Financial Management Concepts and Applications
Added on 2020-02-05
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MANAGING FINANCIALRESOURCES ANDDECISIONS
Table of ContentsINTRODUCTION...........................................................................................................................12.0 Sources of finance for business.............................................................................................12.1 Types of business...................................................................................................................12.2 Source available to business..................................................................................................22.3 Comparison between right issue and loan stocks..................................................................32.3.1 Right issue..........................................................................................................................32.3.2 Loan stock...........................................................................................................................32.3.3 Comparison.........................................................................................................................32.4 Source of finance for building and non current assets...........................................................32.5 Working capital.....................................................................................................................42.5.1 Define.................................................................................................................................42.5.2 Why it is important.............................................................................................................42.5.3 What sources are available for working capital..................................................................43.0 Financial statements...............................................................................................................53.1 Statement of profit or loss......................................................................................................53.2 Statement of financial position..............................................................................................53.3 Statement of cash flow...........................................................................................................53.4 Impact on these financial statements.....................................................................................53.4.1 WACC for three options.....................................................................................................53.4.2 Gearing for three options present.......................................................................................73.4.3 How finance has impact on financial statements................................................................73.5 Earnings per share..................................................................................................................73.5.1 What information does this give you?................................................................................73.5.2 Calculation of EPS..............................................................................................................73.5.3 Explanation of answer........................................................................................................84 Investment appraisal.................................................................................................................84.1 Why it is important to appraise potential investments...........................................................84.2 What are the risks to future cash flows?................................................................................84.3 Different type of techniques..................................................................................................94.3.1 Payback period....................................................................................................................94.3.2 Calculation and explanation of answer...............................................................................94.3.3 Net present value................................................................................................................9
4.3.4 Calculation of net present value.......................................................................................104.4 Recommendation for the investment opportunity...............................................................104.5 Unit cost...............................................................................................................................104.5.1 Concept of unit cost..........................................................................................................104.6 Factors to be considered while setting price........................................................................115.0 Cash flow vs profit...............................................................................................................115.1 Need to have cash budget along with its trend and messages.............................................115.2 Importance of financial planning.........................................................................................125.3 Why company making profits can still face liquidity problem...........................................125.4 The users of accounts...........................................................................................................125.4.1 Who are they.....................................................................................................................125.4.2 What information do they need........................................................................................126.0 Interpretation of financial statement....................................................................................136.1 Ratio analysis.......................................................................................................................136.1.1 Profitability ratios.............................................................................................................136.1.2 Liquidity ratios..................................................................................................................136.2 Opinion regarding current performance of company..........................................................137.0 Difference in financial statements.......................................................................................14CONCLUSION..............................................................................................................................14REFERENCES..............................................................................................................................15
INTRODUCTIONBusiness organizations are required to make various decisions regarding their operationalactivities in order to attain their objectives in an effective manner. These decision has directimpact on the success of business thus management is required to assess appropriate informationprior making final action. For this aspect, they are required to make financial tools in order toanalyse information in proper manner. On the basis of this evaluation, viable decisions arerequired to be made (Herman, 2011). Present report is focused on the description of thesefinancial tools and its applicability on information of business. In this report, description will beprovided regarding various financial sources along with the cost and impact. Further, financialtechniques will be discussed such as budgeting, investment appraisal and WACC. In addition tothis, financial position of business will be assessed by computing financial ratios by consideringinformation from the financial statements.2.0 Sources of finance for business 2.1 Types of business Sole Proprietorship: Sole proprietorship is where an individual is carrying business andis solely responsible for all the happenings in business. This Business does not haveseparate assets and liabilities i.e all personal assets and liabilities of the individual will beof business. Further, sole proprietor are personally liable for the obligations of business. Partnership: Partnership business exists when two or more person comes together to runa business jointly and share profits and are liable for all the acts done in the business inthe proportion as decided by them (Nickels, McHugh and McHugh, 2011). All the termsdecided by the parties are entered in a legal deed known as partnership deed, whichincludes their profit sharing ratio, etc.Company: Company is a legal entity owned by shareholders. Shareholders are thepersons by whom amount is invested in the company and in return are allotted shares. Itis different from partnership as it is separate from its owners i.e company can be sued orcan sue or can take any legal action on its own name rather than shareholders. Incompanies, liability of owners is restricted to their share in the company. 1
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