Managing Financial Resources and Decision INTRODUCTION 4 TASK 14 1.1 Assessing the Importance of Using Internal or External Finance
Added on 2020-01-28
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Managing FinancialResources andDecision1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................4TASK 1............................................................................................................................................41.1 Identifying the sources of finance available to unincorporated and incorporated business. .41.2 Assessing the implication of using internal or external sources of finance...........................51.3 Evaluating the most appropriate sources of finance for Clariton Antique Ltd......................6TASK 2............................................................................................................................................72.1 Analyzing cost of two sources of finance under consideration of dividend, tax and interest72.2 Importance of financial planning for Clariton Antique Ltd..................................................72.3 Assessing information need for different decision making on financing the takeover bydifferent parties............................................................................................................................82.4 Impact of finance on financial statements.............................................................................9TASK 3............................................................................................................................................93.1 Preparing and analyzing the cash budget...............................................................................93.2 Assessing unit cost for making pricing decision.................................................................103.3 Evaluating the viability of proposed by using investment appraisal techniques.................11TASK 4..........................................................................................................................................144.1 Discussing the key components of financial statements......................................................144.2 Comparing format used by Clariton Antiques Ltd to presenting their financial statementswith sole trader...........................................................................................................................154.3 Interpreting the financial statements of selecting company by using ratios........................15Conclusion.....................................................................................................................................16REFERENCES..............................................................................................................................182
Index of TablesTable 1: Cash budget for six months.............................................................................................10Table 2: Payback period of investment 1 & 2................................................................................11Table 3: ARR and NPV.................................................................................................................12Table 4: Ratios...............................................................................................................................15Illustration IndexIllustration 1: Financial statement for limited company ...............................................................15Illustration 2: Financial statement for sole trader..........................................................................163
INTRODUCTIONThe performance of the corporation is based on selection of most suitable sources financeto operate varied activities of business. It involves several activities related to acquiring thefinance and paying off the same on time. Present report is based on Clariton Antique Ltd whichprovides different kind of antique show piece to large number of buyers for meeting theirrequirement in a most effective manner (Clariton Antiques Ltd, 2016). The report underconsideration focuses on selection of ways to finance the expansion project of the business andselect the most suitable one in accordance with cost and other related aspects.Apart from this,cost of finance has been analyzed along with importance of financial planning for business. Inaddition to this, budgeting has been explained with different kind of techniques applied forselecting the most suitable project. Moreover, financial statements are interpretated so as to takethe appropriate decision for the business and asses its performance.TASK 11.1Every business has varied choice to select the financial resources in accordance with ownrequirement and set pattern. The below mentioned sources are available for business.a) Sources of finance unincorporated businessesUnincorporated business is considered as the non-registered which does not haveauthority to issue the equity share and other similarly kind of procedure for raising fund. Thesecan generate money by accessing following sources of finance-Bank loan-Bank loan is served as the most important source of finance which assistsbusinesses to meet their financial requirement in relatively less time span. Here, securitiesmust be deposited in bank so on behalf of the same loan can be granted. However,purpose or business is required to be communicated to banks so as to acquire money inless time span (Adrian and Shin, 2014).Financial institutions-It is also favorable source of finance for unincorporated businessas financial institutions generally support small projects but after assessing the plan andobjectives associated with the same. It provides finance on relatively low cost.4
Bank overdraft-This source of finance is based on credit rating of business wherecompany need to ensue that whether company is able to pay off its obligations or not.Owner's saving-It is considered as the short term finance under which unincorporatedbusiness can get finance from owner of the business. Here, small amount of money canbe arranged on the basis of specific terms and conditions.Family and friends-This source of finance shows that company can acquire money fromfamily and friends. However, interest will be paid to these sources also under which firmtarget to meet the specific requirement to all related parties.Personal loans-Personal loan is considered as the most convenient source of finance forunincorporated business under which management can apply for personal loan to start theoperation of the business.b) Sources of finance incorporated businessesIncorporated businesses on the other hand are those which are registered and have right toissue the shares. In this manner, Clariton Antique Ltd can access following source of finance-Equity share- Clariton Antique Ltd can issue equity share for meeting its financialrequirement. It is considered as the most effective source of finance which takes time butensure well being of business (Bain and Nowak, 2015). Retained profit-This is another cost effective source of finance wherein business keepcertain amount of profit of further investment. This merely create opportunity cost ratherthan creating obligation to payment of cost to outside party.Bank loan-Bank loan is considered as the effective source of finance especially whenbusiness has higher financial burden. Further, credit rating of business is considered sothat accordingly requirement of company can be met (Benes and et.al., 2015).Leasing companies-It is another source of finance where firm acquire highly equippedtools and technologies for the purpose of consistent flow of production. Generally, assetsrequirement consume higher fund of the business, owing to this, leasing companies canbe considered as the most effective source for Clariton Antique Ltd. 1.2 The implication of sources of finance through their positive and negative impact. This ishelpful for management of business to select the most suitable source of finance for their5
expansion project. For instance, if firm issue the share then it has to invite shareholders in takingdecision related to growth and development. However, collateral security is required for raisingbank loan and at the same time non-payment of interest and installment tend to affect creditrating of the business (Bryan, Verles and Santini, 2014). However, Clariton Antique Ltd getaffected in case payment of interest and loan is not made on right time.Furthermore, retained profit is an internal resource which create issue for business byincreasing opportunity cost. Similarly, sale of old assets is another internal source which hasnegative implication in term of selling off assets on lower value. In addition to this, leasingcompaniesprovidehighlyequippedassetstoClariton Antique Ltd but it charges higher repair cost and depreciation charges.In addition to this, financial institutions affect internal decision making procedure ofcorporation. This is because management requires to involve those stakeholders in the decisionmaking process by communicating performance of project. Otherwise,business might getaffected due to higher cost of finance (Collins, Hribar and Tian, 2014). Though, dilution ofcontrol and collateral security and opportunity cost are some major aspect associated withperformance of a project. However, bank loan must be paid on right time so as to improvegoodwill of business in the marketplace along with higher level of satisfaction among differentstakeholders. Hence, all financial resources are backed by its positive and negative implicationwhich aid to take appropriate decision in the growth and development of business.1.3 The selection of most appropriate source of finance is based on its cost and contributiontowards success of the business in the marketplace. According to the given case study,management of Clariton Antique Ltd can select below mentioned source of finance-Issue of share-It is the most appropriate source of finance under which management ofbusiness issue the equity share for reducing the uncertainty and ensuring well being offirm by generating enough fund (Farzanegan, 2013). Furthermore, equity share capitaltend to reduce financial burden as firm does to require to pay its cost to outside partywhen it suffers from losses. In addition to this, issue of share although dilute the controlprocedure of the business but support corporation in raising fund the expand in the6
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