(solved) Managing Financial Resources and Decisions
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Added on 2020-01-28
(solved) Managing Financial Resources and Decisions
Added on 2020-01-28
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MANAGINGFINANCIALRESOURCES &DECISIONS
INTRODUCTIONThe financial resources play an important role in a business corporation. The variousresources are used by the company to raise its capital. The purpose behind preparation of thisreport is to reflecting the different sources of finance used by Sweet Menu Restaurant Ltd andthe decisions made by it. The another importance for preparing this is to analyse the costs of thesources of the finance (Anandarajan, Anandarajan and Srinivasan, 2012). The financial ratioshave to be explained in this report for the better understanding of it. Sweet Menu Ltd is arestaurant which is established at Gants Hill in East London. It is the listed company and has thetwo branches at the different places in London. TASK 1 1.1 Sources of Finance available in BusinessFinance is such invariant requirement to any business which is helpful in the growth of it.There are several sources for the financing of a business enterprise. There are mainly two typesof sources available to for financing in Sweet Menu Restaurant Limited namely internal andexternal sources. These are as follows:Internal SourcesThese are such source of finance which are generated with in the business only. Thesecan be of two types short term (working) capital and long term (fixed) capital.Short-term Capital: The major source of finance are Banks. Here, the Banks finances onthe short term basis to Sweet Menu Restaurant Ltd where the working capital is used forthe financing the business. It also provides the bridge finance to the company toovercome from the temporary shortage. It involves the short term money which isrequired for the day to day expenditure of the business. Long-term Capital: This capital is generally provided by the stockholders and thebondholders of the company (Boiral, 2011). It is helpful for the large scale investment.There are various sources of business capital such as owner's equity capital, sales ofsecurities, retained earnings and lease financing. External SourcesThese sources are used when large amount of capital is required for the business. This iscollected from the outsiders of the organization. The capital which is generated from outside of
the business comes under this. There are the following sources of finance in Sweet MenuRestaurant Ltd:Shares: Here are two types of shares through which the capital can be collected for thegrowth of the company. Ordinary shares includes the equity which are allotted top thepublic and the others whereas the preference shares are those which are generally issuedto the investors, partners and other members of the company.Borrowings: The long term loans are generally acquired by issuance of debentures. It hasa fixed rate of interest and helpful in making profit to the company (Broadbent, andCullen, 2012). There are other various types of loans which are available at fixed andvariable rate of return. 1.2 Implications of sources of financeThere are various implications over the different sources of finance. These implicationsare legal, financial, dilution of control implications and bankruptcy. Sweet Menu Restaurant Ltdalso has the above mentioned implications for both internal and external sources of finance.These are discussed as below:Legal Implications: In case of Sweet Menu Restaurant Ltd, the legal implications can bearise while offering the shares to the public. The legal terms do not allow the business tooffer initial public offering to raise its capital. Also, cannot mortgage on the property dueto the changing rate of interest (Brief and Peasnell, 2013). The different taxes alsocharged by the government for availing the long term as well as short term loans.Financial Implications: These implications are related to the finance of the businesswhich is invested to make profits. Under this, both the debtors and the shareholders areentitled to be paid by the company as per their rate of interest. Dilution of Control Implications: Dilution means the reduction of the ownershippercentage of the share of the person in the business. It is generally caused by theissuance of the new shares. For example, a company issue 100 shares to 10 shareholders.Every holder owns 10% of the company. And after this it offers secondary issue of 100share to 10 persons again then at this time each person will own 5% of the company. Itshows the reduction of the ownership percentage. Bankruptcy Implications: The bankruptcy occur when the total borrowings exceed theassets of the business. Many times it happens that the business is bankrupt because of
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