Managing Financial Resources & Decisions | Study
Added on 2020-06-06
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Managing financial resourcesand decisions
Table of ContentsINTRODUCTION ..........................................................................................................................1TASK 1............................................................................................................................................11.1 Identification of various sources of finance.....................................................................11.2 Implications in relation to different sources.....................................................................21.3 Evaluation of appropriate sources of finance...................................................................3TASK 2............................................................................................................................................42.1 Cost associated with various sources of finance..............................................................42.2 Significance of financial planning....................................................................................42.3 Information required by various decision makers............................................................52.4 Impact on the financial statements of finance..................................................................6TASK 3............................................................................................................................................73.1 Analysation of budget to make decisions.........................................................................73.2 Unit price calculation in order to make decision..............................................................83.3 Use of investment appraisal techniques for evaluation of project....................................9TASK 4..........................................................................................................................................104.1 Financial statements ......................................................................................................104.2 Financial statements of different organisation...............................................................104.3 Interpretation with the help of ratios..............................................................................11CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................13
INTRODUCTION In every business the main resource that is required in order to start and conduct theoperations in effective manner is finance (Brigham and Houston, 2012). With the help of it onlyall the activities in the business will be carried out. There are various decisions that are requiredto be made in this respect as different sources are there from which funds can be collected sothey will be analysed and the best among them will be selected. In this report various aspectsabout such decisions will be discussed. The cost that will be required to be incurred in attainingthe funds and the planning that will be done in context of it. In the decision making process therewill be requirement of relevant information and that will be collected from the financialstatements. Also certain techniques that are used in the investment decisions will be describedtogether with the interpretations that will be made with the help of various ratios.TASK 11.1 Identification of various sources of finance.Finance will be the main requirement that will have to be considered in starting a newbusiness and it will be required to have the proper information regarding the sources that areavailable with it (Chandra, 2011). There are various such methods by which the funds can beraised and they are classified on the basis of various aspects such as on basis of time period thereare long and short term sources and they are described below:Long terms sources: These are those sources by which the funds will be available for the longerduration of time which is generally more than one year. There are various methods involved inthis and for them the cost will be required to be incurred. As they are for more time so the costthat will be associated with them will also be high. Some of the most commonly used amongthem are:Owner's capital: This is the amount that is brought by the owner into the business whichmeans that it is their money and they can use it in any manner they want. This is the mostcheapest source as in this there will be no additional cost that will have to be incurred inrelation to it. Loans and borrowings: They are funds that are collected from the banks and otherfinancial institution an don them a fixed rate of interest is charged. They are provided forthe long duration of time. In this the amount will be required to be repaid on the basis of1
the repayment schedule provided by bank. If any default is made in relation to it thenthey will be required to bear the consequences of it.Short term sources: In this the money is attained for small duration of time and will have to berepaid within a period of one year. For this the business will be required maintain proper liquidfunds so the obligations can be met on time. Some the main sources among them are:Debtors: They are the ones to whom product or services are provided without paymentand the amount will be recovered from them in the limited period of time (DRURY,2013). By this the flow will be maintained.Bank overdraft: This is another source in which the customers are allowed to draw thecash from their accounts even though it does not have any balance. On the amount takenthere will be some interest that will be paid and the whole amount will be returned in thespecified period of time.Lease: This is the method in which cash is not obtained directly rather the party providesthe asset that is required in the business on rent basis. It means that amount will be paidfor using the service of the others and when the asset will no longer be required it will bereturned. All of them are the sources which can be used and by the help of them the problems which arefaced in respect of the funds will be resolved. They will also be useful in the determination of therequirements which will be met and then the conduction of the business will be made in theappropriate manner.1.2 Implications in relation to different sources.For the effective conduction of business it is required that funds shall be collected ontimely basis and that too from the best source by which the cost can be controlled. There aremany such sources that can be used according to the needs and requirements and they have beendescribed above. All the sources have some or the other advantage and disadvantage which isassociated with them and it is necessary that they should be taken into consideration beforeselecting any one (Ioannou and Serafeim, 2010). For this evaluation will have to be made so thatthe targets and goals of the business can be achieved.In the given case the business is new so it will be required that it shall be considered thatwhat will be the legal requirements that will have to be fulfilled and then the decision shall betaken as in some sources if the liabilities are not met on time then there are serious actions that2
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