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MFRD INTRODUCTION 3 Task 13: Identification of the sources of finance available to a business

   

Added on  2019-12-17

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MFRD1

Table of ContentsINTRODUCTION................................................................................................................................3Task 1....................................................................................................................................................31.1 Identifying the sources of finance available to a business ........................................................31.2 Assessing the implications of the different sources of finance .................................................41.3 Evaluating the appropriate source of finance for the business project......................................42.1 Analyzing cost of each above identified source of finance ......................................................42.2 Explaining the importance of financial planning to the business enterprise ............................52.3 Identifying the information need of several internal and external decision makers ................52.4 Explaining the impact of finance on the financial statement of firm.........................................63.1 Projecting cash budget for the purpose of decision making .....................................................63.2 Explaining the calculation of unit cost and making pricing decision based on it .....................83.3 Assessing the viability of two projects by taking into account the investment appraisal techniques .......................................................................................................................................8Task 2....................................................................................................................................................94.1 Discussing the main financial statements of the firm ...............................................................94.2 Comparing the formats of the different type of business organization ...................................104.3 Interpreting the financial statements of Marriott through ratio analysis ................................12CONCLUSION..................................................................................................................................14References..........................................................................................................................................152

INTRODUCTIONIn the present era, for starting a new venture entrepreneur requires huge amount of money.Moreover, business entity can implement his idea only when they have sufficient fund. In this, citedcase situation presents that now government provides financial support to the entrepreneur with theaim to encourage them to execute their unique ideas and concept. In this regard, business entity alsoassigned with the responsibility to make optimum use of their financial resources. Entrepreneur canmanage its financial resources by making suitable business decision via financial tools andtechniques. In this context, the present report will discuss the sources through which business entitycan raise fund at low cost. Further, it will also shed light on how financial planning and investmentappraisal tools facilitate effectual use of money. Besides this, report is also going to discuss theconcept of unit cost which assists entrepreneur in making suitable pricing decision. For the secondpart Marriott international has been selected which offers luxurious accommodation facility to thecustomers. Thus, this project will also highlight the financial health and performance of the firmthrough the ratio analysis tool. TASK 11.1 Identifying the sources of finance available to a business On the basis of the cited case situation by considering the response of governmententrepreneur has decided to start King bakery. In this, entrepreneur having only £20000 forspending. In this, business entity can raise finance by taking into account the following sources formeeting their financial requirements are:Internal sourcesSales of personal assets: Usually, entrepreneur have some assets which are used by them inany purpose. In this, by selling the non-productive asset at their resale value business entitycan meet his financial requirement. Friends and family members: Entrepreneur can also raise finance by approaching theirfriends and family members. Moreover, friends and family members are always ready toprovide financial support to their loved one. Thus, it is the most effectual source which willhelp entrepreneur in raising fund. External sources Bank loan: For starting new venture business entity can also approach to the bank on thebehalf of collateral security. Besides this, banks are always ready to offer money to thesmall sized firm on concessional interest rate according to the instruction of government3

(Li, 2013). Leasing: Entrepreneur can start bakery more effectually by taking building as well as plantand machinery on lease (Agrawal and et.al., 2012). By this, business entity can make use ofassets on rent rather than purchasing it. Issue of shares: Business entity can also raise money by issuing shares to the public. In this,business unit has to incur very less expenditure.1.2 Assessing the implications of the different sources of finance All the sources of finance have direct impact on the business unit in terms of bankruptcy,dilution of control etc. In bank loan company is obliged to repay the amount of loan after thepredetermined time frame. Along with this, in leasing business entity has to return asset to the realowner of the asset. Further, business entity is also obliged to make use of assets according to theinstructions of owner. In the case of bankruptcy company has obligation to give priority to the bankand lease provider rather than others. On the contrary to it, in shares equity-holder gets the leastpriority in getting payment (Whitehead, 2014). Thus, all these aspects closely affect the decisionmaking and other aspects of the firm. 1.3 Evaluating the appropriate source of finance for the business projectKing should raise fund through bank loan which is the most suitable source of finance. Inbank loan, business entity enjoys tax benefits and thereby he gets higher profit margin. Along withthis, in bank loan entrepreneur has to repay the amount of loan in the fixed monthly or periodicalinstalments. In this way, financial burden can be reduced by the business entity to the great extent.Besides this, by taking asset on lease business entity can fulfil his financial requirement. Leasing isalso offers tax benefits to the firm. In addition to this, lower rent in against to huge investment alsosupports the suitability of it. Now, technological changes take place in the business environmentwith the very high pace. In this, company will also free from the fear of obsolete of assets (Moranand et.al., 2013). Besides this, by selling the personal assets business entity can meet the financialrequirements. Moreover, in this entrepreneur can raise money by bearing very fewer expenses.Thus, all these three sources provide high level of financial assistance to the business organization. LO2: Understanding the implications of finance as a resource within a business 2.1 Analyzing cost of each above identified source of finance Friends and family members: This source imposes opportunity cost in front of the firm.Moreover, in this business entity has to offer shareholding to their loved one (Hershey,Jacobs-Lawson and Austin, 2013). In this way, interference of them affects the strategicaspect of firm to the large extent. 4

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