Financial Management and Decision Making

This assignment delves into the crucial aspects of financial management within a business context. It examines how businesses effectively allocate resources, make sound decisions to maximize sales and profits, and utilize various financing sources. The analysis encompasses budgeting practices for sales and profit forecasting, as well as investment techniques employed for project selection.

MANAGING FINANCIAL
RESOURCES AND DECISIONS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1................................................................................................................................................3
1.2................................................................................................................................................4
TASK 2............................................................................................................................................7
2.1................................................................................................................................................7
2.2................................................................................................................................................8
2.3................................................................................................................................................8
2.4................................................................................................................................................9
TASK 3............................................................................................................................................9
3.1................................................................................................................................................9
3.2..............................................................................................................................................11
3.3..............................................................................................................................................11
Net Present Value Method.........................................................................................................12
Internal Rate of Return Method.................................................................................................12
Payback Period Method.............................................................................................................13
Average Rate of Return Method................................................................................................13
TASK 4..........................................................................................................................................14
4.1..............................................................................................................................................14
4.2..............................................................................................................................................14
4.3..............................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
All the companies of every segment are taking decisions in the business on daily basis as
well as manages the resources effectively. The resources are managing by the management to
reduce the risk and increase the profitability of the business. In the present report the Radisson
Plc is to be selected. The report describes various internal and external sources of finance which
helps to the firm in order to raise funds. The report describes about the budgeting such as cash
budget and sales budget as well as about the investment appraisal techniques such as NPV,
payback period, IRR and ARR. The report presents about the financial ratios of Radisson and
Sage group.
TASK 1
1.1
Radisson PLC is medium based entity which is currently operating in a technical sector
by manufacturing the computer software which is offered to the variety of customers. The
business operations conducted by the Radisson Plc currently in the London (Chen and Luo,
2015). The aim of this business entity is to launch new software Bespoke by taking variety of
sources of finance. The operation's manager are required to emphasis on the existing capabilities
of an organization by taking new business opportunities by enhancing its actual market share by
taking different sources of finance which are given as below:
Internal sources of finance
Retained earnings-The radisson plc deals in providing computer software being operating in the
technological sector (Campbell and Jardine, 2016). The existing business of this entity will allow
them to use retained earning as one of the sources of finance. The amount of profit held with an
entity after meeting all the dividends.
Personal savings- The savings of an individual will be used in order to fulfill all the
requirements of their business in order to acquire this project.
External sources of finance
Leasing- The computer software can be taken on the lease from external party as the
manufacturing of software will be expensive for the business.

Bank loan- The loan can be taken by an entity from the various banks and all other financial
institutions who lend money by charging specific interest on the amount given to the business
entity.
1.2
Criteria Internal Sources of finance External source of finance
Retained
earnings
Personal savings Leasing Bank loan
Legal
implications
It is legally
recognized
mode of finance
as in this
particular
approach the
existing capital
of an entity will
be re-invested in
their business in
form of capital
The savings of an
individual entity will
not get affected due
to any kind of law as
it is personal
property of a person
The legal laws
will affect an
enterprise owner
as the leasing
agreement
formed between
both the
suppliers and the
buyers will bind
each other in the
eyes of law.
They are
obligatory in
order to comply
with all the rules
and the
regulations
framed by the
law in order to
collect interest
on the lease,
installments
properly as the
This approach is
commonly used
method of
funding the
requirements of
the business as
bank will grant
loan to an entity
by demanding
collateral
security.

agreement
formed among
the parties to
contract are
enforceable by
law.
Financial In terms of
spending
additional
financial
resources in
order to take up
this kind of
source is
nothing. The
retained
earnings are the
investments of
the business
which are
collectively
utilized by an
entity owner in
order to fund
their existing
business
requirements.
The use of personal
savings will break
the seal of financial
resources kept with
an entity for no use
will be able to
generate returns for
the business over the
years.
The agreement
fee and all other
cost will incur in
order to use this
kind of sources
of finance.
The interest
charged and the
collateral
security is one of
the biggest
burden which
will be created
on an entity with
the increase in
the amount of
loan taken by an
enterprise.
Bankruptcy The retained
earnings will
fully use by an
There is burden
affected due to the
changes takes places
The law will
intervene in the
case of
The bank have
power to sell the
collateral

entity in
compensating
their losses will
create the
situations of
bankruptcy for
an enterprise as
in this case the
value given to
all the
shareholders
will be reducing.
in the external
market.
bankruptcy as
the innocent
party will be
compensated for
their loss
whether it can be
due to the
negligence of
the Radisson or
the suppliers
who grant lease.
security held by
them in the case
of default
committed by the
business entity.
Internal sources of finance
Retained earnings
Advantages
 Existing capital of the business will be used in the expansion of business
 It safeguards an entity from taking debt component in order to fund their business
requirement
Disadvantages
 The use of existing financial resources will ignore the external opportunities
 It reduces the growth of business by focuses only on internal sources of finance
Personal saving
Advantages
 It enhances the hidden potential by using their idle source into investments
 It will bring lots of opportunities by making higher investments without incurring
additional cost
Disadvantages
 The availability of less financial resources will not bring lot of opportunities for the
business entity.

External sources of finance
Leasing
Advantages
 It is appropriate sources of financing which provides adequate taxable benefits
 The profitability of the business will be improved by taking their asset on a lease to
another party
Disadvantages
 The regular interest paid to an enterprise will impose the burden on the business
 The cost incurred in taking this kind of sources of fiance will create external pressure in
terms of financial expenses such as legal fees, renewal charges incurred by the business
enterprise.
Bank loan
Advantages
 The business funding needs will be fulfilled by taking sources of finance from external
entity
 The taxation benefit will be helpful for an entity as the interest paid on the loan taken is
regarded as the tax deductible expenditure incurred in the business.
Disadvantages
 The higher interest will prove negative for an entity
 The business are required to deposit collateral security
TASK 2
2.1
The financial resources are used by an entity in order to fund their existing business requirements
which are given as below:
Internal sources of finance
Retained earnings- It is regarded as one of the important sources of equity utilizes by an entity
in order to fund their financial requirements (Cambra-Fierro and Melero, 2015). The cost of
retained earning will be determined by using capital pricing approach which is similar way to
calculate the cost of equity. The retained earning is the basic requirement held in the business

after meeting dividends paid to the different shareholders which is the cost of using this sources
of finance.
External sources of finance
Bank loan- The initial cost involved in taking this kind of source is the legal and the agreement
fees and collateral security deposited with the bank. The interest paid along with the installment
is another important burden on an entity.
From the above evaluation of the two sources of finance the best suitable sources which
will be selected is the retained earning as it involves fewer risks.
2.2
There are various importance of financial planning which are given as below:
 The existing financial resources will be presented in more managed way in order to meet
the requirements of the business.
 The existing capabilities of an entity are used in order to predict its future expenses and
the losses.
 The goals and the objectives of an entity will be prioritized in short term, medium and the
long term
 The expenses are predicted in advance in order to minimize it to enhances the existing
ability
2.3
The several business user's needs will get fulfilled by supplying proper information
which are given as below:
Employees- The financial information is required to assess by the employees as the strong
financial performance of an entity will ensure its survival in the venture for long time. The salary
and other incentives will get increases with the increasing financial performance of the Radisson
plc.
Employer- The annual reports will present financial information to an enterprise itself by
reflecting its strengths and weaknesses in order to make future business decisions (Bell and
Rasheed, 2016). The cost need to be minimize by an entity which is basic limitation of the
corporation.
Customers- The products or services supplied to the variety of customers will get affected due
to the strong or weakest performance of an entity. The lower financial performance of an entity

will influence them to raise the level of prices, on the other hand strong financial capabilities of
an entity will reduce its higher prices.
Creditors- The final outcome presented in the form good financial results in form of showcasing
an enterprise's capabilities which shows the credibility of an enterprise.
Investors- The increased and better financial performance will attract wide number of customers
towards the entity.
Government- The tax assessment conducted by an entity on the net income generates by an
entity during several years which are presented with the help of annual reports.
2.4
The standard forms of the financial statements are give below:
Income statements- These statements will prepare in order to determine the profitability of the
business (Bresciani and Giacosa, 2016). The sources of finance recommended to the radisson Plc
is retained earnings which will increases the profit of an enterprise.
Balance sheet- This particular statements is prepared by an entity in order to identify the
external financial position by including assets and the liabilities used by the business. The
retained earning used by an entity in form of capital will raise the existing capital of an entity as
it will be recorded in the capital side of the balance sheet.
Cash flow statements- The current statements will be prepared in the business in order to
ascertain the flow of cash takes places in the business entity.
TASK 3
3.1
Budget is prepared with the help of past financial statements and past performance of the
firm. Importance of the budget are given as below:
 The budget is important and helpful for the business to estimate about the future sales,
revenue and profit.
 The budget is very important because it helps to allocate resources effectively in
business.
 It helps to analyze performance of the business as well as help to calculate the variances.
 Budget helps to management in control the activities which have high and unnecessary
costs and lead to decrease profit.

Cash Budget
Particulars July August
Septembe
r October
Novembe
r December
Cash inflow
Sales revenue 25000 28000 30000 33000 37800 42000
Other income 10000 15500 18000 21000 28000 33000
Total cash inflow 35000 43500 48000 54000 65800 75000
Cash outflow
Purchase of raw
material 6000 10000 13000 18000 25500 27000
Salaries of personnel 4000 8000 10000 12500 17500 16000
Selling and distribution
cost 3000 6500 8000 9000 11600 10500
other expenses 1550 3000 6000 7500 9000 9800
Total cash outflow 14550 27500 37000 47000 63600 63300
Cash deficit / surplus 20450 16000 11000 7000 2200 11700
opening cash balance 25000 45450 61450 72450 79450 81650
Closing cash balance 45450 61450 72450 79450 81650 93350

Interpretation: Cash budget shows about the cash flows such as cash inflow and cash out flow of
the organization (Managing Financial Resources and Decisions. 2016). From the above
mentioned cash budget it can be assessed that the cash is in surplus situation that means cash is
decreasing up to November and then increase in the December. It shows that the management is
not effectively utilizing resources to produce goods.
Sales Budget
June July August
Septembe
r October November
Foretasted sales units 2500 3400 4000 5600 4800 5200
Price per unit 30 30 30 30 30 30
Total gross sales 75000 102000 120000 168000 144000 156000
Less: Sales discount &
allowances 2000 3200 3600 4700 4100 4550
Total net sales 73000 98800 116400 163300 139900 151450
Interpretation: Sales budget indicates that the management is how able to generate sales (Reay
and Hinings, 2009). In this the net sales is increases consistently from June to November. It
shows that the company is properly allocating resources as well as effectively manage the
resources in the business. Higher the net sales is better for the firm.
3.2
Unit Cost
Fixed cost 65500
Variable cost 16500
Total cost 82000
Units produced 8000
Per unit cost 10

Margin 30%
Price per unit 13
Interpretation: Unit cost give information that how much cost is incurred to produce a unit. Unit
cost is derived from the total cost (Variable cost + Fixed cost) and total units produced. Pricing
decision is taken by the management with the margin. Percentage margin is to be added in the
unit cost and then price per unit is to be derived.
3.3
Investment techniques are helps to management to take the decision about the project
undertaken. The various techniques are given as below:
Net Present Value Method
Year Project
PV @
10%
Present
value of
Project A Project B
PV @
10%
Present value
of Project B
Initial
investment 200000 200000
1 30000 0.909 27270 18000 0.909 16362
2 45000 0.797 35874 27000 0.826 22302
3 78000 0.712 55519 56000 0.751 42056
4 130000 0.636 82617 105000 0.683 71715
5 165000 0.567 93625 153000 0.621 95013
Total 294905 247448
NPV 94905 47448
Net present value shows that at the end of project years how much value is to be given by
project in business. Here the project A is better because it gives higher NPV compare to project
B.

Internal Rate of Return Method
Year Project Project B
Initial investment -200000 -200000
1 30000 18000
2 45000 27000
3 78000 56000
4 130000 105000
5 165000 153000
IRR 25.01% 16.35%
Internal rate of return is another technique of the investment appraisal methods. It
indicates about the internal rate given by the particular project. From the above calculation it can
be interpreted that the project A have high internal rate of return, management should undertake
project A.
Payback Period Method
Year Project Project B
Initial investment -200000 -200000
1 30000 30000 18000 18000
2 45000 75000 27000 45000
3 78000 153000 56000 101000
4 130000 283000 105000 206000
5 165000 448000 153000 359000
Payback Period 3.4 3.9
Payback period is another financial tool which help to know that the initial investment is
within how many period of time covered. It can be said from above table that, the investment of

project A is to be covered within 3.4 years and project B covers within 3.9 years. Hence, the
project A is better.
Average Rate of Return Method
Year Project Project B
Initial investment 200000 200000
1 30000 18000
2 45000 27000
3 78000 56000
4 130000 105000
5 165000 153000
Total 448000 359000
Average 89600 71800
ARR 44.80% 35.90%
Average rate of return indicates that the average return within project years is how will
be. In present scenario the ARR is high in project A compare to project B. So, it can be
suggested to management that it should undertake project A in business.
TASK 4
4.1
Financial statements are various which helps to the management to know about the
financial performance of the firm. Here financial statements of Radisson Plc are such as income
statement and balance sheet (Hayre, 2015). Income statement can be called as a profit and loss
account which shows about the sales, revenue and profit generated by the company in a financial
year. Another statement is balance sheet which shows financial position of the enterprise in
terms of assets and liabilities. Balance sheet have to two main parts such as assets and liabilities.
Both the financial statements are to prepared on quarterly and yearly basis.

4.2
Two different type of companies are Plc company and another is sole proprietor.
Financial statements are different of both the Plc and sole proprietor firms. In the income
statement Plc companies are added the tax amount while the sole proprietor are not added the tax
amount in profit and loss statement (Shapiro, 2008). In terms of balance sheet, statement of
owner's equity is to be called as a statement of retained earning in plc company while it is called
as an owner's capital statement in sole proprietor firms.
4.3
Ratio Calculation of Radisson and Sage Group Plc:
Radisson Plc Sage Group Plc
Particular 2013 2013
Gross profit 404091 1296
Sales revenue 950484 1376
Gross profit ratio 42.51% 94.19%
Net profit 22527 46
Sales revenue 950484 1376
Net profit ratio 2.37% 3.34%
Current assets 209095 414
Current liability 116268 789
Current ratio 1.80 0.52
Current assets 209095 414
Current liability 116268 789
Closing Stock 122337 2

Prepaid Expense 13447 14
Quick ratio 0.63 0.50
Debt 73520 440
Equity 204222 871
Debt equity ratio 0.36 0.51
 Profitability Ratios: In present case sage group Plc have high gross profit and net profit
ratio. It means the sage group is allocating resources effectively and generating more
sales after reducing cost of production. Liquidity Ratios: It can be assessed from the above calculation that, current ratio and
quick ratio both are higher of the Radisson Plc in comparison to another mentioned
company. It means the Radisson firm is more able to fulfill its obligations.
 Solvency Ratio: It can be interpreted that the Sage group have high debt and paying more
interest amount compare to the Plc organization. Lower the debt to equity ratio is better
for the business.
CONCLUSION
It can be summarized from the above analysis that, it is very necessary for the
management to manage the resources properly and take the appropriate business decisions. The
effective allocation of resources and appropriate decision will lead to increase the sales and profit
of the business. It can be concluded that the business use various sources of finance to raise
funds for business. The company using cash and sales budget which help to estimate about the
future sales and profit and helps to formulate better strategies. The firm use the investment
techniques to chose the project among two or mutually exclusive projects.