Analysis of XYZ Ltd.'s Financial Performance and Position
Added on 2019-12-03
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Table of ContentsINTRODUCTION ..........................................................................................................................1TASK 1............................................................................................................................................11.1 Sources of finance which are available to new and old as well as large and small sizedorganization............................................................................................................................11.2 Implication of the different sources of funding ...............................................................21.3 Three case study examples who wishes to buy medium-sized organization ...................3TASK 2............................................................................................................................................42.1 Analysis of the cost of different sources of finance.........................................................42.2 Stating the importance of the financial planning..............................................................52.3 Statements who highlights the financial information which required for the decisionmaking....................................................................................................................................52.4 Key items of the P&L and balance sheet..........................................................................6TASK 3............................................................................................................................................63.1 Recommending the actions on the basis of the critical evaluation of the cash flow forecastof ABC manufacturing ltd......................................................................................................63.2 Calculation of contribution, break even and profitability analysis...................................73.3 Use of investment appraisal techniques and financial planning for ABC engineering inmaking strategic decisions....................................................................................................13TASK 4..........................................................................................................................................164.1 Aim and utility of trial balance as well as financial statements of an organization.......164.2 Difference between the financial statements of business organization..........................164.3 Analyzing the ratio of XYZ ltd......................................................................................17CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20
INTRODUCTION Financial resources are one of the crucial elements of the corporation which plays asignificant role in executing the business plan in an appropriate manner. Financial resourcesconsist of the fund which is available to business to spend it in the activities and functions of anorganization. Thus, it is necessary for the firm to manage their financial resources in an effectivemanner by preventing the wastage of money (Brigham and Ehrhardt, 2013). This report is basedupon case scenario that helps in understanding the sources which business organization canundertake to meet their monetary needs. Besides this, it also provides understanding regardingthe importance of financial planning which make contribution in the attainment of organizationalobjectives. In addition to this, it depicts the analysis of the cash related activities which helpsorganization in assessing their liquidity aspects. TASK 11.1 Sources of finance which are available to new and old as well as large and small sizedorganizationNew and existing as well as big and small sized organization can undertake the followingcomponents to raise its finance are enumerated below:New business enterpriseBank loan: New business organization can meet its monetary requirements by taking intoconsideration bank loan on the basis of the financial security (Poynton, Lapan and Marcotte,2015). Thus, it provides assistance to the company in raising capital for their new venture.Pros: Tax deductible source of financeCons: Bank charges high interest rate for monetary assistance in comparison to otherfinancial institutions.Old business enterpriseRetained earnings:It refers to the part of net income which each and every business enterpriseretain with itself on the basis of the fixed percentage. Pros: It is one of the main internal sources of finance which provides financial assistanceto an organization at the time of contingencies.Cons: If organization makes use of retained earnings then they might face difficulty incoping up with the contingent situation or aspects. 1
Large sized organizationIssue of debentures: large business organization can easily raise their finance by issuingdebentures to the potential investors. It is most effectual source of finance which new businessfirm can undertake to meet their financial requirements. Pros: Investors are always ready to invest in the debentures which provides fixedperiodical income to them (Heraty and McCarthy, 2015). Through this, organization caneasily raise their capital.Cons: One of the major drawback of this sources that organization has to pay interest tothe debenture holders whether they make profit or not. It imposes financial burden infront of the company.Small sized organizationLeasing: This source offers opportunity tosmall sized organization to use the asset in productiveactivities for the predetermined period without making huge investment on it. Pros: It provides tax befits to the small sized organization and there by maximizes theprofitability of them. Cons: In leasing, firms have to pay periodical rent to the owner of assets for making useof it. This aspect clearly reflects that leasing also impose cost upon the firm in terms ofmoney.1.2 Implication of the different sources of funding Various sources of finance are significantly differs in terms of their implication on firm in thefollowing manner:SourcesLegal aspectsCostSuitabilityBank loan Banks have the legalauthority to case theassetofanorganization if theymake default in theamount of loan andinterest. Bank charges highinterest rate forproviding the financialassistance to theorganization. Easyinstallmentpayment system is oneof the main aspectswhichattractorganization to fulfilltheir financial needsthrough bank loan. Retained earningAs per the legalaspectseveryIf organization usesretained earning thenIt is the more suitablesource which prevents2
organization needs tokept fixed amountwith itself whichenables them to copingup with the dynamicbusiness arena moreeffectively(Danes,RodriguezandBrewton, 2013). they are unable to facethecontingentsituationmoreeffectively due to thelack of sufficientamount of fund. organization to issuethe equity shares. Itfacilitates no dilutionor interruption of theshareholders in thedecisionmakingaspects of anorganization. Issue of debenturesIn case of debentures,holders of it have noright to makeinterference in thedecisionmakingaspects. The liabilityof the firm is limitedto make periodicalinterest to them.When organizationraises their financethrough debenturesthen they have to payinterest to the holders(Rehan and et.al,2015). It imposes highfinancial cost in frontof the company. This source of financeis more suitable for theorganization becauseamount of interestrelated with thedebentures are verylow as compared toother mediums. LeasingOrganization has toreturn the asset to thereal owner after thepredetermined timeperiod. Owner of the assetcharges periodical rentfor making use of theasset. It is the more suitablesource because itprovides high taxbenefits to theorganization. 1.3 Three case study examples who wishes to buy medium-sized organization Three case study examples in relation to the sources of fund which small sizedorganization, large business expansion and small group of people can use are as under:Case study examplesSources of financeABC company who wants to start up their newventure By using their personal saving and takingfinancial support from angel investors ABCcan easily begin its new business. In this, ABC3
does not have needs to pay any interest andthereby saving the monetary cost of the firm.XYZ large business organization who wishesto expand their business operationsXYZ can fulfill their financial needs andrequirements by issuing the equity shares. Itprovides assistance to an organization inexpanding their business operations andfunctions. By encouraging the severalshareholders company can fulfill theirmonetary requirements. In this, company needsto pay dividend only when they will generatesufficient amount of profit. Thus, this sourceproves to be more suitable for the corporation.CBN partnership firm or small group of thepeople who wants to purchase medium-sizedorganizationBy approaching bank for the loan CBNbecome able to purchase the medium sizedorganization. Besides this, by making use ofthe profit organization can easily fulfill theirfinancial necessities. TASK 22.1 Analysis of the cost of different sources of financeSpecifically financial and opportunity cost is the main aspects which place differentimpact upon the organization as per the nature of source which are as follows:Financial costBank loan: Moreover, bank charges high rate of interest on the amount of loan incomparison to the other financial institutions. Thus, if organization raises their capitalthrough bank loan then have to pay high interest amount. Retained earnings: In case if old organization makes use of retained earnings to fulfilltheir financial needs. Then organization is unable to make investment in the mostprofitable project which may arise in future.Issuing debentures: When organization issue debenture to their existing and potentialinvestors then have to pay interest to them (Togashi and et.al, 2015). It imposes highfinancial cost in front of the organization. 4
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