Managing Financial Resources
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Added on 2020-01-15
Managing Financial Resources
Added on 2020-01-15
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MANAGINGFINANCIALRESOURCES ANDDECISIONS
Table of ContentsINTRODUCTION......................................................................................................................1TASK 1......................................................................................................................................1AC 1.1 Finance sources available to a business...............................................................1AC 1.2 Implication of finance sources.............................................................................2AC 1.3 Appropriate source of finance..............................................................................4TASK 2......................................................................................................................................4AC 2.1 Analyse the cost of identified appropriate finance sources for Sweat MenuRestaurant.........................................................................................................................4AC 2.2 Importance of financial planning.........................................................................5AC 2.3 Information needs of different decision makers...................................................5AC 2.4 Impact of finance sources on financial statements..............................................6TASK 3......................................................................................................................................7AC 3.1 Budget analysis and take appropriate decisions...................................................7AC 3.2 Calculation of unit cost and make pricing decisions............................................8AC 3.3 Assessment of the viability of the project by using investment appraisal techniques...........................................................................................................................................9TASK 4....................................................................................................................................12AC 4.1 Discussion of the main financial statements......................................................12AC 4.2 Difference between major financial statements.................................................12AC 4.3 Ratio analysis.....................................................................................................13CONCLUSION........................................................................................................................14REFERENCES.........................................................................................................................16
INTRODUCTIONEvery business corporation requires adequate availability of funds to operatesuccessfully in the market. The need for funds arises for purchasing purchase premises,equipment and other capital assets. Moreover, they need working capital to run businessoperating functions in an effective way. Thus, it becomes clear that managing financialresources is very important aspect for organization’s success. Sweat Menu Restaurant Ltd. isa reputable restaurant business that is based on Gants Hill in East London. The restaurant wasfounded 10 years ago. It is a well known business which provides various intercontinentalfoods at affordable prices to the customers. Now, the business owner’s wants to takeadvantage of the business prospects by opening its two branches in Central London andCroydon. The business owner requires sufficient funds for opening two branches. Therefore,the present report will help in identifying the resources available to the restaurant owners forfulfil their finance requirement. It helps in determining the most appropriate finance sourcethat can be obtained at minimum cost. Moreover, the role of financial planning will also bediscussed in the report. In addition to it, different management techniques such as budgetinganalysis and investment appraisal techniques will be identified in order to take appropriatedecisions. TASK 1AC 1.1 Finance sources available to a businessThere are number of sources available to every business organization that satisfy theirfinancial needs. The sources are mainly categorised into two parts that are internal andexternal finance sources. Under the internal financing, sources are available inside thecorporations. However, under the external financing funds are gathered from outsideorganizations. Sweat Menu restaurant Ltd. can acquire funds of 300000£ and 500000£ fromboth the sources to establish its branches in Central London and Croydon. Internal sources:Personal savings: One of the most important internal finance sources is owner’spersonal savings. In context to Sweet Menu Restaurant, all the three business owners caninvest their personal savings in the business. It is an alternative to getting funds from externalinvestors and loans (Murphy and Yetmar, 2010). It is a cheaper source of finance andmaximizes the entrepreneurs controlling rights over the business.
Retained earnings: Every organization does not distribute all the profits among itsshareholders. Some of the parts are retained in the organization for future. The proportion ofbusiness profits that have not been distributed to shareholders is called retained earnings(Dada, Azim and Ullah, 2014). Sweat Menu Restaurant business can acquire funds from theircurrent business retained earnings. Sale of assets: Business owners can sell its idle assets. The assets that are nonproductive assets and unusable can be sold into the market. Sweat Menu Restaurant businesscan sell its scrap and disposable equipment in the market and collect funds. External sources:Share capital: The SMR can issue both ordinary and preference shares to theinvestors. It helps the businesses to gather funds to a great extent. The shareholders arewilling to undertake business risk with an objective of getting high investment returns(Copeland and Dolgoff 2011). Loan capital: Banks or other financial institutions provide loan facilities to all thebusinesses. The benefits of these sources are that funds can be generated for different timeduration required. Bank provides loans for short term, medium term and long term period. Overdraft facility: It is the right given to the business to withdraw larger amount offunds than their account balance. It helps in fulfilling the immediate or urgent financerequirement. Debentures: Sweat Menu Restaurant can issue debentures that help to acquire largeamount of funds. The benefit of this source is that it is not secured by the business assets(Valle, R. and Gomes, 2014). Long term financial need can be highly satisfied through thesesources. AC 1.2 Implication of finance sourcesEach and every finance source implies some kind of obligations upon theorganizations that are described here as under:Retained earnings: The cost of using business retained earnings includes opportunitycost. For instance, if the retained earnings were not invested in the business than it can beused for another purpose which will further help in generating returns. The advantage of thissource is that business is not required to repay the funds. Further, it does not impose anyburden to the business for paying return on it (Nikuchroo, 2014). However, the disadvantageof this source is that in case of business loss, it will not be available. Moreover, higherploughing back of profits may create dissatisfaction among the shareholders. 2 | P a g e
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