Sources of Finance Report - British Embroider Ltd

MFRD
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Table of Contents
INTRODUCTION ...............................................................................................................................3
TASK 1.................................................................................................................................................3
1.1 Identifying the sources of finance available to business............................................................3
1.2 Stating the impact of different sources of finance.....................................................................3
1.3 Appropriate source of finance for British Embroidered Ltd......................................................4
TASK 2.................................................................................................................................................4
2.1 Analyzing the cost of different sources of finance ....................................................................4
2.2 Stating the importance of financial planning ............................................................................5
2.3 Assessing the information need of the different decision makers..............................................5
2.4 Stating the impact of finance on financial statements ..............................................................6
TASK 3.................................................................................................................................................6
3.1 Analyzing budget and make suitable decisions ........................................................................6
3.2 Calculation of unit cost and make pricing decisions.................................................................7
3.3 Assessing the viability of project using investment appraisal techniques.................................7
TASK 4.................................................................................................................................................9
4.1 Discussing the main financial statements which are prepared by the firm................................9
4.2 Comparing formats of different types of business ..................................................................10
4.3 Interpreting financial statements by using ratios.....................................................................10
CONCLUSION...................................................................................................................................11
References..........................................................................................................................................13
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INTRODUCTION
In the present era, each and every business organization needs to frame competent strategies
which facilitate effective use of fund. Now, company can build competitive edge over others when
they execute their plan in an effectual manner. In this, finance manager is required to take strategic
business decision which makes contribution in the attainment of organizational goals and objectives
(Ahn, Amiti and Weinstein, 2011). Thus, growth and success of the firm is highly dependent upon
the extent to which business unit makes use of its financial resources. This project report is based
on the case scenario of British Embroider Ltd. Who offers embroidered or printed work clothing. It
is listed on the recognized stock exchange. The present report will describe the sources of finance
which business unit can undertake to expand their business operations and functions. Further, it
will also shed light on the various financial aspects which aid in the success of firm.
TASK 1
1.1 Identifying the sources of finance available to business
British Embroidered can raise finance by taking into account following internal and external
sources of finance are enumerated below:
Internal sources: It refers to those which are available within the business unit. Retained earnings: Company can make use of retained profit for expanding their business
operations and activities. It is the part of profit which business unit keep with itself each
year to meet the contingent situation (Anandarajan, Anandarajan and Srinivasan, 2012).
 Sale of assets: Fund can be raised by British Embroidered by selling the assets which cannot
be used in the productive activities. Thus, it is the most effectual source which will help
business unit in meeting their financial requirements.
External sources: These sources of finance are those which present outside the business
organization. Issue of shares: By issuing shares to the general public British Embroidered can meet its
financial need. This is the cheaper source of finance which provides assistance to the firm
in getting the desired outcome (Berger and Black, 2011).
 Bank loan: British Embroidered cam take financial assistance from bank by approaching
them for loan. This source of finance offers high level of tax benefits to the business unit or
organization.
1.2 Stating the impact of different sources of finance
Internal and external sources of finance place high level of impact on financial health,
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position and other aspects of British Embroidered. If company uses retained profit for the purpose
of expansion then they are not in position to grab the opportunities which will arise in near future.
Besides this, when business unit takes decision to raise finance by selling the assets then they it
negatively affects the goodwill of firm (Brandimarte, 2013). In this, company is not able to
encourage more investment in the business organization. Further, in shares British Embroidered has
legal obligation to involve their shareholders in the decision making process of the firm. Further,
corporation is required to give dividend to their shareholders which in turn monetary cost for the
firm. Along with it, in bank loan financial institution has right to cease the asset if firm makes
default in the payment of loan amount to interest. Along, high interest rate closely influence to gross
profitability. Thus, manager needs to consider all these aspect while selecting the source of finance.
1.3 Appropriate source of finance for British Embroidered Ltd.
From the above identified internal and external sources of finance it is suggested to British
Embroidered that they need to sale the assets which have no use in the present time. Moreover,
company has assets which cannot be used by them in further manufacturing aspects. Thus, selling
the non-productive or non-profitable assets business unit can generate fund. Besides this, By issuing
shares to the existing and potential shareholders company can raise finance to the large extent.
Moreover, investors are always ready to invest money in shares which makes high value addition in
money (Gang, 2011). Liquidity and net profitability of British Embroidered is good. Further,
company continuously makes efforts to make optimum use of capital which is employed by them .
All these aspects helps business unit in attracting the large number of investors. Thus, by raking
into consideration both the above mentioned sources British Embroidered can explore its business
area in an effectual manner.
TASK 2
2.1 Analyzing the cost of different sources of finance
Cost is one of the main factors which have level of influence upon the decision making of
organization in relation to the sources of finance. Moreover, internal and external sources of finance
impose varied cost in front of the business unit. If British Embroidered makes use of retained profit
then it is unable to offer dividend or high return to the stakeholders. Besides this, if business
enterprise sales their asset then it negatively affects the brand or corporate image of firm. In this,
investors think that company does not have ability to perform so it sell assets. This is turn enforce
opportunity cost in front of the organization. On the contrary to it,in the issuance of shares company
has to pay dividend to their shareholders which reduces the gross margin of firm. Further, in bank
loan business entity has to pay interest to the financial institution (Hakim, Hamid and Meera, 2015).
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