Financial Planning and Analysis

This assignment focuses on financial planning and analysis. Students will examine various financial ratios and their significance in evaluating business performance. The importance of personal financial planning is also discussed, highlighting budgeting strategies and the impact of financial decisions. The assignment encourages students to understand the principles and applications of financial management in both individual and organizational contexts.

MFRD

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Identifying the sources of finance which are available to a business...............................1
1.2 Assessing the implications of the different sources of finance........................................2
1.3 Evaluating the most appropriate sources of finance for the organization........................4
TASK 2............................................................................................................................................5
2.1 Analyzing the cost of different sources of finance...........................................................5
2.2 Stating the importance of financial planning for Sweet Menu Restaurant.......................5
2.3 Assessment of the information needs of different decision makers.................................6
2.4 Stating the impact of sources of finance upon financial statements of an organization...7
TASK 3............................................................................................................................................8
3.1 Analysis of budget and decisions based upon it...............................................................8
3.2 Calculation of unit cost and making suitable pricing decisions.......................................8
3.3 Assessing the viability of two projects by undertaking investment appraisal techniques9
TASK 4..........................................................................................................................................12
4.1 Discussing the main financial statements.......................................................................12
4.2 Comparing the formats of financial statements of different types of business..............13
4.3 Interpreting the financial statements of Sweet Menu and Blue Island restaurant by using
ratio analysis.........................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Financial resources may be defined as money which is available in business organization
for spending in the most profitable investments. It refers to input for the production process and
thereby helps in fulfilling the organizational goals and objectives (Managing Financial
Resources and Decisions, 2013). In this, finance manager of an organization plays a vital role in
making optimum utilization of resources to the large extent by framing sound strategies and
policies. This project report is based upon Sweet Menu Restaurant Ltd which is the most
reputable restaurant and situated in Gants Hill in East London. The restaurant is planning to open
its new branches in Central London and Croydon. This report will discuss the sources which are
available to restaurant along with their implications. It also depicts the importance of financial
planning for restaurant in relation to their expansion project. Besides this, it also develops
understanding about the investment appraisal techniques which help in making suitable
investment decisions.
TASK 1
1.1 Identifying the sources of finance which are available to a business
There are several internal and external sources of finance that are available for Sweet
Menu Restaurant. It includes retained earnings, issuance of shares and debenture, bank loan,
leasing as well as friends and family members. By undertaking such sources of finance, company
is able to meet their financial needs and expand their business operations as well as functions.
Sources of finance which are available for Sweet Menu Restaurant are enumerated below:
Sources of finance Features
Internal sources of finance
Friends and family members By approaching friends and family members,
Sweet Menu Restaurant can meet its financial
needs or requirements. For this, company
requires to give shareholding to their loved one
in an organization.
Retained earnings Each and every organization keeps the fixed
percentage of profit with itself for
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contingencies which will arise in near future
(Dada, Azim and Ullah, 2014). It is the cost
effective source of finance which helps
organization in meeting financial needs for the
expansion project.
External sources of finance
Issuance of shares and debentures It is another important source of finance which
helps company in meeting their financial
needs. Company can easily raise finance by
issuing equity shares and debenture to their
existing and potential investors. Through this,
company is able to open new restaurants in
Central London and Croydon without facing
financial crisis.
Bank loan Company can meet its financial requirement by
approaching bank for loan on the basis of
financial security. It provides tax benefit to the
organization and thereby, they can increase the
profitability aspects (Copeland and Dolgoff,
2011).
Leasing Leasing is the best external source of finance
which provides opportunity to make the use of
asset for the productive purposes without
making huge investment on it. Leasing acts as
safeguard for company in relation to the
obsoletation of technology.
1.2 Assessing the implications of the different sources of finance
Different source of finance places different impact upon Sweet Menu Restaurant in the
following manner:
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Sources of finance Legal aspects Cost Suitability
Friends and family
members
In this, Sweet Menu
Restaurant requires to
give shareholding to
their friends and
family member in
business. In addition to
this, Sweet Menu does
not require to repay
the amount of
financial assistance
angel investors within
the lifetime as per the
laws and legislation.
Friends and family
members are also the
shareholders of the
organization. Thus,
company needs to give
dividend to their
shareholders which
impose financial cost
in front of them.
Usually, friends and
family are ready to
give financial support
to their loved one.
Thus, organization can
easily meet their
financial needs
without any official
formalities.
Retained profit According to the legal
aspect, organization
requires to keep a
fixed percentage of
profit with itself.
Through this, they are
able to meet the
contingent situations
or aspects more
effectively and
efficiently.
If Sweet Menu
restaurant undertakes
retained earnings to
meet their financial
requirement then they
are not in position to
face uncertainty which
will arise in near
future. When company
make use of retained
earnings to meet their
financial need then
they does not require
paying interest to an
organization. Thus,
restaurant can easily
It is the most suitable
source when company
wants to limit the
interference of
shareholders in
decision making
aspects.
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meet its financial
needs without
incurring any financial
cost.
Issuance of shares and
debentures
In case of issuance of
shares, shareholders
have right to
participate in decision
making aspects.
Whereas, in the case
of debenture, holders
have no right as
shareholder possesses
and the liability of the
firm is limited to the
payment of interest as
per the legal
regulations.
In shares, organization
requires to give
dividend to their
shareholders if
company has made
sufficient amount of
profit. Whereas, in
case of debentures,
company needs to
provide periodical
interest to holders
which reflect financial
cost in front of
organization.
Company can raise
finance by offering
shares and debentures
to their existing and
potential shareholders.
It is the most effective
way which can help
restaurant in meeting
their financial
requirements.
Bank loan In bank loan, financial
institution has right to
cease the asset of
restaurant, if they
make default in the
payment of loan and
interest (Murphy and
Yetmar, 2010).
For financial
assistance, bank
charges high interest
rate which imposes
financial cost upon
company.
Tax benefit is the main
aspect which attracts
restaurant to meet their
financial requirement
through bank loan.
Leasing As per the laws and
legislation, company
needs to return the
asset to its real owner
In leasing, restaurant
needs to pay periodical
rent to the owner of
asset which imposes
In the dynamic
business environment,
changes take place
more frequently. Thus,
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after the
predetermined time
period.
high financial cost in
front of company
leasing is the most
suitable source which
protects company from
absolution.
1.3 Evaluating the most appropriate sources of finance for the organization
On the basis of implication of different sources of finance, bank loan is the most suitable
sources for the expansion plan. Through this, Sweet Menu Restaurant can easily meet their
financial needs. Usually, banks are always ready to give loan on the basis of collateral security.
In addition to this, for bank loan, Sweet Menu Restaurant requires to repay the amount of loan in
the form of installments. Easy installment payment system reduces financial burden from the
company (Orens and et. al., 2009). Besides this, bank loan also provides tax benefit to an
organization. In addition to this, interest rate which is charged by bank for financial assistance is
lower than the other commercial institutions and private money lenders. On the basis of all these
aspects, restaurant needs to undertake bank loan to expand their business activities and
operations to the large extent.
TASK 2
2.1 Analyzing the cost of different sources of finance
Sweet Menu restaurant have undertaken retained earnings and bank loan to meet their
financial needs or requirements for the expansion of restaurant. Thus, different sources of
finance impose different cost upon Sweet Menu restaurant in terms of financial and opportunity
cost. Both cost having high level of impact upon the growth and profitability aspects of
restaurant which are as follows: Financial cost: Financial institution or bank imposes high financial cost in front of Sweet
Menu restaurant. For the financial assistance bank charges high interest rate which reflect
financial cost in front of an organization (Overton, 2007). In addition to this, restaurant
also requires repay the loan in terms of installment. This aspect also affects the
profitability or liquidity aspect of an organization.
 Opportunity cost: It refers the loss which organization has to bear due to the selection of
another alternative. If Sweet Menu Restaurant undertakes bank loan to fulfill their
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financial needs then liability side of an organization increases. This aspect places
negative impact upon their shareholders that company does not enough funds to meet
their financial needs or requirements.
Thus, financial and opportunity cost have high level of influence upon the organizational
growth and development.
2.2 Stating the importance of financial planning for Sweet Menu Restaurant
Financial planning may be defined as a process which enables organization to make
sensible and profitable financial decisions. By preparing effective financial plan Sweet Menu
Restaurant is able to make contribution in the organizational growth and development.
Importance of financial planning:
 Financial planning plays a vital role in coordinating the activities of different department
within an organization. In addition to this, it also provides deeper insight to Sweet menu
about the fund which is available within the business organization (Rasid, 2014).
 It provides assistance to restaurant in relation to the funds which they are required to raise
from the other sources of finance.
 Along with it, financial planning also facilitates optimum utilization of financial
resources to the large extent.
 Further, financial planning helps sweet Menu Restaurant coping up with the future needs
or contingencies by anticipating the sales and growth aspect (The Importance of Personal
Financial Planning, 2015). Thus, financial planning is more important with the aim to
achieve success in the competitive business area.
2.3 Assessment of the information needs of different decision makers
Different types of stakeholder require different information to make effective decisions
which are as follows:
Decision makers Information need
Manager Finance manager of an organization undertakes
income and cash flow statement to assess the
income as well as liquidity position of an
organization. In addition to this, they also
make assessment of balance sheet which
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provides deeper insight to them about the
financial performance of an organization.
Through this, they are able to frame
appropriate financial strategies and policies
(Tracy, 2012).
Shareholders They undertake ratio analysis to assess the
profitability, liquidity and solvency aspect of
an organization. Through this, shareholders are
able to make suitable investment decision
because dividend aspect is highly dependent
upon the financial performance of an
organization.
Bank or financial institutions Financial institutions make assessment of
balance sheet of an organization. Through this,
they are able to assess the capacity of
restaurant that they are able to repay the
amount of loan within the suitable time frame.
Employees Employees are highly interested in the income
statement of an organization. Moreover,
financial growth of the employees in terms of
incentives and bonuses are highly dependent
upon the profitability aspect of restaurant.
2.4 Stating the impact of sources of finance upon financial statements of an organization
Different sources of finance impact differently the financial statements of an
organization. Each and every source of finance having impact upon the financial statements of an
organization. Thus, restaurant needs to take care while selecting the sources of finance for the
business. Sweet Menu restaurant have undertaken bank loan and retained earnings to meet their
financial (Valle and Gomes, 2014). For instance: Sweet Menu Restaurant has undertaken the
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bank loan 300000 @ 15% per annum. In this situation the bank loan have impacted the income
statement and balance sheet in the following manner:
Profit and loss a/c
Particulars Amount (In £) Particulars Amount (In £)
To Interest a/c 45000
In the case of bank loan Sweet Menu Restaurant requires to pay £45000 as an interest.
This aspect closely affects the profitability aspect of an organization.
Balance Sheet
Liabilities Amount (In £) Assets Amount (In £)
Bank loan 300000 Bank 300000
In balance sheet, liabilities side has increased with the amount of £300000 because bank
loan is the liability for an organization. They are required to repay the amount of loan after the
predetermined time period. Besides this, asset side of an organization has also increased with the
amount of £300000.
TASK 3
3.1 Analysis of budget and decisions based upon it
Budget may be defined as tool which reflects the income which organization will
generate over the period of time. In addition to this, it also contains the expenses which company
will incur during the predetermined time period (Wahlen, 2011).
On the basis the cited cash budget it has been assessed that sales revenue of an
organization shows fluctuating trend in their performance. Which is may cause behind the deficit
arouse in cash balance. Nevertheless, in the month of December sales revenue of Blue Island
Restaurant is improved as compared to previous months. In addition to this, expenses of an
organization are also increasing. Thus, during September to December outflow of an
organization is higher than its inflow. Thus, organization needs to frame competent strategies
and policies to maximize the sales revenue. Whereas, in December inflow of organization is
increasing that is the positive sign for an organization. This reflects that policies and strategies
which are reformed by Blue Island are very effective. By following effective strategies Blue
Island restaurant is able to attain success in the strategic business arena.
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3.2 Calculation of unit cost and making suitable pricing decisions
Unit cost refers to the expenses which are made by an organization in order to produce
the product or services.
Pricing decisions: Price refers to the summation of cost and fixed percentage of profit. Through
this, Blue Island restaurant is able to cover their expenditures and thereby able to make profit
(Al-Bakri, Matar and Nour, 2014).
Name of Items Costs (In £)
Steak 3
Vegetables and other ingredients 1.5
labor 3.5
Overheads 2
Total Costs 10
Mark Up (40%) 4
VAT (20%) 2
Selling Price 16
Profits (Sales - Cost) 6
Food cost percentage = Total costs of ingredients/Sale prices
Food cost percentage = 10£/16£*100
Food cost percentage = 62.50%
Profit percentage on sales = Profit/sales prices*100
Profit percentage on sales = 6£/16£*100
Profit percentage on sales =37.5%
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On the basis of the above aspect the total cost of the product is £10 whereas restaurant
charges £16 for the meal. This aspect reflects that Sweet Menu earned £6 from per customer. The
percentage of cost on sales is 62.50% whereas profit percentage is 37.5%.
3.3 Assessing the viability of two projects by undertaking investment appraisal techniques
Investment appraisal technique may be defined as a tool or technique which helps
organization in assessing the reliability or viability of project (Batta, Ganguly and Rosett, 2014).
It includes payback period and net present value method which provides assistance to Blue
Island restaurant in making suitable investment decisions.
Calculation of Net Present Value:
Proposal 1:
Year Cash Inflow
PV Factor
@10% Discounted cash flow
1 £800 0.909 £727
2 £600 0.826 £496
3 £400 0.751 £300
4 £200 0.683 £137
5 £50 0.62 £31
Residual value £0.00 0.62 £0.00
Total Discounted
cash flow £1,691.00
Less: Initial
investment £1,200
Net present value £491.00
Proposal 2:
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Year Inflow
PV Factor
@10% Discounted cash flow
1 £300 0.909 £273
2 £400 0.826 £330
3 £500 0.751 £376
4 £600 0.683 £410
5 £500 0.62 £310
Residual value £50 0.62 £31
Total inflow £1,729.00
Less: Initial
investment £1,200
Net present value £529.00
On the basis of above figures it has been assessed that Blue Island restaurant requires to
select proposal 2 which proves to be more profitable for restaurant. In proposal 2 restaurants gets
higher return in terms of £529 as compared to proposal 1in which net present value of project is
£491 after the five years. Net present value method undertakes time value of money concept
which provides deeper insight to an organization about the viability of project.
Payback Period:
Proposal 1:
Year Inflow Cumulative inflow
0 -£1,200 -£1,200
1 £800 -£400
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2 £600 £200
3 £400 £600
4 £200 £800
5 £50 £850
Residual Value £0 £850
Payback Period 1.5 Years
Proposal 2:
Year Inflow Cumulative inflow
0 -£1,200 -£1,200
1 £300 -£900
2 £400 -£500
3 £500 £0
4 £600 £600
5 £500 £1,100
Residual Value £50 £1,150
Payback Period 3 Years
As per the above calculation Blue Island Restaurant will cover its initial investment
within 1 year and 5 months if they select proposal 1. On other hand, in proposal 2 restaurants
will take 3 years to recover their initial investment. According to the pay back restaurant should
select proposal 1 which helps them in cover their initial investment within short span of time.
After such period restaurant is able to make profit.
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On the basis of investment appraisal technique Blue Island Restaurant should select
proposal 2 on the basis of net present value. Moreover, net present value method is more realistic
and undertakes discounting factors. Through this, company is able to make suitable investment
decisions and thereby makes contribution in the growth and development of an organization.
TASK 4
4.1 Discussing the main financial statements
Financial statement refers to the record of financial activities which are performed by an
organization during accounting year. It includes income statement, cash flow statement and
balance sheet which provide deeper insight to an organization about their financial health and
performance. Main financial statement which each and every organization prepares is
enumerated below: Income statement: This statement provides information about the income which
generated by an organization during their course of business. In addition to this, it also
contains information about the expenses which are made by an organization during the
financial year (Kwak and et.al, 2015). Income statement has two sides such as Income
and expenditure. Income side includes interest received, dividend receive etc. Whereas
expenditure side contains salaries, electricity expenses as well as office and other
miscellaneous expenditures etc. Through this, company is able to frame effective
strategies in relation to the raising income and decreasing expenses.
 Cash flow statement: It refers to the statement which provides insight about the inflow
and outflow of cash. It is also knows statement of cash flow who helps firm in making
further investment decisions. Cash flow statement is divided into three parts such as
operating, investing and financing activities. Such activities provides information about
the following aspects:
a. Operating activities: Depreciation, office expenses etc.
b. Investing activities: Purchase and sale of assets etc.
c. Financing activities: Issuance of share, redemption of debentures etc.
 Balance sheet: It may be defined as summary statement of an organization which helps
organization in assessing their financial health and performance. Balance has two parts
such as assets and liabilities. Assets side includes currents assets and fixed assets such as
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furniture and fixtures, machinery, cash, debtors, bills receivable etc. Whereas liabilities
side refers to share capital, reserves, creditors, bills payable etc.
4.2 Comparing the formats of financial statements of different types of business
There is the significant difference between the formats of financial statements which are
prepared by the different type of business organization. Preparation and publication of financial
statements are highly dependent upon the type and nature of the business organization. Some
organization prepares their financial statement as per their requirement whereas some firms
prepare financial statements to meet the legal requirements. Formats of financial statement of the
different types of business organization are as follows:
Types of business Format of financial statements
Sole proprietorship firm Sole proprietors are those who individually
run their business organization. Sole traders are
highly concerned with the profitability aspect
which is generated by them during the fiscal
year (Lee and et.al, 2015). Thus, they only
prepare income statement which helps them in
assessing the income and expenses of their
business.
Partnership firm Partnership firm prepares all the financial
statement such as income and cash flow
statement as well as balance sheet to assess
their financial performance. Besides this, they
also prepare partners capital account which
provides information about the financial
activities of partner.
Public and private limited organization Public and private limited organization
prepares income statement, cash flow
statement and balance sheet to assess their
financial status and performance. In addition to
this, public limited organization needs to
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publish their financial statements in order to
build and maintain faith among the
stakeholders.
4.3 Interpreting the financial statements of Sweet Menu and Blue Island restaurant by using ratio
analysis
Ratio analysis may be severed as a tool which helps organization in assessing their
liquidity and solvency aspect (Booker, 2006). It helps organization in evaluating the
effectiveness of their strategies in against to their competitors:
Ratios Formula
Sweet Menu
Restaurant
Blue Island
Restaurant
Profitability ratio
Net Profit margin Net profit/sales 0.01 0.13
Gross Profit margin Gross profit/sales 0.63 0.66
Liquidity ratio
Current Ratio
Current assets/
current liabilities 1.78 0.63
Quick Ratio
Current assets –
Inventory/ current
liabilities 0.63 0.15
Efficiency ratio
Asset Turnover Net sales / net assets 1.79 2.4
Solvency ratio
Debt/equity ratio Debt/Equity 0.41 0.58
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 Profitability ratio: On the basis of the above ratio analysis it has been identifying that
profitability aspect of Blue Island Restaurant is sound as compared to Sweet Menu. Net
profitability aspect of Sweet Menu is .01 whereas NP of Blue Island is .13. In addition to
this, gross profitability of Blue Island is higher than the Sweet Menu. Thus, Sweet Menu
is required to undertake promotional strategies and campaign to improve its profitability
aspect as compared to its competitor.
 Liquidity ratio: Liquidity position of Sweet Menu is sound as compared to Blue Island
restaurant. Current and quick ratio of Sweet Menu is very close to the ideal ratio which
shows that sweet Menu is able to meet their current obligations from current assets.
Whereas liquidity position of Sweet Menu is poor thus they needs to frame strategies to
make improvement in their liquidity aspects.
 Efficiency ratio: this ratio shows that Blue Island have made optimum utilization of their
current assets in order to generate sales as compared to Sweet Menu. Thus, efficiency
ratio of Blue Island is higher than Sweet Menu.
 Solvency ratio: Debt equity ratio of both the restaurants is very far from the ideal ratio
which is 2:1. Thus, they need to raise their finance from equity shares rather than debt
sources.
CONCLUSION
From this project report it has been concluded that Sweet Menu Restaurant needs to
undertake bank loan and retained earnings for the expansion project. Besides this, it can be
inferred that financial planning plays a vital role in achieving success in the competitive business
arena. Further, it can be concluded that Blue Island Restaurant needs to select proposal 2 which
gives higher return to them in near future. It can be seen in the report that Blue Island Restaurant
is more profitable and solvent as compared to Sweet Menu. Thus, Sweet Menu is required to
frame sound strategies and policies in order to build distinct image in the mind of stakeholders.
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REFERENCES
Books and Journals
Al-Bakri, A., Matar, M. and Nour, A. N. I., 2014. The required information and financial
statements disclosure in SMEs. Small. 10. pp. 49.
Batta, G., Ganguly, A. and Rosett, J., 2014. Financial statement recasting and credit risk
assessment. Accounting & Finance. 54(1). pp. 47-82.
Booker, J., 2006. Financial Planning Fundamentals. CCH Canadian Limited.
Copeland, T. and Dolgoff, A., 2011. Outperform with Expectations-Based Management: A State-
of-the-Art Approach to Creating and Enhancing Shareholder Value. John Wiley & Sons.
Dada, A. O., Azim, M. S. and Ullah, M. S., 2014. The Imperatives of Innovative Sources of
Development Finance: Evidence from Nigeria. Research Journal of Finance and
Accounting. 5(14). pp. 62-66.
Kwak, H. S. and et.al., 2015. Prediction of fetal lung maturity using the lecithin/sphingomyelin
(L/S) ratio analysis with a simplified sample preparation, using a commercial microtip-
column combined with mass spectrometric analysis. Journal of Chromatography B. 993.
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Lee, J. D. and et.al., 2015. Detailed budget analysis of HONO in central London reveals a
missing daytime source. Atmospheric Chemistry and Physics Discussions. 15(16). pp.
22097-22139.
Murphy, D., S. and Yetmar, S.,2010. Personal financial planning attitudes: a preliminary study
of graduate students. Management Research Review. 33(8). pp. 811–817.
Orens, R. and et. Al., 2009. Intellectual capital disclosure, cost of finance and firm value.
Management Decision. 47(10). pp. 1536-1554.
Overton, R. H., 2007. An Empirical Study of Financial Planning Theory and Practice. ProQues.
Rasid, A. J. S., 2014. Management accounting systems, enterprise risk management and
organizational performance in financial institutions. Asian Review of Accounting. 22(2).
pp. 128–144.
Tracy, A., 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to
Analyse Any Business on the Planet. RatioAnalysis.net.
Valle, A., G., R., M. and Gomes, R., C., 2014. Analyzing the importance of financial resources
for educational effectiveness: The case of Brazil", International Journal of Productivity
and Performance Management. 63 (1). pp. 4 –21.
Wahlen, M. J., 2011. Financial Reporting, Financial Statement Analysis, and Valuation: A
Strategic Perspective. 7th ed. Cengage Learning.
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