Managing Financial Resources & Decisions: Assignment

Managing Financial Resources & Decisions

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Identification of sources of finance..................................................................................3
1.2Assessment over uses of financial resources....................................................................4
1.3 Ascertaining the most satisfactory source of finance for Clairton Antiques Ltd.............5
TASK 2......................................................................................................................................5
2.1 Ascertaining the costs of sources of finance....................................................................5
2.2 Importance of financial planning for Cariton Antiques Ltd.............................................5
2.3 Assessing the decision making need of several stakeholders..........................................6
2.4 Explaining the impact of chosen funding sources on financial statements......................6
TASK 3......................................................................................................................................6
3.1 Preparing and analyzing cash budget for Clariton Ltd.....................................................6
3.2 Explaining unit cost and how it helps in taking pricing decisions...................................7
3.3 Assessing viability of projects using investment appraisal techniques............................8
TASK 4....................................................................................................................................10
4.1 Discussing the key components of financial statements................................................10
4.2 Comparing format which is used by Clariton Ltd and other business units..................10
4.3 Interpreting financial statements using ratio analysis technique....................................11
CONCLUSION........................................................................................................................14
REFERENCES.........................................................................................................................15

INTRODUCTION
Financial management is vital for the organizational growth and success in the recent
times. In the competitive business arena, firm can offer products to the customers at suitable
prices only when it makes effectual use of financial resources. Now, for the purpose of
decision making and making optimal use of funds manager employs several monetary tools
and techniques. The present report is based on Clariton Ltd which offers antique products or
services to the customers. In this, report will present the financial sources which business unit
can undertake for financing expansion. Further, report also depicts how budgeting, unit cost
assessment, investment appraisal and ratio analysis too aid in decision making aspect.
TASK 1
1.1 Identification of sources of finance
In order to make the business more profitable and have the adequate gains there has been
use of various sources which will be helpful for having the sound capital structure. Clariton
Antiques Ltd will be beneficial as if they move to public ownership. Thus, such reform will
bring sudden growth in the capital structure and that will be assistive in making operational
plan for the business (Shanas and et.al., 2017). Moreover, there are several techniques which
will be fruitful for business as per having suitable sources of finance such as:
Unincorporated Business: this is the private unit which has been owned by one of more
than one person which does not possess a separate legal entity form its owner. Moreover, the
business does not be treated as the separate person it will not have any single identity in the
market (Unincorporated business, 2018). Therefore, the main disadvantages of these kinds of
businesses are that there will be manipulation of funds as the owners will have higher
liabilities and debts which will lead to insolvency.
Incorporated business: These are the business units which has their own person separate
identity apart from the owners of business. Thus, the liabilities as well as debts of business
will be balanced and have the effective outcomes. It can be operated solely or in partnership
which consists of various benefits such as tax deductions, liability protection as well as they
can become able to generate the capital through selling securities. Therefore, it will be
suggested to Clariton Antiques Ltd that must proceed through incorporated business

partnership. It will bring them special remedies; exemption in the tax deduction as well as it
will generate the required finds for the business operations.
1.2Assessment over uses of financial resources
In a company there may be various sources of finance on which the professionals
become able to gather required amount of funds. The generated funds will be used in
improving managerial efficiency, production as well as business objectives. Moreover, there
are two main sources which will be helpful in gathering the required amount of funds such as:
Internal sources:
There can be various internal sources of finance which will be helpful in meeting the
initial requirements of funds. The main advantage of using the internal sources is that there
are not requirements of making the interest payments or taxes over it. However, in includes
several sources such as:
Owner’s equity: the savings and funds gathered by owners of business will be helpful
in meeting the essential requirements. Therefore, Clariton Antiques Ltd will be beneficial as
if all the four partners will contribute some funds for the further expansion of business (Ege
and Bauer, 2017). However, it will not require the interest as well as it will have remedies
and deductions in tax.
Sale of inventories: the amount earned from the operational activities of the business
will be a good source for funds. Thus, in relation with the same there is needed to have
increment production, marketing and selling activities of the business. Clariton Antiques Ltd
will have effective growth in the revenue as if the antiques were designed as per the
consumers’ requirements and which meet their satisfactory level.
Sales of assets: The assets such as machineries, equipments, furniture etc. which does
not have appropriate value in the market as well as are inefficient to meet the required level
of production. Therefore, these kinds of scrap assets needed to be sold out which will
generate funds for Clariton Antiques Ltd.
External sources:
There can be various effective external sources which will be helpful in gathering the
adequate amount of funds for the operations. Thus, main advantages of these sources are that,
company can have effective revenue generation which in turn makes the adequate gains to the

firm. Moreover, Clariton Antiques Ltd will become able to gather the appropriate amount of
funds as per issuing the securities, taking loans, mortgage, trade credit etc.
1.3 Ascertaining the most satisfactory source of finance for Clairton Antiques Ltd.
The most satisfactory source for Clariton Antiques Ltd is selling the securities in the
market. Therefore, these sources will help in generating the adequate amount of capital gains
as well as the large numbers of equity holders will have stable capital structure (Ng, 2017).
Shareholder seeks for the annual reports, turnover and dividend policies of firm. It will be
satisfactory and good sources for gathering the appropriate amount of funds.
TASK 2
2.1 Ascertaining the costs of sources of finance
In relation with developing the effective costs control recognition for Clariton
Antiques Ltd there are various expenses incurred in the business such as:
Interest expenses: the interest being payable by Clariton Antiques Ltd in 2014 was
140 while in 2015 it has increased to 142. Thus, it can be said that in the current year the firm
has made higher liabilities which has affected in making the higher interest payments.
Tax expenses: the tax payable in 2015 was 13 while in 2016 it becomes 14. Thus, the
increment in the taxable payments is because of rise in the operating income. Moreover, it
can be said that Clariton Antiques Ltd is capable to reducing the operating expense and same
has they have made increment in the revenues (Haitao and Zhiwei, 2017).
2.2 Importance of financial planning for Cariton Antiques Ltd
Budgeting: these are the reporters which were being prepared by the professionals as
per analyzing the past requirements as well as performance of business in production and
several units. Therefore, this technique bounds the professionals to administer the costs
incurred in each tasks as well as utilize the resources properly.
Failure to finance: It allows the business to make the adequate implementation of the
failure in future planning and deciding the .loopholes (Shanas and et.al., 2017). Moreover, it
will be beneficial in terms of making the effective efforts as to have improvements in the
business performance and present the techniques to overcome with the previous problems.

Overtrading: The commercial activities will be based on consumer’s demands as
well as business efficiency. The excessive production will lead Cariton Antiques Ltd in
having imbalanced the managerial operations.
2.3 Assessing the decision making need of several stakeholders
 Partners: In the context of Clariton Ltd, partners are highly concerned towards
profitability aspect and financial position of the firm. Hence, for fulfilling information
requirement they evaluate profitability statement and balance sheet.
 Venture capitalists: We Finance Ltd, a venture capitalist firm, evaluates annual report
of the firm to analyze market trend, profitability aspect and further business plans
(Mishra, Bag and Misra, 2017). Considering such information’s venture capitalists
take decision regarding investment.
 Finance broker: For preparing competent loan application finance brokers make
assessment of both income statement and balance sheet. This in turn furnishes
information about profitability, liquidity and solvency.
2.4 Explaining the impact of chosen funding sources on financial statements
As per the given case situation, venture capital and finance broker aspect has impact
on final accounts of Clariton Ltd in the following manner:
 Venture capitalists: In this, capital (liabilities side) and cash (current assets) will
increase from the amount invested by venture capitalists. Further, dividend which will
be offered to such capitalists, in the form of dividend, recorded in the debit side.
 Finance broker: Brokerage which is given by the company to broker considered as an
expense. Due to this, it is mentioned in the debit side of income statement which in
turn educes the level of profit margin (Rajendran, 2017).
TASK 3
3.1 Preparing and analyzing cash budget for Clariton Ltd
Budget contains information regarding planned income and expenditure pertaining to
the specific time frame (Lu, Won and Cheng, 2016). This in turn assists personnel in
performing activities in monetary terms and gives input to the team of higher management for
performance evaluation.
Budget of Clariton Ltd from the period of January to June is as follows:

Particulars January February March April May June
Cash
receipts
a. Cash
collection
in the same
month
Related to
the 50% of
similar
month sales
15000 22500 30000 15000 15000 3750
b. Cash
receipt in
the next
month
80% of
previous
month
120000 240000 360000 480000 240000 240000
c. Receiving
cash in the
second
month
15% of
last second
month’s
revenue
22500 22500 45000 67500 90000 45000
Total cash
receipts
157500 285000 435000 562500 345000 288750
Outflows
Expense or
payments
Total cash
inflow –
outflow
807250 137250 119750 437250 227250 219750
Cash deficit
or surplus
(649750) 147750 315250 125250 117750 69000
Opening
cash
1100000 (539750) (392000) (76750) 48500 166250
Closing
cash
balance
(539750) (392000) (76750) 48500 166250 235250
3.2 Explaining unit cost and how it helps in taking pricing decisions
Unit cost presents expenses incurred by the business organization for manufacturing
and offering an individual products or services. By dividing total expenses from the number
of items offered unit cost can be assessed (Unit cost, 2017). On the other side, price includes

gross margin % and per unit cost. Hence, selling price enables firm to recover cost and attain
desired level of profit margin.
Particulars Figures (in GBP)
Direct expenses
Material 70
Labour 50
Other expenditures 30
Prime cost 20
Total production disposals 170
Non production expenses
Administration cost 90
Designing expenditure 35
Maintenance cost 25
Tax expense 15
Insurance premium 10
Property rent 20
Other indirect expenses 18
Total indirect expenses 213
Total expenses (direct + indirect) 383
Particulars Figures (in GBP)
Total expenses (direct + indirect) 383
Number of antique items 12
Unit cost (Total expenses / number of units ) 383 / 12 = 32 GBP
Margin 15%
Price per unit (UC+ UC * profit %) 37 GBP
From evaluation, it has assessed that by charging 37 GBP from customers for per
antique item Clariton Ltd would become able to cover unit cost such as £32 and 15% profit
margin.

3.3 Assessing viability of projects using investment appraisal techniques
Om the basis of given case situation, Clariton Ltd has two investment projects in the
overseas market. Hence, considering investment appraisal tools business entity can evaluate
viability of proposal in the following manner:
Payback period
Yea
rs
Proje
ct A
(in £)
Cumulati
ve cash
flows
Proje
ct B
(in £)
Cumulati
ve cash
flows
1 1.6 1.6 0.8 0.8
2 2.8 4.4 1.4 2.2
3 3.4 7.8 2 4.2
4 3.6 11.4 2.4 6.6
5 4 15.4 2.3 8.9
6 4.2 19.6 2.6 11.5
Project A: 3 + 2.8 / 3.6 = 3.2 years
Project B: 3 + .2 / 2.4 = 3.1 years
NPV and ARR
Years
Project A
cash
inflow (in
£)
PV
factor
@14%
Present value
of cash inflows
(in £)
Project B
cash
inflow (in
£)
Present value
of cash inflows
(in £)
1 1.6 0.877 1.40 0.8 0.70
2 2.8 0.769 2.15 1.4 1.08
3 3.4 0.675 2.29 2 1.35
4 3.6 0.592 2.13 2.4 1.42
5 4 0.519 2.08 2.3 1.19
6 4.2 0.456 1.91 2.6 1.18
Total
discounted
cash inflow
(TDCF) 11.98 6.93
Initial
investment (II) 8.6 4.4
Net present
value 3.38 2.53

Total of cash
inflows
19.6 11.5
Average cash
inflows
3.67 1.67
Average rate
of return
(ARR)
37.98% 43.56%
The above depicted tables shows that from the perspective of payback period ARR
project B is good but such methods ignores time value of money concept. On the other side,
investment appraisal evaluation shows that project A will offer high NPV such as £3.38
million’s over other investment option. Referring all such aspects it can be depicted that firm
should select project A and make focus on investing money in the same. This in turn helps
company in generating high returns from the investment made.
TASK 4
4.1 Discussing the key components of financial statements
 Income statement: Direct, indirect expenses, gross and net profit margin are the key
elements of an income statement. This in turn helps in getting information about profit
generated over the time frame over expenses.
 Statement of cash flows: It present cash related business activities under three
categories such as investing, operating and financing. Through this, Clariton Ltd can
assess whether it has enough cash balance or not (Lichtenberg, Ficker and Rahman-
Filipiak, 2016).
 Statement of changes in equity: It includes information about equity, reserves and
dividend payment etc. Using this, business unit can assess or evaluates is cash
position at the end of period.
 Statement of financial position: Balance sheet presents financial information
regarding assets (fixed & current) and liabilities (current, long-term as well as
shareholders equity). Hence, through undertaking statement of financial position
Clariton Ltd would become able to evaluate liquidity and solvency position.
 Notes to the financial statements: In final accounts, notes section presents accounting
principle and rules which are followed by an accountant.

4.2 Comparing format which is used by Clariton Ltd and other business units
Comparison
Basis of difference Clariton Ltd Sole trader Partnership firm
Meaning It comes under the
category of private
firm which carry out
operations for the
attainment of profit
margin by satisfying
customers need.
It implies for the firm
where all the
operations are
controlled by the
manager.
In this, decisions are
taken by the partners
through mutual
discussion or
consensus.
Financial statements  Income
statement
 Balance sheet
 Statement of
cash flows
 Notes
Only income
statement is prepared
by such kind of firms
as they are only
interested in
assessing
profitability aspect.
Partner’s capital
account is
additionally prepared
by such kind of
firms in comparison
to Clariton Ltd.
Specific format Need to be followed No such
requirements take
place in the case of
sole traders.
Such kind of firms
prepares statements
by taking into
account specific
format.
Rules IFRS, IASB and
GAAP are followed
while preparing
accounts.
No specific rules are
followed by sole
trade at the time of
drafting financial
statement.
Same as public or
private firm like
Clariton ltd
Publishing
requirement
Yes, statements need
to be published at the
end of accounting
year
No Yes
Auditing Final accounts must
be audited by from
No Similarly to Clariton
Ltd

an independent
auditor (Schipper,
Francis and Weil,
2017)
4.3 Interpreting financial statements using ratio analysis technique
Ratio analysis tool has been applied by Clariton Ltd for evaluating financial
performance pertaining to the year 2014 and 2015:
Profitability ratios
Particulars Formula 2015 2016
Revenue 1220 1255
Gross profit (GP) 175 178
Net profit (NP) 33 23
Operating profit (OP) 46 57
GP margin GP / Net sales * 100 14.34% 14.18%
NP margin NP / Net sales * 100 2.70% 1.83%
Operating margin
Operating profit / Net sales
revenue * 100 3.77% 4.54%
Tabular presentation shows that no significant improvement was taken place in GP
and OP margin of Clariton Ltd. Further, decreasing trend from 2.70% to 1.83% has found in
the NP margin of firm. Thus, for enhancing profitability aspect firm needs to make control
over both direct and indirect expenses.
Liquidity, efficiency and solvency ratio analysis
Particulars Formula 2014 2015
Liquidity ratios
Current assets (CA) 71 105
Current liabilities (CL) 309 317
Inventory or closing 46 47

stock
Quick asset (QA)
Current assets – (stock +
prepaid expenses) 25 58
Current ratio CA / CL 0.23 0.33
Quick ratio QA / CL 0.08 0.18
The above depicted table shows that liquidity ratio of the company was increased in
2015. However, still as compared to the ideal ratio such as 2:1 and quick measure .5:1,
liquidity position of Clariton Ltd cannot say to be good. Hence, for making improvement in
the liquidity position company needs to make focus on cash maintenance.
Efficiency ratio analysis
Particulars Formula 2014 2015
Efficiency ratio
Cost of goods sold
(COGS) 1045 1077
Inventory 46 47
Trade Receivables 13 12
Net sales 1220 1255
Receivables turnover
ratio
Credit sales / trade
receivables 93.85 104.58
Inventory turnover ratio COGS / stock 22.72 22.91
Outcome of ratio analysis clearly exhibits that both receivable and inventory turnover
inclined in the period of 2015 as compared to the financial year 2014. However, so
significant improvement takes place in the stock turnover ratio. Thus, for improving such
ratio firm should focus on undertaking promotional strategies and stock management tools.

In addition to this, for making improvement in working capital firm should make focus on
receiving money from debtors within the suitable time frame.
Solvency ratio analysis
Particulars Formula 2014 2015
Solvency Ratios
Long term debt (LD) 161 167
Shareholders’ Equity
(SE) 276 301
Debt to equity LD / shareholders Equity 0.58 0.55
Ratio analysis results show that solvency position of Clariton Ltd was good as well as
in line with the ideal measure such as .5:1 in both the concerned years. Hence, referring
current position it can be mentioned that capital structure build and maintained by the
company was highly good.
CONCLUSION
From the above report, it can be concluded that using venture capitalists and bank
loan source Clariton Ltd would become able to meet financial needs. It can be seen in the
report that both the selected sources have an impact on profitability statement and balance
sheet. Further, it can be stated that for attaining the position of surplus Clariton Ltd is
required to exert control on expense and tighten its credit policies. Along with this, it has
been articulated that from the investment perspective in the overseas market project A will
prove to be more beneficial for the firm. It has been assessed from ratio analysis section that
firm needs to make modifications in the existing strategic and policy aspects for enhancing
monetary position as well as performance.

REFERENCES
Books and Journals
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Financial Resources. Public Finance Research. 5. p.001.
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abilities and financial exploitation in older African Americans: Preliminary validity
evidence for the Lichtenberg Financial Decision Rating Scale (LFDRS). Journal of elder
abuse & neglect. 28(1). pp.14-33.
Lu, Q., Won, J. and Cheng, J. C., 2016. A financial decision making framework for
construction projects based on 5D Building Information Modeling (BIM). International
Journal of Project Management. 34(1). pp.3-21.
Mishra, S., Bag, D. and Misra, S., 2017. Venture Capital Investment Choice: Multicriteria
Decision Matrix. The Journal of Private Equity. 20(2). pp.52-68.
Ng, A. B. K., 2017. Development of Islamic financial system for providing financial
resources for technological plans in the Islamic world.
Rajendran, A., 2017. A Review on Studies Relating to Profitability Performance.
International Journal of Scientific Research. 5(10). pp.15-39.
Schipper, K., Francis, J. and Weil, R., 2017. Financial Accounting: Introduction to Concepts,
Methods and Uses. Cengage Learning.
Shanas, E. and et.al., 2017. Old people in three industrial societies. Routledge.
Online
Unincorporated business. 2018. [Online]. Available through :<
http://meteor.aihw.gov.au/content/index.phtml/itemId/327462 >.

Unit cost. 2017. Online. Available through: < http://www.accountingtools.com/questions-
and-answers/how-to-calculate-cost-per-unit.html>.