Managing Financial Resources and Decisions

This document provides an overview of managing financial resources and decisions. It covers topics such as identifying different sources of finance, assessing the implications of sources of finance, evaluating the most suitable source of finance, analyzing the cost of two sources of finance, explaining the importance of financial planning, and assessing information to decision makers. It also includes a cash budget analysis and methods for measuring cost per unit.

Managing Financial
Resources and Decisions

Table of Contents
INTRODUCTION.......................................................................................................................................3
TASK 1.......................................................................................................................................................3
1.1 Identify different sources of finance..................................................................................................3
1.2 Assess the implications of sources of finance....................................................................................4
1.3 Evaluate the most suitable source of finance.....................................................................................5
TASK 2.......................................................................................................................................................6
2.1 Analyze the cost of two sources of finance........................................................................................6
2.2 Explain the importance of financial planning....................................................................................6
2.3 Give an assessment of information to decision makers......................................................................7
2.4 Impact of finance on financial statements..........................................................................................7
TASK 3.......................................................................................................................................................8
3.1 Cash budget analysis.........................................................................................................................8
3.2. Method for measuring cost per unit..................................................................................................9
3.3 Different financial tool for making investment decision..................................................................10
Task 4........................................................................................................................................................12
4.1 Different component of financial statement.....................................................................................12
4.2 comparison of different format of financial statement.....................................................................13
4.3 ratio analysis....................................................................................................................................14
CONCLUSION.........................................................................................................................................15
REFERENCES..........................................................................................................................................17

INTRODUCTION
Finance is regarded as unique component in the business that uplifts the existing business
from the financial crisis incurred in the business. Clariton has been selected for this project report
in order to reflect the significance of the financial resources. This project report is all about
identifying various sources of finance whose implications will be explained on the current
business enterprise. The cost of various sources of finance is defied in order to analyze the
business performance of the enterprise. Cash budget has prepared in order to know the surplus or
deficit earned by an entity in a particular year. The service costing has used in order to develop
the prices of different products supplied by the business to its variety of customers. The viability
of different projects is possible with the help of capital budgeting techniques like NPV, payback
and ARR technique. Ratio analysis has also used in order to reflect the business performance of
the business.
TASK 1
1.1 Identify different sources of finance
The current case scenario has emphasizes on the business of clariton Antiques Ltd which
deals in offering antique services to its variety of customers (Coronel and Morris, 2016). The
services offered by this entity are to help their buyers to retain with them for the long time by
enjoying with the services provided by clariton enterprise. The finance has arranged by an entity
like clariton from different sources in order to meet their business requirements. The current
business requirements of this entity is to raise 0.5 million GBP in order to expand their existing
business (Tsai, 2016). The current business of clariton is of partnership firm operated by four
partners. The existing business is doing well as it gradually increasing its business functioning in
order to develop their overall brand image. The current business requirement of the clariton
Antiques Ltd is to acquire new premises in Birmingham to expand their current business in the
new city in the United Kingdom.
Incorporated business- The business which is registered with the legal entity in order to get
legal existence in the external business world. The business registered with the companies act
need to comply with various legislations.
Equity financing- It is regarded as commonly used technique in order to get financial resources
to meet their higher expectations of the business entity (Parker and Swanson, 2016). The issue of
equity shares is done by taking prior approval of the central government in order to fund their
higher market expectations. The funds raised by the business from the people will remain in the
business concern till the wound up of the company.
Debt financing- It is another important source of finance which helps in meeting the higher
expectations of the business. The debt obligations taken into considerations by an entity owner

by issuing debentures at a specific coupon interest rate. The mutual understanding will determine
the rate of interest along with the time period in which it needs to be payable to the debenture
holders. The debenture trustee need to be appointed in order to prepare register to record all the
debt obligations, along with their total amount and interest to be paid.
Unincorporated business- The opposite phrase of the above source of business in which the
enterprise has no legal existence (Jorgensen and Rotter, 2016). The business has established on
the support of the sole owner without any kind of external assistance. There is no legal existence
of the venture in the eyes of the law.
Third party loan- The loan can be taken by an individual from the external party which has no
relation with the existing business of an entity in order to unbiased loan. The loan can be taken
on lesser interest and flexible time period. The amount of loan will be taken by an individual in
order to fulfill their existing business requirements.
Working capital management- It is regarded as that source of finance in which the working
capital has used by an entity in order to pay off their daily routine expenses. The petty cash
expenses are fulfilled by an enterprise by using advance form of cash from the external parties.
1.2 Assess the implications of sources of finance
Internal source of finance
Parameters Third party loan Working capital management
Legal The loan taken by an
individual from the external
party other than their relatives
will take loan on legal
agreements. This will help in
providing legal existence in
order to provide relief to the
aggrieved party in case of
default.
The amount used by an
individual in order to utilizes
the amount of working capital
have no legal implications bit
this will not imposes any
kinds of negative effect.
Financial The loan fulfills the
requirements of the business at
the same time it will also
reduces the profit by paying
interest on loan and paying
EMI.
The working capitals used by
an enterprise in paying short
term obligations will increases
debt obligations.
Bankruptcy In financial crisis an
individual need to repay the
amount to the external party.
There is no such obligations
Dilution of control Lender will have full control Control lies in hand of owner
External source of finance

Parameters Equity financing Debt financing
Legal Issue of shares will preceded
by taking permission of
central government and state
and federal laws.
Debenture trustee need to be
appointed by taking approval
of authority by maintaining
debenture redemption reserve.
Financial The amount kept in the
business for long time as
equity of the business. It
decreases amount of profit by
paying dividend to its existing
shareholders.
The interest paid to the
debenture holders will reduces
the profit to be incurred by an
enterprise. Debenture as
source of finance will induces
the long term debt of an entity.
Bankruptcy Shareholders will get relief Lender will get full payment
Dilution of control Control and ownership
enjoyed by the shareholders.
Lender have no control
1.3 Evaluate the most suitable source of finance
Equity financing- The current source of finance will be used by an entity in order to hold the
money of the shareholders for long time (Kostova and Nell, 2016). The amount hold by an
entity will be invested in order to generate higher amount of returns. On the other hand,
dividends paid by the firm t its shareholders are the basic obligations of the current source of
finance.
Debt financing- This is regarded as the cheapest source of finance in which the amount taken by
an entity for a specific time period to meet the business requirements. The negative impacts of
the existing source are that the debenture holders will need to pay interest on the amount of loan.
This loan is unique as exchange of the amount the business will provide debenture to the party
which is bear that can be endorsed to other party.
Working capital- This is that source of finance which fulfills the short term business
requirements of the sole owner. The amount will not be taken in order to meet their long term
needs and the expectations (Fletcher, 2016). This increases the expenses of the business which
decreases the total profit earned by an enterprise.
Third party loan- The loan amount induces the debt obligations of the existing business which
in turn increases the expenses in form of interest and loan repaid in various installments. The
amount of profit will be reduces by paying additional amount from the existing business.
From the above evaluation of all kinds of sources from both internal as well as external
source of finance is equity financing as it will less obligations than all other sources of finance
evaluated on parameter of positive or negative aspects.

TASK 2
2.1 Analyze the cost of two sources of finance
Criteria Venture capital Finance broker
Dividend The amount provided by the we
finance ltd that is venture
capitalist in order to fund the
current business expansion of
the clariton Ltd will charge 20%
stake in the business. The
amount of interest charged by
the owner is regarded as
dividend for the clariton that
decreases their current profit.
The amount to be raised by the
clariton Antique Ltd by
approaching the finance broker
will not get affected by the
dividend.
Interest There is no kind of provision
influences the performance of
We finance Ltd.
The bank loan provided to an
entity with the help of broker
appointed charged 1 %
brokerage. 2% interest
additionally charged by the bank
imposes extra debt obligations.
Tax The effect of the taxation will be
highly affecting the business of
we finance ltd. The mature
business owner like We finance
Ltd need to bear the pressure of
tax but this will not affect their
existing business.
Utilizing this particular source of
finance will decreases the impact
of tax as the interest paid on
loan is usually tax deductible.
2.2 Explain the importance of financial planning
Budgeting- The significance of the financial planning has reflected by adopting the budgeting
approach. The cash budgeting is used as one of the important that helps in improving the
performance of an entity as shortages of cash. The knowing about shortages of cash in advance
will be compensated by arranging the financial resources to meet the higher expectations of the
business enterprise (Davies and Drexler, 2010). The motive of budgeting is to ensure higher
efficiency of the business by analyzing the existing resources. There are various budgets exists in
determining the financial performance of an entity such as production, sales, purchase, expenses
budget.
Inadequate finance- Finance and financial resources have greater importance an entity as this
lifted up the existing situation of the business. The current business performance will get
improved or ruined with the disturbance created in the cash inflow in the business. The stoppage
of finance in the firm will increases the pressure of expenses that leads an entity towards the big
well of bankruptcy and higher amount of financial crisis. The pilot survey would help clariton in

order to analyze their existing resources in order to plan future financial resources for the
business.
Overtrading- The business who establish their business without any support or external working
experience will influence them in order to achieve all targets simultaneously in the same year.
The enthusiasm of an owner in order to earn success in relation to their rivals will increases
burden on an enterprise (Coronel and Morris, 2016). The existing problem can be rectified by
developing goal sheets along with career counseling provided by the experts of the industry. The
term goals have prepared by an entity in order to control the existing performance of the business
in relation to its competitors.
2.3 Give an assessment of information to decision makers
Employees- The current business performance of the clariton Ltd need to be improved in order
satisfy their current employees (Evans and Porter, 2010). The higher profitability and financial
performance of the business will help in retaining all kinds of employees for long time in the
business. The employees are interested in knowing the performance of the firm as their salary
and incentives are attached with the current corporation.
Management- The financial performance of an entity is essential for the top management to
improve their existing business operations. The amendment will be done by the management in
providing variety of service to its clients.
Shareholders- The good performance of the firm is essential in order to reflect the higher
credibility of the existing firm. The credibility of the business of the clariton will be improved by
enhancing the current enterprise. The external parties will showcase their interest in the
corporation by investing in the business of clariton to enhance their current efforts.
Investors- The investors will invest in the business will help in increasing the existing business
in inducing the spirit of the firm. This entity will emphasize on the profitability that will generate
higher interest to all the investors (Hosain, 2016). The basic appreciation given to all the
investors for supporting the business of the clariton. The interest given to all individuals in
appreciating their efforts in supporting the business.
2.4 Impact of finance on financial statements
Venture capital-The capital raised through this medium will affected all the financial statements
prepared by clariton in order to determine their financial performance. The interest paid to the
venture capitalist in exchange of the services provided to the clariton Antiques Ltd. The interest
will reduce the profit of the business (Fletcher, 2016). This will also affect the financial
capability of the business as it is included in the business. The amount included in the capital of
the business is enclosed in the balance sheet.
Finance broker- The interest charged by the bank for providing loan and the brokerage paid to
the brokers will reduces the profitability of the business entity (Hira, 2016). At the same time,

bank loan will enclose in the balance sheet as long term debt in the non-current liability in the
liability section.
TASK 3
3.1 Cash budget analysis
Clariton Company is expanding its business in new geographical area, for this purpose it
needs to understand the importance of budget and need to make cash budget analysis. By
preparing budget company can properly utilize its finance in systematic manner. There are
several type of budget which company can prepare so that it get various financial information
and it can easily make effective decisions. Given below is the cash budget of the Clariton
Company. In this budget it shows the receipts and expenditure for the next three years. For the
budget company can easily identify it is generating profit or loss. If it is facing financial loss then
company need to make effective strategies so that it can easily overcome the financial problems.
Aforementioned table show that company there is highest cash flow in the month of may that is
£235,250.00. on the other hand above table reflect that there is lowest cash flow in the month of
January that is -£539750 which is negatives. In January Clariton company expenses is high as
compare to other month. While in month of June is have highest cash flow that is which show
that company is earning profit and capable to manage the expenditure. Apart from this, there is
fluctuation in payment and expenses which is directly affecting the cash balances. Therefore
company need to make effective strategies so that it can easily manage all its expenditure.
Company can increase it sale by advertising its products. So that people get more aware about its
product and services. apart from this company can manage its finance by analyzing the above
budget and reduce expenditures and increase revenue.

3.2. Method for measuring cost per unit.
Cost can be determine so that expenses of one unit from its overall production can be identified
easily. Along with this it also help in setting price of product and services at the profit margin
profit so that it can easily earn profit by selling product. There are different method which
company can used for setting the price so that it can maximize the company profit. In the given
below table cost plus pricing method is used by the firm so that is it can set price of product by
excluding its making charges. In the cost plus pricing method company can add the price of
direct material and , direct labor cost and then add it to the mark up % so that it can set the price
of per products.
From the above table it can be stated that the cost per unit of product is that £250,00. in the
above table total cost of production is £3100000 while profit margin is set 25%. in the above
table output level is 155 unit. Int he above cost plus pricing is used in this profit margin is added

to the cost per unit, so that company can earn enough profit. There are some advantge of the cost
plus pricing method that is it is easy to use and there is no risk of loss. On the other hand there
are some disadvantage of this method that is, company is setting price on the basis of cost plus
formula which help in ignoring the competitions.
3.3 Different financial tool for making investment decision
According to the given scenario Clariton company is expanding its business at new area
for this purpose it need to choose appropriate project so that it no face any type of loss. For
selecting appropriate project company have different appraisal technique which help in selecting
suitable investment. Some of the financial techniques are Net present value, average rate of
return, internal rate of return etc. some of them are discussed below:
Net present values;
The differentiates between the project net present value out and inflow is termed as a net present
value. Clariton company used net present value method so that it can easily analyze which
project is generating higher net value and which project have lower cash value.

Aforementioned table show that NPV generate from the project A is 3.4 and from the project B
is 2.5. so it is clear that company will choose that project which value is high because that project
is generating high profit as compare to the project B.
Pay back period method
Pay back period method show that project which initial amount recover period is less that
project will be consider by the company. On the other hand if project take more time in
recovering the investment amount than company will not go with that project
From the above pay back period table it can be stated that in project A the initial
investment recover period is 3.2 year while in Project B it is 3 years. So it can be stated that
Clariton company will take in consideration that project who's recovering period is less that is
project A.
Average rate of return;
Average rate of return show that how much company is earn profit in return. Clariton
company will select that project who's average rate of return is high and reject that project which
average rate of return is low.

Aforementioned table show that average rate of return of project B is high that is 43.56%
as compared to the project A in which return value is 37.98%. so Clariton company will consider
the project B.
Task 4
4.1 Different component of financial statement
There are some key components of the financial statement that are as follows;
 Income statements: it is important financial statement for the Clariton company. It is
prepared at the end of any financial years (Upton and et.al., 2015). Mostly income
statement is prepared by the partnership firm so that they can determine the profit and
loss of each partner. Income statement is prepared so that company came to know how
much profit it earned and how much loss is generated in financial year. It also help in
analyzing the net profit of company. Apart from this there are some basic component of
the income stamtner which is included in it such as profit and loss. Expenses and
revenues etc. this all show the financial condition of company.

 Statements of cash flow; This statements of cash flow show that company cash inflow
and outflow. Form this statement company can easily identify how much profit it is
generated and loss. Total expenditure of company can be shown by the outflow and
income can be known by the inflows( Matheson and et.al., 2016). If there is higher inflow
then company can earn profit and while if there is higher outflow then company is
generating loss. There are some component of the cash flow statements that is financing,
investing and operating. Apart from this, the inflow includes the receivables and cash sale
while outflow show the interest rate, payable amount etc.
 Statements of changes in equity and gains: The statement of equity and gains show the
stock market and total show the total equity of component (Greenbaum, Thakor, and
Boot, 2015). There are different component of this statement that is equity amount of
shareholder and retained earnings. Company can only determine its profit if it pay
dividend to it shareholder because dividend it deducted only from the profits. Along with
this net profit and loss of accounting year show in this statements.
 Balance sheet; balance sheet is prepared by every organization so that it can easily
identify the company financial positions. It is mainly used by the owner of company so
that it can easily identify from which financial problem company is suffering (Cohen,
2016 ). Along with this it is used by the investor so that it can make decision that it want
to invest in company or not. There are some component of the financial statement that are
liabilities assets and owner equity.
 Notes of financial statement; it is a statement in which is not consider as a legal
framework but it is important to prepare by the organizations (Matheson and et.al.,
2016.). In this company write all its method of deprecation. Along with this it also use the
method which is used for calculating the profit and loss.
4.2 comparison of different format of financial statement
There is different type of financial statement such as profit and loss statements, balance
sheet statements, and cash flow statement. This all statement is very important for the different
type of organization. In partnership firm company need to make income statements so that it can
easily identify the profit of each partner. On the other hand sole trader company not needs to
make any type of income statements. It only prepares the balance sheet. Apart from this sole
trader need to prepare financial statements so that it can easily identify the position of the

company. There are public limited company which prepared the GAAP and IFRS statement.
The Clariton Company is a partnership firm which business is run by four partners. In this
company need to make income statements and also need to make balance sheet so that it can
easily identified how much company is earning profit and loss.
4.3 ratio analysis
From the above table it can be stated current ratio of company in 2014 and 2015 is 2.42
and 2.48 which show that company is capable of fulfilling the short term loss. While there are
quick ratio that is 2.27 and 2.33 which show that company is enough capable of covering its
financial debt

From the gross profit ratio it is clear that company is in 2014 it is high that is 14.34% and in
2015 there is some changes that is 14.18%. This shows that company profit is less as compared
to year 2015. While on the other hand the profit of the net profit of the company is 1.89% as
compared to the 2.63% in 2015. These show that company is earning profit in 2015 a compared
to the 2104.
From the accounting ratio it s clear that company debt equity ratio in 2014 is 0.16 ans in
2015 it is 0.19 which show that company is capable to pay debt on time in 2015 as compared to
the 2014.s
CONCLUSION
From the above report it can be concluded that that best sources of finance is bank loan
and retained profit which help company in expanding its business. There are some of the cost
associated with each project that is dividend and interest. If company take loan from bank then it
need to pay interest every months. While if raise fund from the shareholder then it need to pay
dividend to its shareholder from its profit. Further it can be concluded that company can manger
all its financial resources by proper planning and budgeting. There are some different method

which company can use for identifying which project is suitable for investing and earning
profits. Further there is different type of financial statement which is prepared by the
organization so that it can identify the company financial positions. There are different types of
ratio which show the financial position of the company. Along with this there sole trader
company only prepare the balance sheet not the income statement. Balance sheet help investor in
identifying that it need to invest in that particular company or not.

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