Project Of Sweet Menu Restaurant - Sources Of Finance & Implications

Added on -2020-02-05

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ManagingFinancialResourcesand Decisions
TABLE OF CONTENTSIntroduction......................................................................................................................................3Task 1...............................................................................................................................................3Sources of Finance.......................................................................................................................3Implications of Sources of Finance .............................................................................................4Appropriate Source of Finance....................................................................................................5Task 2...............................................................................................................................................5Cost of Sources of Finance..........................................................................................................5Importance of financial planning.................................................................................................6Information Needs of different decision makers.........................................................................7Impact of sources of finance on financial statements..................................................................7Task 3...............................................................................................................................................8Analysis of Budget.......................................................................................................................8Calculation of Unit Cost..............................................................................................................8Investment Appraisal Techniques................................................................................................9Task 4.............................................................................................................................................11Financial Statements..................................................................................................................11Comparison of formats of financial statements for different business......................................12Interpretation of Financial Statements using ratio analysis.......................................................12Conclusion.....................................................................................................................................16References......................................................................................................................................172
INTRODUCTIONFinance is the basic need of an organisation to run a business. An organisation needssufficient funds to achieve their organisational goals. Besides this, the important function of theorganization is to manage funds because proper fund management will lead the companytowards success and improper management will have negative impact on the working andefficiency of the company (Rigby, 2011). Thus, company must take proper measures formanaging financial resources and it should exercise due care while taking decisions so that it willhelp the company to grow. Sweet Menu Restaurant Ltd. is a reputable restaurant in East London.Partners of the organisation are planning for expansion of business and for the same, they requirefunds. The Current project gives description about various sources available for fund raising,their implications, cost associated with them, what factors are required to be considered whiletaking decisions in selecting sources of finance. In addition to this, it also evaluates the financialstatements including ratio analysis and takes the decision on the basis of study done above.TASK 11.1 Sources of FinanceSweet Menu Restaurant Ltd. needs to raise funds for the purpose of expanding business.For the same, following sources are available from where funds can be raised. These are dividedinto two parts such as internal and external-Internal sources of financeWorking Capital AdjustmentWorking capital refers to current assets and current liabilities of the company which helpin meeting short term requirements (Dlabay and Burrow, 2007). Thus, management can raisefunds by making adjustments in its working capital by either delaying payments to its suppliersor receiving amount from its debtors before due date of their payment or by reducing the stocklevel.Sale of AssetsFunds can be raised by the company by selling its assets which are of less use or no usefor the company or instead of selling the same, company has an option to give the asset on leasefor receiving lease rentals against it (Komissarov, 2014).3
Retained Earning Profits re-invested by the company in the business instead of distributing it to variousstakeholders is termed as retained earnings (Booker, 2006). Sweet Menu Restaurant Ltd. canraise funds by using retained earnings as it isprofits which are not used by business.External sources of finance Equity Equity refers to capital of owners. Sweet manu can raise funds either through fresh issueof shares or by increasing existing share capital receiving amount from shareholders. Issuingshares in return entitling them a share in the earnings of the company or by entitling them therights over payment of dividend before ordinary shareholders (Fridson and Alvarez, 2011).Debt Funds can be raised from financial institution or any third party by paying them certainfinancial cost for a definite period in the form of interest. These can be in the form of loans,debentures, bonds, borrowing from friends, etc., thus Sweet Menu Restaurant Ltd. use debtsources for raising funds (Magner and et. al., 2006).Bank OverdraftBank overdraft is when banks give facility to its customers to withdraw amount morethan available balance from their current accounts. A limit is fixed by the banker upto which thecustomer can overdraw from its account (Gudov, 2013).1.2 Implications of Sources of Finance Sweet Menu Restaurant Ltd. has various sources available to raise funds, but each sourcewill have its different implication on working and growth of the company and further it has itsadvantages and disadvantages (Gotze, Northcott and Schuster, 2015). Like, equity capital whenincreased will increase wealth of the company but it may make reduction in the per shareearning., dividend to be distributed will be increased and Control of theSweet Menu RestaurantLtd. may be in many new hands with increase in shareholders. On the other hand, debt funds if used to raise funds will increase long term obligations ofthe company with increase in finance cost and will affect the profitability of the company. There4

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