Financial Management and Planning Concepts

This assignment delves into core financial management principles, including investment decisions, risk assessment, and financial planning strategies. It examines the role of stakeholder management and corporate governance in shaping financial outcomes. The analysis draws upon academic literature and real-world examples to illustrate key concepts.

MANAGING FINANCIAL
RESOURCES AND
DECISIONS

TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................................................1
TASK 1 ..........................................................................................................................................................................1
1.1 Identify the sources of finance............................................................................................................................1
1.2Assess the implications of sources.......................................................................................................................2
1.3Evaluation of most suitable sources of finance for Clariton Antiques Ltd..........................................................3
TASK 2...........................................................................................................................................................................4
2.1Analyse the cost of two sources of finance .........................................................................................................4
2.2Importance of financial planning in context of Clariton Antiques Limited.........................................................5
2.3Assesment of the information which will be required to make decision on financing........................................6
2.4Explain the impact on the financial statements of Clariton Antiques Ltd............................................................7
TASK 3...........................................................................................................................................................................7
3.1Analyse the cash budget ......................................................................................................................................7
3.2Calculation of unit cost and pricing decisions....................................................................................................10
3.3Evaluate the viability of proposed by using the technique of investment appraisals ........................................11
TASK 4.........................................................................................................................................................................14
4.1 Discussing the key components of financial statements ..................................................................................14
4.2Comparing the financial statements of the different kinds of business organisation.........................................15
4.3Interpretation of ratios .......................................................................................................................................15
CONCLUSION.............................................................................................................................................................19
REFERENCES .............................................................................................................................................................20

INTRODUCTION
Financial management can be defined as to manage the funds effectively and efficiently
so that it helps to achieve the goals of organisation. It includes the planning, controlling and
organising the financial activities and to use the resources of company in an appropriate manner.
Present report is based on the Clariton Antique Limited which was founded by four partners and
at initial stage it as started as an unincorporated business after that it has developed a reputation
in selling of antique items(Brigham and Houston, 2012). This report covers the different sources
of finance which are available to the business and to assess the implication of those resources.
Further, to evaluate the most suitable resources of finance for the stated organisation. There is
analysis of costs of the sources of finance which are used by the business and the significance of
financial planning for the cited business. Moreover, to assess the information which is required
in order to make the decisions on financing and the effects on the financial statements which are
used by Clariton Antiques Limited. It also includes the analysis of cash budget and decisions are
taken for improvements. At last, there are different key components of the financial statements
and to compare the different format which are used by Clariton Ltd.
TASK 1
1.1 Identify the sources of finance
Sources of finance can be of short term or long term that are found inside or outside the
business and it helps to expand the business. In order to identify the different sources of finance
which available to the business and it helps to increase the capabilities and strengthening of
finance of organisation. There are various sources of finance available to business and
categorized under internal and external sources that is consider by Clariton Antiques Ltm which
are described below:
Unincorporated business- In this type of business there is unlimited liability and it is established
by an individual or more than one people for taking different actions for the business. There is no
separate legal entity between the business and owner(Brigham and Ehrhardt, 2013). Flexibility is
major benefit at the time of dealing with taxes in this business and for decreasing the personal
income owner can handle the loss in business. Further, the internal sources of finance utilize by
owner in order to improve the current situations at workplace that are given below:
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Retained earnings- It is a types of sources of finance in which the company do not pay the
dividend but is is retain by the organisation for the purpose of invest it in business.
Venture Capital – It is another internal sources of finance which helps in funding the business
and the people are ready to take risk and external owner can invest in their business. Some of the
amount is provided to the owner of the entity which helps in returning a large demand of the new
business.
Incorporated business- In this type of business it provides various advantages over the
partnership and also includes the protection of different liabilities and deduction in the taxes.
This business is considered by laws which is beneficial for them for the purpose of operating in
business(Drechsler and Natter, 2012).
Partnership- It is also considered as an external sources of finance where the business staking
help from external business entity in order to expand the business and it is also profitable and
mutual agreement between both the parties.
Bank Loan- It is another source of finance which can be used by the stated business by taking
loan from financial institution which will be helpful for the business in order to expansion.
1.2Assess the implications of sources
For the purpose of analysing the appropriate sources of finance which is profitable for
business and its effect on the situations of the current business. It is important to select the
proper sources and for considering the kinds of costs included in order to use the sources.
Further, it is essential to identify the efficiency of the various resources so that it helps in
generating the economic benefits and the owner of entity invest for the purpose of growing
business. The implications of various sources that used by an individual for the business:
Criteria Venture capital Partnership Retained
Earnings
Bank Loan
Legal
Implication
It is considered as a
legalized source of
finance but use of it
is not legal due to
that it is not
In this source of
finance the
government also
support the parties
and consider them
In this type
source there is no
requirement of
legal formalities
and it only needs
In context of bank
loan, collateral
security is
considered as an
implication where
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registered at
law(DRURY, 2013).
as same. a resolution
which is to be
passed at the time
of annual general
meeting.
the business is
requires to secure
lending.
Financial
Implication
With the help of this
source it is a
capabilities for the
existing finance for
making improvement
in business entity.
There is financial
investment that is
generated and
imposed in the
business and for
meeting the
different
expenses.
Retained earnings
have less cost to
the business and
helps in order to
avoid the cost
related issues.
In this, financial
burden of loan
that is interest on
loan which can be
fixed or variable
for the business.
Control The control of the
business is imposed
on the venture
capitalist and
participative in the
business.
The partners are
equally involved
in the business
and profit and
loss of the
business is shared
among them as
per the terms and
conditions.
With the use of
retained earning it
helps in avoiding
the changes for
the shareholders.
In this, lenders or
debt holders can
not put any
restriction on the
activities of
business.
1.3Evaluation of most suitable sources of finance for Clariton Antiques Ltd
The advantages and disadvantage of the appropriate sources of finance for Clariton
Antiques Ltd are described below:
Venture capital
Advantages
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 Business expertise- With the help of venture capital it is obtained at the time of starting a
new business and profitable in context of guidance. It is also helpful in the different
decisions of business along with the management of finance. Connection- It is highly engaged in the various connection with the business and it is
beneficial for the entity(Hull, 2012).
Disadvantages Less control- This is one of the drawback in the equity financing that is connected with
the venture capital and there is decrease in the control due to the stake of venture
capitalist. There are various issues for taking decisions by which reduction In interest by
involving the management.
 Decision making- Due to the involvement of new people in business and they are
affected so that it leads to delay in the process of decision making.
It can be advised for Clariton Antiques Limited that the company requires support from
baking institutions in order to raise fund by taking loan from bank. It is considered to be the most
effective source of finance for achieving the goals and objectives. Furthermore, banks are ready
to provide collateral and secured loans to the business organisation. In context of this, by
approaching to financial institution the company can raise funds to higher extent. In this, there is
appropriate level of convenience to the business in terms of repayment of loan amount. Thus, it
also provide benefits in terms of tax so that with the use of this source business can implement
their plans of expansion in an effective manner.
TASK 2
2.1Analyse the cost of two sources of finance
Venture Capital - In order to establish the business so that the venture capitalist because they are
providing their essential resources of finance to the entity so that there is no risk in paying the
dividend. It is decided by both of the parties that the stake must be in a particular percentage by
the capitalist who are investing their financial resources for an individual(Baker and Ricciardi,
2014). Tax cannot be imposed on the new business and the support is provided to the venture
capitalist of the business. Along with this, for decrease in the burden of taxes it will also give the
guidance to the business from the outside pressure in context of legal aspects.
4

Bank Loan – If the stated business take loan from banking institution so that they are obliged to
pay the amount of interest to that specific financial institution. In such manner, this source has
some of the monetary cost to the organisation. However, this is considered as one of the most
important as well as effective that provides high level of benefits of taxes to the business entity.
Thus, through the issue of shares there are certain advantages to the business in terms of tax to a
greater extent.
2.2Importance of financial planning in context of Clariton Antiques Limited
Financial planning refers to the activities which are planned in an appropriate system in
context of money. It helps to establish programmes and the financial resources and the resources
are allocate in the process of strategic planning. Further, to manage all the resources which is
considered as an important techniques for the management of finance. Financial planning is an
important aspects for the business which is described below: Budgeting -It is important to make the budget for the company in order to forecast the
various expenses and other this which re required for the business. For making some of
the improvements in business so that the standard figures for making corrections that is
compared with the actual figures with respect to budget. It helps to make the targets and
for making plans of forward planning for the business(Hwang and Masud, 2012). Inadequate financing- Some of the financial resources are kept for the using it in an
appropriate manner for making the suitable improvement in the situations of existing
business. Further, there is also an impact of the inadequate financing that is to be solved
with the help of different approaches of financial planning.
 Overtrading- Trading is helpful in order to run the operations of business that enhance
the efficiency of the current business which is managed by them with the use of financial
resources. If there is increase in the level of performance so that the problem of
overtrading can be resolved.
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2.3Assesment of the information which will be required to make decision on financing
There are various types of financial implication which can have effect on the
performance of the business and to assess the various aspects while takeover from different
business which are described below:
Financial broker- This option is available for Clariton Antiques Ltd in order to raise the 0.52
million pounds for making the strong business and this used by them. The additional cost is also
used for proposal which is beneficial for them. The interest is also charged for the purpose of
taking loan which is due to the help of external financial broker. The bank is providing loans
according to the demand of the business and to charge interest is more than 2% in 10 years.
Thus, by using this approach the total expenses occurred in business is around 0.15 million
pound(Pedersen, Weissensteiner and Poulsen, 2013).
Venture Capitalist- For sourcing the business is is needed by Clariton Antiques Ltd as they have
the option of funding which is to be taken from the venture capitalist which will helpful in order
to achieve the objectives of business. The source of finance is regarded by the owner of entity in
order to know the different types of expenses so that they also give the capital to the business.
The demand of the capitalist is about the 20% stake in the new business as they also provide eteh
0.5 million pound for the funding in entity.
Partners- There is one of the advantage of the different partners in the business and the people
are investing the money for one main objective. The business is also registered with the law and
legal authorities. There are so many partners are exist in the firm such as active and other
partners who support the firm with their possible manner(Kuznetsov, Rawllin International,
2012).
2.4Explain the impact on the financial statements of Clariton Antiques Ltd
Financial statements are considered as an important part of the business and to record all
the position and activities of business in an appropriate manner. It helps to analyse the financial
performance of the business and on the basis of that they make improvements and changes in the
present conditions of the business. In the financial statements involves the cash flow statements,
financial position and the income statements. There are various sources of finance which have
impact on the financial statements of Clariton Antiques Ltd which are as follows:
6

Financial broker- This is one of the most used components by the business and it is considered
in the financial statements which is classified in the non-current liabilities that involves the debts.
There is also decrease in the sales and revenue which is generated by entity with the fees of
broker. The appropriate records of income statements and the financial position and interest is
also charged which reduces the profitability of the business(Agarwal and et.al., 2015).
Venture capitalist- The capital that is to be provided in the business which is also recorded in the
financial statements and it also helps to identify the financial performance of the external
business. It affects the profitability of entity which is included in the income statements of the
company.
TASK 3
3.1Analyse the cash budget
Cash budget can be defined as a plan of the expected cash receipts and payments at a
specific time period. The inflow and outflow of cash including the revenue which is collected,
expenses paid and the receipts and payment of loans. In short, it can be stated as a forecasted
projection of position of the business in new future. After performing the different activities in
context of Clariton antiques Ltd so that they are able to make efficient use of the financial
resources(Bąk, 2012).
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Clariton Antiques Ltd
CASH BUDGET FOR SIX MONTHS ENDING
30TH JUNE 2017
Details January£ February
£
March £ April £ May £ June £ Total £
RECEIPTS
Received in the
same month
15 22.5 30 15 15 37.5 101.25
Received in one
month
120 240 360 480 240 240 1680
Received in two
month
22.5 22.5 45 67.5 90 45 292.5
Total Receipts 157.5 285 435 562.5 345 288.75 2073.75
PAYMENTS
Payment to
suppliers
807.25 137.25 119.75 437.25 227.25 219.75 948.5
Shortage/ Surplus -649.75 147.75 315.25 125.25 117.75 69 125.25
Cash at the
beginning of the
month
110 -539.75 -392 -76.75 48500 166.25 110
Cash at the end of
the month
-539.75 -392 -76.75 48500 166.25 235.25 235.25
Interpretation
8

From the above mentioned cash budget of Clariton Antiques Ltd it can be inferred that
the position of the company is in the good position as compared to the rivals in the market.
Further this results shows that they have to increase in the speed of producing goods a per the
requirement of the customers. For minimising the cash outflow of the company they ave to
generate the inflow in that particular year.
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3.2Calculation of unit cost and pricing decisions
Particular Units Cost(£) Cost per unit (£)
Variable cost
Direct material 5000 20000 4
Direct labor 5000 15000 3
Direct expenses 5000 10000 2
Total variable cost 5000 45000 9
Fixed cost
Labor 5000 25000 5
Production overhead 5000 5000 1
Aggregate fixed cost 5000 25000
Total cost 5000 70000 14
Add 12% Profit 5000 8400 1.68
Selling price £15.68
Clariton Ltd will able to sell their products at £15.68 for the purpose of attracting large
number of customers for the products.
Cost plus pricing- It is a broad technique which is used by Clariton for developing the pricing of
different products and it is beneficial for the organisation as it will consider the types of cost into
account. They also consider the variable cost and fixed cost that is incurred by business in
financial year.
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Differentiation pricing- The prices are set by Clariton with various customers as per the
convenience and to develop the prices according to their capabilities for negotiate with more than
one seller(Taylor and Schaffer, 2013).
3.3Evaluate the viability of proposed by using the technique of investment appraisals
Table 2: Industry benchmarks
Particulars criteria for selection
Payback 3.5years
ARR 35%
NPV 2 million
Table 3: Project Details
Year Project A Project B
Initial cost 8.6m 4.4
1 1.6 0.8
2 2.8 1.4
3 3.4 2
4 3.6 2.4
5 4 2.3
6 4.2 2.6
Table 1: payback of Project A
Year Cash flow Cumulative cash flow
0 8.6 8.6
1 1.6 1.6
2 2.8 4.4
3 3.4 7.8
4 3.6 11.4
5 4 15.4
6 4.2 19.6
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Calculation of payback period
= 3+ 3.6/8.6
= 3+0.41
= 3.41 years
Table 2: Payback of Project B
Year Cash flow Cumulative cash flow
0 4.4 4.4
1 0.8 0.8
2 1.4 2.2
3 2 4.2
4 2.4 6.6
5 2.3 8.9
6 2.6 11.5
Calculation of payback period
=3+2.4/4.4
= 3+5.4
3.54 years
Interpretation
The payback period of project B match the appropriate criteria of standard of 3.5 years
but at the same time project A generate it in less time.
Year Project A Project B
initial investment 8.6 4.4
1 1.6 0.8
2 2.8 1.4
3 3.4 2
4 3.6 2.4
5 4 2.3
6 4.2 2.6
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Total cash flow 19.6 11.5
Average cash flow 3.267 1.91
ARR 37.98% 43.56%
Interpretation
The profit is generated by them in a year helps to assess the efficiency of the projects so
both the projects determine the aspects so in this case the higher will be selected that is project B.
Table 3: NPV of project A
Year Cash flow Pv@14% Present value
Initial investment 8.6
1 1.6 0.877193 1.403509
2 2.8 0.769468 2.154509
3 3.4 0.674972 2.294903
4 3.6 0.59208 2.131489
5 4 0.519369 2.077475
6 4.2 0.455587 1.913464
Total 11.97535
NPV 3.375348
Table 4: NPV of Project B
Year Cash flow Pv@14% Present value
Initial investment 4.4
1 0.8 0.877193 0.701754
2 1.4 0.769468 1.077255
3 2 0.674972 1.349943
4 2.4 0.59208 1.420993
5 2.3 0.519369 1.194548
6 2.6 0.455587 1.184525
Total 6.929018
NPV 2.53
Interpretation
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The net present value helps to assess the profitability of both projects in future which is
based on the projects as per the standard aspects. Thus, project A will be selected as it produces
the higher net present value.
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TASK 4
4.1 Discussing the key components of financial statements
Financial statements can be defined as the formal report which support in identification
of a company’s overall business performance over a given period of time. Furthermore, it can be
stated that it is required by organizations to become aware of the key components of financial
statements in order to develop them in effective manner. The key components along with their
detailed description are mentioned below as:
Cash flow statement – It can be termed as a financial statement which depicts parties and
businesses with information regarding the total outflow and inflow of cash over a specific time
period. The changes occurred in value of liabilities and assets are recorded in cash flow
statements(Hogan, 2012). Along with this, all types of expenses which have been made by a
particular business enterprise are also recorded in cash flows statements. Sale and purchase of
any assets such as land, plant, machine and furniture can be considered as the example of
transactions which are recorded in such statements. The main and most important benefit of
using cash flow statement is that it helps a company to identify the key areas which needs very
high degree of cash control. This results in eliminating the unnecessary expenses and maintains
the overall cost of operations(Sjöblom, Cato and Lindskog, 2012).
Income statement – It is another financial statement developed by companies in order to
evaluate their overall financial position. This statement consists of two different sides which
includes expense side and income side. The elements which are written on income side includes
dividend, interest received by a company along with the gross profit earned within a particular
span of time. The use of this statement is that it helps companies such as Clariton Antique Ltd. to
gain appropriate information regarding the total amount of profit earned with a particular time.
Statement of financial position - In another words Statement of financial position is also termed
as balance sheet of company which reflects the total amount of assets and liability. The main and
most important use of balance sheet is that it supports Clariton Antique Ltd. to determine its
financial position or financial soundness which is essential for long term growth and success.
Apart from this, balance sheet also plays a very crucial role in identifying risk related to
liquidity, finance and overall business operations(Arman and Shackman, 2012).
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4.2Comparing the financial statements of the different kinds of business organisation
There are some of the most important differences undertaken in the financial statements
that is prepared by the partnership and sole trader which are described as follows:
Basis of difference Sole trader Partnership firm
Meaning Sole traders are those people
who individually take
decisions in the different
operation of the business
without the interference of
other people.
In an organisation where two
or more persons came together
for a common purpose and
there aim top share the profit
as well as loss in the business
which is already determined at
the time of partnership.
Rules and regulations There is requirement to follow
IFRS at the time of preparing
the final accounts.
All the rules and regulations
are followed by Clariton
Antiques Ltd as per IFRS with
a motive to make sure the
proper level of clarity in their
account statements.
Preparation of financial
statements
Sole traders are preparing the
income statements which
shows the profit generated by
them over the different
expenses(Fassin, 2012).
The stated company is a
partnership firm which creates
the different accounts in order
to assess the financial health
and performance such as
income statements, balance
sheet and statements of
changes in the equity.
Publishing requirements No Yes
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4.3Interpretation of ratios
Profitability ratios
Particulars Formula 2015 2016
Revenue 1220 1255
GP 175 178
Operating profit 46 57
Net Profit 23 33
Total assets 746 785
Capital employed 437 468
Average Shareholder's equity 426.5 399
Gross profit Ratio GP/Net sales*100 14.34426 14.18327
Operating profit Ratio Operating profit/Net sales*100 3.770492 4.541833
Net profit Net profit/Net sales*100 1.885246 2.629482
Return on Equity Net profit/Average shareholder's equity 0.053927 0.082707
Return on assets Net Profit/Total assets 0.030831 0.042038
Return on capital employed Net Operating profit/Capital employed 0.105263 0.121795
Liquidity ratio 2015 2016
Current assets 746 785
Current liabilities 309 317
Inventories 46 47
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Interest 10 10
EBIT 46 57
Quick asset Current asset-inventories 700 738
Current ratio Current asset/Current liabilities 2.414239 2.476341
Quick ratio Current asset-Inventory/Current liabilities 2.265372 2.328076
Interest coverage ratio EBIT/Interest 4.6 5.7
Gearing ratios 2015 2016
Debt 45 57
Equity 276 301
Shareholder's equity 399 426.5
Debt to equity ratio Debt/Equity 0.163043 0.189369
Efficiency ratios 2015 2016
Accounts receivables 13 12
Net sales 1220 1255
Total asset 746 785
COGS 1045 1077
Inventory 46 47
Fixed asset 675 680
Receivables turnover ratio Net sales/Accounts receivables 93.84615 104.5833
Inventory turnover ratio COGS/Inventory 22.71739 22.91489
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Asset turnover Net sales/Total assets 1.635389 1.598726
Fixed asset turnover Net sales/Fixed asset 1.807407 1.85
Interpretation
The above mentioned calculation helps to identify with the help of various ratios
including the liquidity ratio which shows that the company have the appropriate amount of funds
as compared to the previous year so that they have to control on the expenses and invest in an
effective manner which helps to improve the level of performance. Further, the gearing ratio of
Claritan Antiques Ltd is quite effective and positive which helps to make the different changes
which are required by business and use it efficiently. In addition to this, the efficiency ratio of
company helps to analyse that the performance in current year is better that the last year which is
to be appreciated and the company is constantly growing.
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CONCLUSION
From the above report it can be concluded that Clariton Antiques Ltd required to raise the
funds with the help of different sources of finance including venture capital and partnership.
These are effectively use by the organisation in order to raise the funds. Further, the company
able to make the financial plan so that helps to analyse the expenses and income of the business
which overall helps in achieving the goals of the business. It can be also examined from the
report that Clariton requires to select appropriate sources and their implication and the cost of all
the sources. Moreover, it can be inferred that with the help of financial statements it is helpful in
identifying the performance of the business and they also compared it with the previous year
performance. It is also summarized that there is important different between the financials of
partnership and sole traders. Thus, the stated company make efforts and take appropriate
measures in order to make liquidity, profitability and efficiency of the business.
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REFERENCES
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