Analyzing the Ratios of XYZ Co.
Added on 2019-12-03
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TABLE OF CONTENTSINTRODUCTION......................................................................................................................3TASK 1......................................................................................................................................3Sources of finance which are available to new and old as we as large and small sizedbusiness organization.............................................................................................................31.2 Implications of the each source of finance which have identified above.........................41.3Three case study examples................................................................................................5TASK 2......................................................................................................................................52.1 Analysis of the cost of different sources of finance.........................................................52.2 Importance of financial planning.....................................................................................62.3 Financial information which are required for the decision making ................................62.4 Key elements of the P&L and balance sheet with reference to finance sources and theirrelated cost..............................................................................................................................6TASK 3 .....................................................................................................................................73.1 Evaluating cash flow forecast of ABC manufacturing ltd. and formal business reportbased upon the findings..........................................................................................................73.2 Calculation of contribution, break even analysis and profit.............................................73.3 Use of investment appraisal techniques in the decision of ABC Engineering ltd............9TASK 4....................................................................................................................................114.1 Purpose and use of prime entry, trial balance and final accounts..................................114.2 Difference between the financial statements of different business organization...........114.3 Analysis of the ratios to assess the financial position of XYZ co.................................12CONCLUSION........................................................................................................................13REFERENCES ........................................................................................................................15APPENDIX..............................................................................................................................17
INTRODUCTIONFinancial resources are the essential element of business which facilitates execution ofbusiness plan in an effective manner. Financial resources can be defined as money or fundswhich are available to business. Thus, finance manager of an organization has responsibilityto frame cost effectual strategies which help them in making optimum use of the fund to alarge extent (Orlitzky, Schmidt and Rynes, 2003). This project is based upon differentscenarios which help in understanding the sources through which business entities can meettheir financial needs. Besides this, it states cost of the different sources of finance whichclosely impacts the profitability aspect of an organization. This report will helps inunderstanding the importance of financial planning in the growth and development of anorganization. Further, it will discuss the ratio analysis of organization to assess their financialhealth and performance. TASK 1Sources of finance which are available to different type of business enterprisesSources of finance which are available to new and old as well as in large and smallorganization are enumerated as below:Type ofenterpriesSourceFeatures Advantages DisadvantagesNew businessBank loanOrganizationwho wants tostart up theirbusiness canfulfill theirfinancial needsby approachingbank for theloan. Tax deductionis one of themajor benefitwhich helpsorganization inincreasing theirprofitabilityaspects.Bank chargeshigh interestrate forproviding thefinancialassistance incomparison toothercommercialinstitutions.Old or existingfirmRetained profitIt is the part ofprofit whichcompany keepswith itselfrather thanInstead ofissuing sharesorganizationcan meet theirfinancialIf existing firmmakes use ofretained profitthen enterpriseis unable to give
giving dividendto shareholders.Through this,company is ableto meet futurecontingentsituation.requirementsfrom theretainedearnings.Through this,organizationcan prevent theinterruptions ofthe newshareholders inthe decisionmaking aspects.dividend to theirshareholders.This aspectplaces anegative impacton the goodwillor image of thefirm.LargeorganizationIssue of equitysharesLarge sizedorganizationcan meet theirfinancial needsby issuingequity share toexisting andpotentialshareholders. In the case ofequity sharesorganizationneeds to givedividend totheirshareholdersonly when theyget sufficientamount ofprofit ratherthandebentures. Shareholdershave the right totake activeparticipation inthe decisionmaking processwhich is one ofthe majordrawback ofissuing of equityshares.SmallorganizationLeasingSmall sizedorganizationcan meet theirfinancial needsthrough leasing.It provides righttotheorganization tomake use of theWhen businessenterpriseundertakesleasing then itenjoys taxbenefit. It is oneof the mainfactors whichcompel smallCompany has topay high rent tothe owner fromwhom asset istaken on leaseby the firm.Thus, periodicalinterest paymentimposes
asset withoutmaking hugeinvestment on it(Jagman andet.al, 2014). businessorganization tomake use ofasset on lease.financial burdenon the firm. 1.2 Implications of the each source of finance which have identified aboveDifferent sources of finance have different implication which is enumerated below:Sources of financeLegal aspectsCostSuitabilityBank loanBank has the legalauthority to cease theasset if organizationmakes default inpayment of loanamount and interest. In bank loan,company has theobligation to payhigh interest amountalong with theperiodicalinstallment. Thus,bank loan is also thesubject of highfinancial cost.Installment paymentsystem is one of themain aspects whichattract organization toraise their capitalthrough bank loan. LeasingAs per the legalaspect company hasthe obligations toreturn back the assetto the real ownerafterthepredetermined periodof time (Caglayanand Demir, 2014). In leasing, companyhas to pay periodicalinterest in return ofthe use of the asset. Tax deduction andobsolation of thetechnology is one ofthe factors whichcompel organizationto make use of theasset on leasingratherthanpurchasing it. Retained earningIssue of equity shares1.3Three case study examplesTypes of business organizationSources of financeSmall business start upBy approaching friends and family members,business entities can easily fulfill theirmonetary needs. Moreover, people who are
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