Financial Analysis of Radisson PLC

This assignment presents a comprehensive financial analysis of Radisson PLC. It examines the company's profitability, liquidity, and asset utilization. The report suggests strategies to enhance financial performance, such as selling unproductive assets, issuing shares, and investing in profitable projects. It also highlights the importance of financial planning for optimizing resource allocation.

MANAGING FINANCIAL
RESOURCES AND DECISIONS

Table of Contents
INTRODUCTION...........................................................................................................................3
A) sources of finance.................................................................................................................3
A) implication of sources of finance..........................................................................................3
B) Evaluation of sources of finance............................................................................................4
TASK 2............................................................................................................................................5
A) Analyse the cost of finance...................................................................................................5
B) Importance of financial planning...........................................................................................6
B) Information needs of financial decision making....................................................................6
C) Impact of finance on financial statements..............................................................................7
TASK 3............................................................................................................................................7
A) Analyse Importance of Budgeting........................................................................................7
B) Calculation of unit costs and pricing decisions......................................................................9
C ) Assess viability of project...................................................................................................10
TASK 4..........................................................................................................................................11
A) Financial statement of Radisson PLC.................................................................................11
B) Compare different formats of Financial statements.............................................................12
C) Ratio of both the companies.................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Finance is that element in business which acts as a fortune teller which predicts about the
uncertain changes taking place in near future. It provides a clear direction to an enterprise to
move ahead in future by defining all its actions to be taken. Radisson PLC has been selected for
this project which is a medium based enterprise who takes new business project of launching
new software Bespoke to facilitate all other companies in UK. This report is all about defining
different sources of finance and its implications on business and also evaluation of its cost of
funding. Comparison is done of current organisation with another with the help of ratio analysis.
TASK 1
A) Sources of finance
Bank Loan- It is that sources of finance which is generally available for an enterprise for
long term purpose with higher amount. Radisson PLC can take this source of finance to
accomplish its business requirement of acquiring the long term business project of launching
new software. The existing conditions will be helpful for an enterprise to take loan as they are
not novice player in the industry and bank can easily trust the company (Fletcher, 2016). The
current image of an enterprise is facilitative for this organisation to take higher amount of loan
with less interest rate as they negotiate with the bank to maintain long term relationships.
Retained earnings- It is another source of financing in which company can make use of
its existing profits which has been kept in a reserve after giving dividends to all its shareholders.
It is an equity sources of financing in which an enterprise will utilize its internal finance to
source its external business project or any kind of business expansion. It is the cheapest mode of
finance than compare to Bank loan in terms of interest rates and all (Kostova and Nell, 2016)
other bank charges. The retained earnings' ratio will depict the internal ability of a venture to
generate higher net income to keep larger sum as a reserve.
A) Implication of sources of finance
Positive effects of bank loan
It helps in fulfilling business need to source all its business requirements by perceiving the
current ability of a venture to grant higher amount of loan.

It helps in tax planning in an enterprise as a person can take tax deductions due to the
involvement of bank loan as a source of funds.
Negative effects of bank loan
 Taking bank loan is not an easy job as it involves complexities in taking bank loan as the
business needs to give collateral security as per the standard guidelines of a bank before
sanctioning the loan. Guarantors need to be arranged by the business as the bank cannot
give their valuable to any strangers as they can be defaulters.
Advantages of retained earning
It is that sources of finance which is also helpful for an enterprise for increasing its growth as it
involves capital for improvements and expansion to remain competitiveness.
It is beneficial for an enterprise to increase their overall return on investments and shareholders’
equity as it enhances the value to pay good amount dividends to its existing shareholders.
Disadvantages of retained earning
 It results in higher amount of taxes in terms of state and federal taxes to be paid which is
not beneficial for an enterprise (Coronel and Morris, 2016). The higher profiteers
generated to maintain the retained earnings will deteriorate the earnings of an enterprise.
 It also increases the dividends in order to maximise retained profits the company is not
able to pay off all its shareholders adequate dividends and maintain an adequate amount
of retained profits in an enterprise.
B) Evaluation of sources of finance
Bank loan- It is that sources of finance in which amount can be borrowed for defined
period within an agreed repayment schedule (Evans and Porter, 2010). This repayment amount
will be dependent on the size and duration of the loan and the rate of interest rates. The amount
of interest can be higher or lower depends on the amount taken by Radisson to fund its business
requirement. Due to the involvement of interest rate it is not a bad source of finance as it
involves several benefits. One of the benefits is that it is a suitable part of the financial structure
of an organisation as it tends to be more available for well established and growing businesses. It

is helpful for an enterprise to established track record of profitability to repay the loan amount
and the interest.
Retained earnings- It is suitable form of sources of finance as it one of kinds of equity
which lends ownership to a person to use for any business purpose as it does not involve any
kind of costs of using such as interest rates in the bank loan (Fletcher, 2016). It is beneficial but
it is suitable in case of profit generated by an enterprise.
It has been observed from the valuation of both the sources of finance such as bank loan
and retained to fund its business requirements. The most appropriate sources of finance are Bank
loan as it is helpful in healing bad financial health of an enterprise as compare to the retained
earnings.
TASK 2
A) Analyse the cost of finance
Bank loan
It is one of a kind of debt financing which is renowned as cheaper source of financing as
compare to equity as sources of financing (Kostova and Nell, 2016). The basic costs involve in
using this sources of finance is the amount of high interest rates and principle amount taken by
the borrower from bank. . The different rates of interest rates are decided by every bank for
taking loan which may be increasing and decreasing such as 6%, 10%, 13% as the bank follows
differential interest rates for business corporate to promote higher amount of borrowing in the
form of loan. Other bank charges such as commission, agent fee, and legal fee in forming legal
agreement of sanctioning bank loan, stationery charges, changing of interest rates (Hosain,
2016). The higher interest rates are due to the selection criteria adopted to charge interest on
loans by using compound interest method instead of simple rates of interest.
Retained earnings
The basic cost involved in retained earnings is the amount of dividend to its existing
shareholders to retain them in an enterprise to achieve its business expansion project in the given
time. The amount of taxes get increases when the amount of profits gets increased which in turn
also enhances the amount of dividends. The increasing dividend will deteriorate the business
project as the whole project is depended on the amount of the retained earnings.

B) Importance of financial planning
Financial planning is a process of framing objectives policies, procedures, programmes
and budget to monitor the financial activities of an organisation (Hira, 2016). This ensures
effective and adequate financial and investment policies of a venture. Following are the
importance of financial planning in Radisson PLC is given below:
 It helps in ensuring that adequate funds should be allocated to all the business activities.
 It is helpful in maintaining reasonable balance between cash inflow and outflow to find
out the available balance of an enterprise.
 Financial planning make sure that fund is easily investing in companies.
 It is important element of business expansion and overall growth programmes are
conducted to enhance the survival of the company.
 It is a forecasting tool which reduces the uncertainties with regards to changing market
trends which can be faced by arranging enough funds.
B) Information needs of financial decision making
There are various decisions makers within the business of Radisson PLC which are given below:
 Suppliers – Suppliers would like to maintain healthy business relations with the
company (Fletcher, 2016). They expect that business should give them timely payments
for the supply of all inputs and raw materials.
 Creditors – These are the ones who own credit from the firm. Creditors show their
interest in evaluating the financial position of business because they want to know
whether organization has the ability to pay back the credit or not.
 Employees – These people take decisions related to their career opportunities and growth
within the organization. They want to work with a name which has a good name and
which operates on a high scale.
 Customers – These customers are interested in the products and services offered by the
company. For the last 10 years, Sweet Menu has developed a very solid reputation among
its customers with regard to food quality and taste.

 Tax authorities – These authorities make sure that company is making timely payment
of taxes or not. These bodies also make sure that there should not be any illegal tax
avoidance from the side of company.
C) Impact of finance on financial statements
Bank Loan- This source can increase the value of liabilities under the balance sheet. The
amount of capital will also increase as the new sources of finance will be added in the overall
capital of the business (Evans and Porter, 2010). This event is likely to be recorded under the
heading of cash flow from financing activities in the cash flow statement. Bank loan is also
reflected in the cash flow statement of Radision PLC which is prepared to identify the actual
cash balance of an enterprise to repay all its short term obligations arises in the form of current
liabilities. However, interest applied on the loan amount will be recorded in the profit and loss
account.
Retained earnings -It will create an impact on the balance sheet that also affects reserve &
surplus (Ehrhardt and Brigham, 2016). Retained earnings is part of overall profit generated by an
enterprise which is a remaining amount after paying off all its existent shareholders in the form
of dividends. This activity will be recorded under the heading of cash flow from investing
activities within the cash flow statement. The profit and loss statement will also be affected due
to the retained earnings.
TASK 3
A) Analyse Importance of Budgeting
Budgeting is the process of creating a plan of spending money in the organisations. It is
prepared to review performance of an enterprise by monitoring all its incomes and expenses and
maintaining a balance among them (Davies and Drexler, 2010). Following are the importance of
budgeting which is given as follows:
 It gives complete control over the money of a company by controlling its spending
 It is helpful in focusing on the financial goals set up by an enterprise
 It is used to find out variances that can be helpful in enhancing overall performance

Illustration 1: Cash budget
§
A cash budget is prepared in an enterprise which is the summary of overall business
transactions which take place in normal course of business. It is a plan of expected cash receipts
and cash outflows during the given period.
Interpretations
Loss trend has started from the very beginning as the amount produced is lower than the
amount spent. Company’s condition was not improved in February and March but the amount of
losses decreased month to month (Ehrhardt and Brigham, 2016). After achieving good profits,
the level of losses again ranges to peak and disturb the financial conditions of the company. This
cash budget shows the inability of organization as it generates big amount of losses in all the
months except one that is April.

B) Calculation of unit costs and pricing decisions
Cost plus price- It is one of the common methods used in every enterprise where profit
plays a significant role in determining the success path of an organisation. It is that kind of
pricing technique which is used in every enterprise where adequate percentage of profit is
included in the selling price of product.
Table 1: Calculation of unit costs
Particulars Cost
Variable cost
Direct material 15000
Direct labour 12000
Direct Expenses 10000
Total Variable cost 37000
Fixed overhead cost 12000
Labour 4000
Overhead 2000
Total fixed cost 18000
Total cost 55000
Marginal costing: It is that type of tool that makes use of only variable cost and adds desired
profit percentage to the selling price (Coronel and Morris, 2016). Identification of selling price as
per this technique is incomplete as it will not take into consideration the total cost involved in the
firm. Total cost of business consists of both the costs that are variable and fixed.
Table 2: Calculation of selling price
Cost per unit (CPU) Selling price (SP)
Marginal costing = TVC/ number of units
= £37000/4000 units
= £9.25
= £9.25 + (£9.25*20%)
= £9.25 + £1.85
= £11.1

Absorption costing = TC/ number of units
= £55000/4000 units
= £13.75
= £13.75 + (£13.75*20%)
= £13.75 + (£2.75)
= £16.5
Absorption costing: This is the tool which considers both fixed and variable cost and adds mark
up to total cost for deciding the selling price (Davies and Drexler, 2010). Mark up cost is the
amount of profit percentage in the overall selling price offered to the public for purchasing
product.
C) Assess viability of project
Payback Period
Illustration 2: Calculation of cash flow

Project A= 254000/250000
=1.016 years
Interpretations
From the above analysis, it has been observed that the payback period of current project
is 1.016 years which is a good sign for the company
NPV
Interpretations

The project generated negative NPV which will not be considered as negative cash flows
and it is danger alarm for business (DaDalt and Coughlin, 2016). So, the project should not be
selected as it has negative cash flow.
TASK 4
A) Financial statement of Radisson PLC
There are different kinds of financial statements prepared by an enterprise especially
Radisson PLC which helps in determining their actual financial position in the complex and
tough business situations are:
 Balance sheet: Company prepare accounts as per international accounting standard
provision to know their financial position. It includes heads such as fixed assets, current
assets, current liabilities, non-current liabilities as well as shareholder's equity. The
format of balance can be different for the distinct firms.
 Profit and loss account: It is the statement which includes income earned and expenses
in a financial year (Fletcher, 2016). This is prepared on yearly basis so that Morrison can
gain insight to its profitability position. It is prepared by the partnership firms and
companies.
 Cash flow statement: It is the statement which demonstrates cash inflow and outflow of
Morrison from operating, investing and financing activities. It is usually prepared by
companies as it is not compulsion on partnership firms and sole business.
B) Compare different formats of financial statements
There are different types of businesses which can differ according to their size, area of
location, goods and services in which the company deals. The basic intention to start the business
by selecting appropriate stream or a field is as follows:
 Sole proprietors- Sole trader is one form of business that is managed by a single
individual. It includes preparation of profitability statement and cash flow account
without following any legislation (Jorgensen and Rotter, 2016). In contrast to this,
Radisson that is public limited company has to prepare balance sheet, profit and loss
account as well as cash flow statement in accordance with the international financial
accounting standards.

 Limited liability- It is one of the common division of a company where the investors or
the promoters of the firm take the initiative to start the company and investing money.
The investors are liable for the amount invested by them in the business. Balance sheet is
the common financial statements prepared by this type of the firm to protect interest of
shareholder.
C) Ratio of both the companies
Ratios TESCO PLC Radisson PLC
NP ratio 1.53% 1.52%
Asset turnover ratio 1.27% 2.50%
Return on equity 6.21% 5.00%
Current ratio 0.73 0.78
Inventory turnover 16.27 18.7
Interpretations
From the above, comparison among both the companies is done on the basis of applying
ratio analysis technique. The profitability is higher in Tesco as compare to Radisson. The return
on equity is higher in Tesco as compared to Radisson. When it comes to current ratio, the
existing business of Radisson PLC will prove beneficial for an enterprise in paying off all its
short term obligations (Kostova and Nell, 2016). The higher inventory turnover also reflects the
ability of current organisation to generate large amount of profit in terms of increasing its skills
and abilities in producing wide number of sales and revenue.
CONCLUSION
From the above report it can be concluded that Radisson PLC needs to sell unproductive
assets and issue shares to generate the fund. Further, it can be inferred that financial planning
facilitates optimum use of monetary resources to the large extent. It can be stated that Radisson
PLC needs to make investment in the above project which proves to be more profitable for it. It
can be revealed from the report that net profitability and liquidity position of Radisson PLC is
sound. Business unit needs to undertake effectual measures to improve their gross profitability.

REFERENCES
Books and Journals
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Cengage Learning.
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InThe Financial Development Report 2010. Geneva and New York: World Economic
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Ehrhardt, M. and Brigham, E., 2016. Corporate finance: A focused approach. Cengage
Learning.
Evans, M. and Porter, R., 2010. Real estate financial reporting and accounting. Journal of
Property Investment & Finance. 28(5). Pp. 105-111.
Fletcher, F., 2016. Solutions: Business Problem Solving. Routledge.
Hira, T. K., 2016. Financial Sustainability and Personal Finance Education. Springer
International Publishing.
Hosain, M. S., 2016. Impact of Best HRM Practices on Retaining the Best Employees: A Study
on Selected Bangladeshi Firms. Asian Journal of Social Sciences and Management Studies.
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Jorgensen, P. W. and Rotter, 2016. Ecosystem services assessments in local municipal decision
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Kostova, T., Nell, 2016. Understanding Agency Problems in Headquarters-Subsidiary
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Online
Advantages and Limitations of Ratio Analysis, 2014. [Online]. Available through: <
http://accountingexplained.com/financial/ratios/advantages-limitations>. [Accessed on 24th
September, 2016].