Financial Resource Management Assignment: Comprehensive Analysis

This document presents a complete solution to a financial resource management assignment. It begins with an analysis of financial ratios, comparing the performance of two companies based on profitability, efficiency, liquidity, and leverage. The assignment then delves into investment and financing decisions, exploring the roles of financial managers and the distinctions between commercial, investment, and insurance banks, as well as mutual, hedge, and pension funds. Further, the solution explains the differences between primary and secondary markets, capital and money markets, and stock and fixed income markets. It includes cost accounting, break-even analysis, and overtime payment calculations. Finally, the assignment covers break-even analysis in detail, providing calculations for break-even units and sales, along with targeted net income scenarios. The document offers a thorough understanding of financial concepts and their practical applications.

Running head: MANAGING FINANCIAL RESOURCES
Managing Financial Resources
Name of the Student
Name of the University
Authors Note
Course ID

1MANAGING FINANCIAL RESOURCES
Table of Contents
Answer to question 1:.................................................................................................................3
Answer to A (i):.........................................................................................................................3
Answer to (ii):............................................................................................................................4
Answer to question B:................................................................................................................5
Answer to question 2:.................................................................................................................5
Answer to question 3:.................................................................................................................6
Answer to question 4:.................................................................................................................6
Commercial Bank, Investment Bank and Insurance Bank.........................................................6
Mutual Fund, Hedge Fund and Pension Fund:...........................................................................7
Answer to question 5:.................................................................................................................8
Primary and Secondary Market..................................................................................................8
Capital Market and Money Market............................................................................................8
Stock Market and Fixed Income Market:...................................................................................9
Answer to question 6:.................................................................................................................9
Answer to question 7:...............................................................................................................10
Answer to 8B:..........................................................................................................................11
Answer to 8B:..........................................................................................................................12
Reference List:.........................................................................................................................14

2MANAGING FINANCIAL RESOURCES
Answer to question 1:
Answer to A (i):
Profitability
Ratios
Gross Profit Ratio
Contemporary
Clothing
Modern
Fashion
Sales 2425000 3735000
Gross Profit 475000 835000
Gross Profit Ratio 19.587 22.356
Net Profit Ratio
Contemporary
Clothing
Modern
Fashion
Net Profit 32000 91000
Total Revenue 2425000 3735000
Net Profit Ratio 1.319 2.436
Operating Margin Ratio
Contemporary
Clothing
Modern
Fashion
Operating Margin 113000 285000
Net Sales 2425000 3735000
Operating Margin Ratio 4.659 7.630
Return on Equity
Contemporary
Clothing
Modern
Fashion
Net Income 32000 91000
Shareholders Equity 625000 750000
Return On Equity 5.12 12.133
Contemporary
Clothing
Modern
Fashion
Efficiency Ratios Total Asset Turnover Ratio
Net Sales 2425000 3735000
Average Total Assets 1250000 2000000
Asset turnover ratio 1.94 1.867
Accounts Receivables Ratio
Contemporary
Clothing
Modern
Fashion
Revenue 2425000 3735000
Average Accounts
Receivables 230000 610000
Accounts Receivables
Ratios 10.543 6.122

3MANAGING FINANCIAL RESOURCES
Liquidity Ratios Current Ratios
Contemporary
Clothing
Modern
Fashion
Current Assets 640000 1280000
Current liabilities 325000 600000
Current Ratio 1.969 2.133
Quick Ratio
Contemporary
Clothing
Modern
Fashion
Cash 70000 45000
Accounts Receivables 230000 610000
Current Liabilities 325000 600000
Current Ratio 0.923 1.091
Cash Ratio
Contemporary
Clothing
Modern
Fashion
Cash 70000 45000
Current Liabilities 325000 600000
Cash Ratio 0.215 0.075
Leverage Ratio Debt Equity Ratio
Contemporary
Clothing
Modern
Fashion
Short term Debt 100000 150000
Long Term Debt 300000 650000
Total Equity 1250000 2000000
Debt Equity Ratio 0.32 0.4
Answer to (ii):
On considering the financial health of Contemporary Clothing and Modern Fashion a
recommendation can be provided concerning the acquisition of the two companies based on
the financial ratio. Modern Fashion is most suitable for acquisition as gauging into the
profitability ratio it is noticed that the gross profit ratio and the net profit ratio reported by
Modern Fashion stood 22.35 and 2.43 respectively. While the contemporary clothing reported
a lower gross profit ratio and net profit ratio of 19.58 and 1.31 respectively.
Considering the efficiency of Modern Fashion, the asset turnover ratio and accounts
receivable ratio represented 1.86 and 6.12 respectively however the Contemporary Clothing
reported a higher ratio of 1.94 and 10.54. Considering the liquidity position of Modern

4MANAGING FINANCIAL RESOURCES
Fashion reported a current ratio of 1.09 and cash ratio of 0.075 while the Contemporary
Clothing reported a current ratio of 0.92 and 0.21. An assertion can be bought forward by
stating the it is better to acquire Modern Fashion since the company has reported a higher
profitability ratio and liquidity ratio than Contemporary clothing.
Answer to question B:
On the event of the reliability of the above stated advise it can be stated that
profitability aspects and the liquidity aspects of an organization makes the organization better
placed in meeting its short term and long debt. Hence, as evident from the ratio analysis that
is performed an assertion can be bought forward by stating that acquiring Modern Fashion
would be a profitable venture since the company is better placed to meet its short term and
long term debt. The profitability and liquidity position of Modern Fashion makes the
company more attractive venture than Contemporary Clothing.
Answer to question 2:
Investment decision can be defined as the decisions that are taken by the investors to
conduce investment analysis by using the fundamental analysis and technical analysis.
Investment decisions are generally supported by the decision tools (Drury, 2013). Financing
decision is related to the decision relating to the liabilities and stockholders’ equity of an
organization balance sheet such as decision of issuing bond. Financial managers are
accountable for the financial health of the organization. They are responsible for producing
reports, creation of strategies and undertakes the decision for long term financial goals of the
organization.
Financial managers are responsible for helping the managers to make the financial
decisions. Investment decision of the managers are associated with the careful selection of the
assets in which the funds are invested by the firms (Cost, 2016). An organization has several

5MANAGING FINANCIAL RESOURCES
options to invest their funds however it is the mangers of the firms that chooses the most
appropriate investment that would introduce maximum benefit for the organization by
deciding and selecting the most correct proposal in investment decision.
Answer to question 3:
Freida is more suited to the work of since experience of her education would help in
guiding financial decision by creating, monitoring and enforcing the policies and process. Her
duties as controller would be helpful in establishing, monitoring and enforcing internal
controls (Schuster, 2015). Fritz on the other hand would be more suitable for the duties of
treasurer since the education of Fritz in the areas of finance would be helpful in to safeguard
the organization finances by working closely with the organization finances. Working as the
treasurer Fritz would be better able to understand the aspects of financial reporting,
bookkeeping and record maintenance.
Answer to question 4:
Commercial Bank, Investment Bank and Insurance Bank
Difference between Commercial Bank, Investment Bank and Insurance Bank
Basis of
Distinction
Commercial Bank Investment Bank Insurance Company
Meaning Commercial bank are
those banks that offers
services such as
accepting money for
deposits, lending
money etc (Prasad,
2014).
Investment bank are
usually reffered as the
financial institutions
which provides
services such as
underwriting of
shares, brokerage of
Insurance companies
are separate
institutions that
offers insurance to
the customers and
receive premiums

6MANAGING FINANCIAL RESOURCES
shares etc. from them.
Offers Standardized Services Customer specific
services
Insurance Services
Income Fees and Interest
Income
Fees, profit from the
activities of trading or
commission
Premiums and
subscriptions from
customers
Mutual Fund, Hedge Fund and Pension Fund:
The key differences between Mutual Fund, Hedge Fund and Pension Fund are as follows;
Basis of
Distinction
Mutual Fund Hedge Fund Pension Fund
Meaning Mutual fund is a trust
where the savings of
numerous investors
are pooled
collectively to
purchase a diversified
basket of securities at
lower cost (Datar &
Rajan, 2016).
Hedge fund is defined
as the portfolio of
investment in which
some rich investors
group their money to
purchase assets
(Bhimani et al.,
2013).
Pension fund
signifies a retirement
fund for employees
that work as the
retirement income
when they end
employment.
Management Mutual fund is
administered less
aggressively
It is managed
aggressively
Management of
group of people’s
retirement fund.
Return Returns are absolute Returns are relative Returns are full

7MANAGING FINANCIAL RESOURCES
amount
Answer to question 5:
Primary and Secondary Market
The key differences between primary market and secondary market is stated below;
a. The securities that is issued previously in the marketplace are regarded as the primary
market and the same is later registered on the recognized stock exchange for the
purpose of purchase and sale is known as the secondary market (Velasquez et al.,
2015).
b. The charges of the shares in the principal marketplace is fixed, on the other hand the
costs of the shares in the secondary market might differ in respect of the demand and
supply of the shares that is being bought and sold.
c. Primary market offers funding to the new businesses as well as to old businesses for
the purpose of growth and development. On the other hand, the secondary market do
not provides funding to the businesses since they are not engaged in the purchase or
sale transaction.
Capital Market and Money Market
Difference between capital market and money is stated below;
a. Money market can be defined as the place where the marketable securities of short
term are traded. On the other hand, a market where long term securities are created
and traded is referred as the capital market (Lanen, 2016).

8MANAGING FINANCIAL RESOURCES
b. The instructed that are traded in the money market carries lower amount of risk,
therefore they are safe for investment, whereas securities that are traded in the capital
market carries higher risk.
c. Under the money market, the amount of liquidity is high however; under the capital
market the amount of liquidity is relatively lower (Alawattage et al., 2017).
Stock Market and Fixed Income Market:
The major differences between the stock market and the fixed income market is
method through which they generate profits for the investors along with the method through
which they are traded with the level of risk carried by them (Lopez et al., 2015). Stock
markets comprises of the purchase and sale of stocks performed on constant basis exchanges.
All the Stock markets irrespective of their type can be volatile, goes through significant
amount of highs, and lows in respect of the values of shares.
Fixed income market on the other hand are more commonly referred as the bonds
market or comprises of the bonds that are issued by the federal government. Fixed income
market generally carries lower amount of risk than the equity investments however, the fixed
income market offers lower amount of risk than equity investments (Kokubu & Kitada 2015).
Success under the stock market with equity investments comprises of the greater amount of
research and requires constant follow-up of investments. However, under the fixed income
market it does not require high amount of research since they carry lower degree of risk.
Answer to question 6:
In the Books of FNS Manufacturing
Cost Statement
For the year ended June 2005
Particulars Amount Amount
Opening Stock of Raw Materials 15000
Add: Purchase 120000
Less: Closing Stock 21000

9MANAGING FINANCIAL RESOURCES
Materials Consumed 114000
Add: Direct Labor 65000
Prime Cost 179000
Factory Overhead
Power, heat and light 2500
Indirect Material purchased and consumed 4500
Depreciation on Plant 14000
Depreciation on Building 7000
Indirect Labor 3000
Other Manufacturing Expenses 10000
Add: Opening Stock of W-I-P 14000
Less: Closing Stock of W-I-P 19000 36000
Factory Cost 215000
Administrative Overhead
Administrative Expenses 21000
Cost of Production 236000
Add: Opening stock of Finished Goods 70000
306000
Less: Closing Stock of Finished Goods 60000
Cost of Goods Sold 246000
Selling and Distribution Overhead
Selling Expenses 25000
Bad Debt 1500 26500
Cost of Sales 272500
Profit (Balancing Figure) 177500
Sales 450000
Answer to question 7:
Particulars Rate Per Hour Overtime Hours
5 12
Rate Per Hour Overtime Pay
Option A 7.5 90
Option B
Evening on Weekdays 7.5 37.5
Evening on Weekends 10 70
Option C
First eight Hours 7.5 60

10MANAGING FINANCIAL RESOURCES
Remaining 4 hours 10 40
Total Overtime Payment 297.5
Answer to 8B:
Answer to 8A:
Break-Even Analysis
Selling
Price (P):
$
250.00
Break-
Even Units
(X): 9 units
Break-
Even
Sales (S):
$
2,150.
00
[42]
Fixed Costs
Purchase Cost $145
Bulb Cost $5
Advertising and Sales
Promotion $200
Website Update Cost
$1,80
0
Total Fixed Costs (TFC)
$
2,150
.00
Variable Costs
Variables Costs based on Dollar
Amount per Unit
Cost of Goods Sold
$
-
per
unit
Direct Labor
$
-
per
unit
Overhead
$
-
per
unit
Sum:
$
-
Variables Costs based on
Percentage
Commissions 0.00%
per
unit
Sum: 0.00%
Total Variable Cost per
Unit (V)
$
-

11MANAGING FINANCIAL RESOURCES
Contribution Margin per
unit (CM) = P - V
$
250.00
Contribution Margin Ratio
(CMR) = 1 - V / P = CM / P
100.0
%
Break-Even Point
Break-Even Units (X) X = TFC / (P - V)
9
units
Break-Even Sales (S) S = X * P = TFC / CMR
$
2,150
.00
Targeted Net Income
Targeted Net Income Before
Taxes (NIBT)
$
-
Units required to reach targeted
NIBT, X = (TFC + NIBT) / (P-V) 9 units
Sales required to reach targeted
NIBT, S = (TFC + NIBT) / CMR
$
2,150.
00
Answer to 8B:
Break-even point can be defined as the level of sales where there is neither any profit
nor any loss (Schaltegger & Zvezdov, 2015). The amount of revenue is the same as the total
costs.
0 50 100 150 200 250
$(1,500)
$(1,000)
$(500)
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
BEP
Profit (Loss)
Total
Revenue
Total Cost
Break-Even Point
Total Cost
Total Revenue
Profit (Loss)
Units (X)
The importance of breakeven analysis are as follows;