Report On Royal Hotel- Ratio Analysis, Financial Statements, Budgets

MANAGING FINANCIAL RESOURCES
AND DECISION MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Sources of finance available to business...............................................................................1
1.2 Implications of different sources of finance..........................................................................2
1.3 Appropriate sources of finance for business project..............................................................3
TASK 2............................................................................................................................................4
2.2 Importance of financial planning...........................................................................................5
2.3 Information needs of internal and external decision makers.................................................5
2.4 Impact of finance on financial statements.............................................................................6
TASK 3............................................................................................................................................7
3.1 Cash, sales and production budget.........................................................................................7
3.2 Calculation of unit cost..........................................................................................................8
3.3 Project evaluation methods....................................................................................................9
TASK 4..........................................................................................................................................11
4.1 Major financial statements for the business.........................................................................11
4.2 Format of financial statement..............................................................................................12
4.3 Ratio analysis of Ryanair and Easy jet................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Finance is a significant factor for every business with having influence on its activities
and operations. In absence of adequate funds, no business can run and attain success. Present
report is going to discuss about various sources of finance and their implications on the business
enterprise. The present report will explain cash, sales and production budget with their
calculation. Furthermore, this report is going to discuss the major financial statements and ratio
analysis of Royal hotel which is a small business enterprise in UK. At the end, capital budgeting
methods will be applied to select the most viable investment project for cited venture.
TASK 1
1.1
Royal hotel is one of the new start-up firms that is opening under government schemes.
The cited venture may borrow finance from various sources. There are two types of sources that
is external and internal.
External source of finance Trade credit- This source of finance is offered by the seller to buyer as a standard trade
practice or to encourage sales. It can arise when a supplier of goods or services allow
customers to pay for goods and services on a later date (Bachelier, 2011). Apart from
this, it can be taken from bank in case of import and export of goods at specific rate of
interest. It proves to be an expensive source of finance if payment is not made within the
discount period. Venture capital- It is suitable for new or growing business under which equity or loan
capital is provided by private investors or other financial institutions. With the help of
this source, firm can raise huge amount of fund for the business. Under this option,
Venture capital firm makes investment in company’s share and get shareholding and
voting rights (Brealey and et.al, 2012). Bank Loan- All bank loans are available at specified interest rate and in the form of credit
that is often extendable for a specified period of time. Under this, rate of interest is
charged on the borrowed amount. Lease - It is a kind of contract under which one party agrees to give property on rent
which is owned by them to another party. Terms and conditions for lease are determined
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by lessor and lessee mutually (Chapra, 2011). Firm can fulfil its maximum needs by
taking assets on lease.
Internal source of finance Personal savings- Personal savings are the backbone of many small businesses. If firm
does not have any assets but still have personal finance then it can be very useful to start
any business.
 Retained earnings- It is the part of revenue which remains after paying all expenses from
earned revenue (Baker and Powell, 2009). The amount of retained earnings is used to
meet working capital needs of corporation and mainly paid to the owner.
1.2
Following are different implications of sources of finance which can affect business
operations-
Sources of
finance
Legal
implications
Financial
implications
Bankruptcy Dilution of
control
Trade credit The agreement or
deal related to
documentation
depends upon
both parties and
their mutual
understanding
(Beaver and et.al,
2011). It is not
necessary to sign
the paper of
agreement.
It have average
cost of finance
In situation of
bankruptcy, the
owner will give
the payment to
creditors at first
and then, amount
will be paid to the
venture capital
firm.
Control will not
be diluted
Venture capital In this source,
legal agreement is
necessary. Both
It includes high
cost and high risk
Same as above Control will be
diluted
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