucial decision in relation to manage the financial resources and decision making sothat best results can be attained (Arnold, 2014). Proper planning of finance helps management toidentify different sources through which funds could be collected and thus assist firm to carry outits operations in market. Present study discusses the case of Clariton Antiques Ltd which wasfounded five years ago as an unincorporated business and also grown slowly and steadily. Firmdeveloped as good reputation in market and aims to raise £0.5 million. However, there are variedoptions available with firm such as they could go public and raise the money so that businessoperations could be carried out effectively. TASK 11.1 Sources of financeEach and every business organization is looking for obtaining funds from differentsources of finance so that functions of could be carried out significantly. Following are thedifferent sources of finance such as-Unincorporated business- It assesses that businesses in such category does not have anylegal identity. Here, owner of the business possess all the liabilities and responsibilities ofhis debt and need to focus in order to pay the same on time. Management also sell theunused assets so that cash can be generated which is useful for firm to carry out businessactivities (Baker and Ricciardi, 2014). Also, profits and personal saving could be investedin order to grow the business towards success. Further, business could also use themethod of selling the internal stock and raise funds. Also, personal investment of ownerin the form of capital could be invested and thus use within firm so that businessactivities could be carried out effectively. Such method helps in raising profitability andthus increases financial performance in order to attain desired results (Bandarchuk andHilscher, 2013). Incorporated business- It is also called as corporation business and possess legal identitythat helps firm to offer varied benefits over being a sole proprietor, partnership etc. It also1
provides liability protection and additional tax deductions that helps firm to raise capitalthrough selling shares of firm (Bierman Jr and Smidt, 2012). Here, businesses raisefinance through bank loan and bank overdraft so that funds could be raised. For such loangiven by banks that charge interest on fixed or floating rates and thus businesses need topay the same on due time. Venture capital is also considered as one of the main sourcesof external finance which could be used by firm and thus helps in expanding the businessoperations. 1.2 Implications for using internal and external sources of financeFollowing are the different implications for using internal and external sources of financeupon Clariton company such as-Internal sources- Such sources of finance are obtained from trading of the business. Italso impacts upon financial position of firm and thus influences the businessperformance. There are varied internal sources available with Clariton to obtain fundssuch as day to day cash from sales of antiques, owner's investment, retained profit, debtcollection etc (Brigham and Ehrhardt, 2013). There is certain legal implications uponinternal sources of finance such as they need not to consider any legal obligations.Business could also use its personal savings or profit earned in past years for the growthand success of business. There is no legal formalities occurred within business and thus itminimizes the rate of dilution of control.External sources- It comes from individuals or businesses that doe not trade directlywith the business such as banks, financial institutions, mortgage, hire purchase, tradecredit etc. Clartion could obtain funds from obtaining loan from banks and could be usedfor paying to creditors (Jongman and et. al., 2014). Further, if firm is a corporationbusiness (listed company) then they need to pay dividend to their shareholders and thusrequire to raise finance from different external sources. However, if business obtain loanas a source of finance and then they need to pay interest which is considered as impactupon financial performance. Sources of financeFinancialImplicationsLegal implicationsDilution of control Internal sourcesSale of stockMinimizes the deadNo legal implicationsNo dilution of control 2
stockPersonal investmentIt does not have anyfinancial impact uponfirm (Lapsley, Millerand Panozzo, 2010).--External sourcesVenture capital Business aims to givefinancing cost in thefirm of stake It is essential for firmto gain return oninvestmentIt reduces the controlof owner upon firm1.3 Appropriate sources of finance for ClaritonThere are varied sources of finance available for Clariton through which they can obtainfund in order to carry out business activities-Bank loan- It is the sum of amount which is borrowed by company at an agreed rate ofinterest and for a particular time period. They provide short, mid and long term loans.Therefore, it is essential for Clariton to identify their needs and then obtain loan frombank. Firm needs to give assurance and guarantee to bank that repayments of amountwould be done on set time frame (Shepherd, 2015). Advantages- Bank sets a particular time frame in which loan amount could be settled. It is beneficialfor firm for making effective budget.Disadvantages-Bank loan are expenses for firm due to high interest rate (Thompson, 2012).Bank also require guarantee or security on the loan taken. Owner's investment- It is considered as long term investment that comes from ownerhimself and thus uses such amount in order to expand the business operations in market.Advantages- The amount does not to be repaid. Also, no interest is paid (Vimpari, Kajander and Junnila, 2014).Disadvantages-Main limitation is that there is a limit for the amount which could be invested.3
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