Report On Clariton Antique Limited - Sources Of Finance
Added on 2020-01-28
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MANAGING FINANCIALRESOURCES ANDDECISIONS
TABLE OF CONTENTSINTRODUCTION..........................................................................................................................................................1TASK 1 ..........................................................................................................................................................................11.1 Identify the sources of finance............................................................................................................................11.2Assess the implications of sources.......................................................................................................................21.3Evaluation of most suitable sources of finance for Clariton Antiques Ltd..........................................................3TASK 2...........................................................................................................................................................................42.1Analyse the cost of two sources of finance .........................................................................................................42.2Importance of financial planning in context of Clariton Antiques Limited.........................................................52.3Assesment of the information which will be required to make decision on financing........................................62.4Explain the impact on the financial statements of Clariton Antiques Ltd............................................................7TASK 3...........................................................................................................................................................................73.1Analyse the cash budget ......................................................................................................................................73.2Calculation of unit cost and pricing decisions....................................................................................................103.3Evaluate the viability of proposed by using the technique of investment appraisals ........................................11TASK 4.........................................................................................................................................................................144.1 Discussing the key components of financial statements ..................................................................................144.2Comparing the financial statements of the different kinds of business organisation.........................................154.3Interpretation of ratios .......................................................................................................................................15CONCLUSION.............................................................................................................................................................19REFERENCES .............................................................................................................................................................20
INTRODUCTIONFinancial management can be defined as to manage the funds effectively and efficientlyso that it helps to achieve the goals of organisation. It includes the planning, controlling andorganising 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 andat initial stage it as started as an unincorporated business after that it has developed a reputationin selling of antique items(Brigham and Houston, 2012). This report covers the different sourcesof 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 isanalysis of costs of the sources of finance which are used by the business and the significance offinancial planning for the cited business. Moreover, to assess the information which is requiredin order to make the decisions on financing and the effects on the financial statements which areused by Clariton Antiques Limited. It also includes the analysis of cash budget and decisions aretaken for improvements. At last, there are different key components of the financial statementsand to compare the different format which are used by Clariton Ltd. TASK 1 1.1 Identify the sources of financeSources of finance can be of short term or long term that are found inside or outside thebusiness and it helps to expand the business. In order to identify the different sources of financewhich available to the business and it helps to increase the capabilities and strengthening offinance of organisation. There are various sources of finance available to business andcategorized under internal and external sources that is consider by Clariton Antiques Ltm whichare described below:Unincorporated business- In this type of business there is unlimited liability and it is establishedby an individual or more than one people for taking different actions for the business. There is noseparate legal entity between the business and owner(Brigham and Ehrhardt, 2013). Flexibility ismajor benefit at the time of dealing with taxes in this business and for decreasing the personalincome owner can handle the loss in business. Further, the internal sources of finance utilize byowner in order to improve the current situations at workplace that are given below:1
Retained earnings- It is a types of sources of finance in which the company do not pay thedividend 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 businessand the people are ready to take risk and external owner can invest in their business. Some of theamount is provided to the owner of the entity which helps in returning a large demand of the newbusiness. Incorporated business- In this type of business it provides various advantages over thepartnership 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 inbusiness(Drechsler and Natter, 2012). Partnership- It is also considered as an external sources of finance where the business stakinghelp from external business entity in order to expand the business and it is also profitable andmutual agreement between both the parties.Bank Loan- It is another source of finance which can be used by the stated business by takingloan from financial institution which will be helpful for the business in order to expansion. 1.2Assess the implications of sourcesFor the purpose of analysing the appropriate sources of finance which is profitable forbusiness and its effect on the situations of the current business. It is important to select theproper 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 ingenerating the economic benefits and the owner of entity invest for the purpose of growingbusiness. The implications of various sources that used by an individual for the business:Criteria Venture capital PartnershipRetainedEarnings Bank Loan LegalImplicationIt is considered as alegalized source offinance but use of itis not legal due tothat it is notIn this source offinancethegovernment alsosupport the partiesand consider themIn this typesource there is norequirement oflegal formalitiesand it only needsIn context of bankloan, collateralsecurityisconsidered as animplication where2
registeredatlaw(DRURY, 2013).as same.aresolutionwhich is to bepassed at the timeof annual generalmeeting. the business isrequires to securelending. FinancialImplicationWith the help of thissource it is acapabilities for theexisting finance formaking improvementin business entity. There is financialinvestment that isgenerated andimposed in thebusiness and formeetingthedifferentexpenses.Retained earningshave less cost tothe business andhelps in order toavoid the costrelated issues. In this, financialburden of loanthat is interest onloan which can befixed or variablefor the business. ControlThe control of thebusiness is imposedon the venturecapitalistandparticipative in thebusiness.The partners areequally involvedin the businessand profit andloss of thebusiness is sharedamong them asper the terms andconditions.With the use ofretained earning ithelps in avoidingthe changes forthe shareholders. In this, lenders ordebt holders cannot put anyrestriction on theactivitiesofbusiness. 1.3Evaluation of most suitable sources of finance for Clariton Antiques LtdThe advantages and disadvantage of the appropriate sources of finance for ClaritonAntiques Ltd are described below:Venture capitalAdvantages3
Business expertise-With the help of venture capital it is obtained at the time of starting anew business and profitable in context of guidance. It is also helpful in the differentdecisions of business along with the management of finance. Connection- It is highly engaged in the various connection with the business and it isbeneficial for the entity(Hull, 2012).Disadvantages Less control- This is one of the drawback in the equity financing that is connected withthe venture capital and there is decrease in the control due to the stake of venturecapitalist. There are various issues for taking decisions by which reduction In interest byinvolving the management. Decision making- Due to the involvement of new people in business and they areaffected 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 frombaking institutions in order to raise fund by taking loan from bank. It is considered to be the mosteffective source of finance for achieving the goals and objectives. Furthermore, banks are readyto provide collateral and secured loans to the business organisation. In context of this, byapproaching to financial institution the company can raise funds to higher extent. In this, there isappropriate level of convenience to the business in terms of repayment of loan amount. Thus, italso provide benefits in terms of tax so that with the use of this source business can implementtheir plans of expansion in an effective manner. TASK 22.1Analyse the cost of two sources of finance Venture Capital - In order to establish the business so that the venture capitalist because they areproviding their essential resources of finance to the entity so that there is no risk in paying thedividend. It is decided by both of the parties that the stake must be in a particular percentage bythe 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 venturecapitalist of the business. Along with this, for decrease in the burden of taxes it will also give theguidance to the business from the outside pressure in context of legal aspects. 4
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