ProductsLogo
LogoStudy Documents
LogoAI Grader
LogoAI Answer
LogoAI Code Checker
LogoPlagiarism Checker
LogoAI Paraphraser
LogoAI Quiz
LogoAI Detector
PricingBlogAbout Us
logo

Sources of Finance for Businesses

Verified

Added on  2020/02/14

|25
|7460
|120
AI Summary
This assignment explores the various sources of finance available to businesses. It distinguishes between internal sources, such as retained profits and sales of assets, and external sources, including bank loans, leasing, overdrafts, share capital, and supplier/creditor financing. Students are expected to demonstrate an understanding of these different funding options and their implications for businesses.

Contribute Materials

Your contribution can guide someone’s learning journey. Share your documents today.
Document Page
MANAGING FINANCIAL
RESOURCES & DECISIONS

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
1.1...........................................................................................................................................3
1.2...........................................................................................................................................4
1.3...........................................................................................................................................6
LO 2.................................................................................................................................................7
2.1...........................................................................................................................................7
2.2...........................................................................................................................................8
2.3 ..........................................................................................................................................8
2.4...........................................................................................................................................9
LO 3.................................................................................................................................................9
3.1...........................................................................................................................................9
3.2.........................................................................................................................................11
3.3.........................................................................................................................................12
LO 4...............................................................................................................................................13
4.1.........................................................................................................................................13
4.2.........................................................................................................................................13
4.3.........................................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
Document Page
Document Page
Illustration Index
Table 1: Financial statements.........................................................................................................11
Table 2: Projected budget for Radisson Plc..................................................................................12
Table 3: unit cost calculation.........................................................................................................14
Table 4: PBP..................................................................................................................................16
Table 5: NPV calculation...............................................................................................................16
Table 6: difference between sole traders and public firms............................................................18
Table 7: Ratio analyses of Marriott International hotel.................................................................20
Table 8: ratio analyses...................................................................................................................21
Table 9: Ratio comparisons...........................................................................................................21
Table 10: Liquidity ratio................................................................................................................22
Table 11: Profitability ratio comparison........................................................................................22

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
INTRODUCTION
Managing financial resources aims to develop an in-depth understanding in relation with
the techniques of accountancy to manage financial resources significantly. Considering the
nature of present market which is highly competitive and complex, in such a situation, it is the
biggest challenge for organizations to operate successfully. To survive in present competitive
market, a small entity needs to take proper decision so that it can sustain for longer period and
increase its market share (Brunzell and et. al, 2013). For the present report, Radisson plc is being
taken into account. It is a medium sized computer software manufacturing company. Currently, it
is limited to London only but now, it is planning to expand its operations around UK. Sources of
finance available to Radisson plc and cost of several sources will be discussed in this assignment.
For evaluating the financial performance of entity, ratio analysis, unit cost, pricing decision, etc.
along with various calculations will be illustrated in this report.
LO 1
1.1
Organizations have many options of raise finance, it totally depends upon the size and
nature of business. Equity, debt, debentures, retained earning etc. are various sources of finance.
Sources of finance are the most important part for expanding business or to run operations of
small sized firm significantly. It is very important to understand attached cost also because large
organization can collect money easily but for small firms it is difficult task so they should choose
such sources which help to control over its liability. So enterprises needs to opt such options in
which less prices are attached. Radisson plc is working well in the market, to increase its market
share it needs various source of finance. For expanding the business, it needs huge financial
support. Operation manager of the organization believes that there are lots of opportunities of
expansion. With the significant use of funds, corporation can accomplish its objective. Mainly
there are two types of sources of finance:
ď‚· Internal
ď‚· External
Internal sources
Document Page
It is the source of capital which is generated by internally by the business. Funds can be
raised from internal sources, these are easily available funds for the company. Categorizations of
inside sources are below:ď‚· Share capital: It consists of all funds which is raised by the firms in the exchange for
other shares such as preferred shares etc. The amount of share capital is shown in the
balance sheet and if owner of Radisson plc wishes to resell these in secondary then
individual can sale it easily. Difference between both prices do not impact on the share
capital of the organization.
ď‚· Retained profitability: It is the suitable source of finance, after calculating the net profit,
owner can choose the option either to reinvest the amounts or pay dividend. It is shown
into balance sheet of the organization. This retained profit can be used by the Radisson
plc for further operations.
ď‚· Sales of assets: To raise funds in the enterprise, sales of assets can be choose as internal
financial source. Radisson plc can sell its such assets which have no future value for the
company. As it is software manufacturing firm so many time machines become out-dated
and have no use then in such condition Radisson plc can sell its non useable machineries.
External sources
ď‚· Bank loan: Being a small firm, bank loan is a suitable source of raising funds in the
business unit. The company can collect a huge amount by borrowing money from banks.
Financial institution lends funds at affordable interest rates to the entrepreneur.
Repayment schedule is also easy and entity can repay the amount by monthly instalments
(Elsas and et. al, 2014).
ď‚· Bank over draft: This type of financial source can give benefit to the organization to
mange its funds. Financial institutions provide over draft facilities to business persons as
per their credit worthiness. If Radisson plc opts this option then it will has to pay
minimum interest rate on it.
ď‚· Suppliers / creditors: It is the external source of finance in which Radisson plc can raise
funds by this form. It can buy machineries and equipments on credit. Supplier called
trade creditor of the firm. After certain time period company will have to pay total
amount.
Document Page
ď‚· Leasing: Radisson plc can choose this option in which it can give some items on lease
such as heavy machineries etc. Company has to pay regular amount as rent but product
belongs to the leasing firm.
Sources of finance of Radisson plc can be dived into two main parts such as Internal and external
sources (Fields, Fraser and Subrahmanyam, 2012).
â—¦ External sources: Banks loans, overdraft, leasing etc. options are available for the
Radisson plc . It can borrow money from the financial institutions, this is great
medium to collect huge amount of money. It can also take overdraft facility from the
banks because in this source it has to pay minimum interest rates to such institution.
In addition to this, it can opt option of leasing, as in this company needs not to invest
much amount so being a medium sized firm it can easily collect huge amount with
this source.
â—¦ Internal sources: Sales of assets, retained earning and share capital are some major
internal funds are available for the firm. As it is a software manufacturing firm, some
software have been out-dated so company can sell its non useable assets and can
gather huge amount. Retaining earning is another good source as because in which
company needs not to repay interest to banks or others. Share capital could be the
suitable option as company can sell its shares whenever it requires funds. In addition,
Radisson plc can also purchase addition shares to increase capital size.
Sources of finance
Internal External
Retained profit Share capital Sales of assets
Supplier/
creditor
Bank loan Leasing
Bank Over draft

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
1.2
Implications of different sources of Radisson plc are as maintained as below:ď‚· Bank Loan: Owner has to pay interest on the borrowed amount. Apart from interest, the
company has to pay documentation fees and security amount. If firm fails to repay
amount on time then bank can cease the firm and also, institution can have control over
the machines or assets (Indounas and Avlonitis, 2005). In this case, enterprise need not to
share the ownership as it has full rights and control over the entity.ď‚· Share capital: No economic implication takes place in this source. In Purchasing and
selling share, company will have make legal agreement and failure of fulfilling the
clauses may harm the organization. Ownership remain same no dilution take place.ď‚· Retained profitability: Organization has to pay divided to its stakeholders so it is
economic implication. No legal implication and no dilution of ownership is attached in
this source.ď‚· Sales of asset: No economical implication . No legal implication. Ownership remains
same, owner does not have to share its possession with anyone.ď‚· Bank over draft: Interest has to pay by owner. A legal contract made between both and if
owner fails to pay interest then banks can cease the operations.ď‚· Suppliers / creditors: No economical implications take place.
ď‚· Leasing: Radission Plc has to pay rent on leasing equipment. A legal contract formed
between both and if timely rent does not paid by the company then legally equipment will
be in the control of purchaser.
1.3
Aim of Radisson plc is to expand business and to increase its market share. For that, it is
important to choose correct source of finance so that maximum returns can be generated. As per
the given scenario, the company has recently acquired a long term contract to provide bespoke
software for various companies around UK. To utilize these opportunities effectively, it needs
huge funds which can support the firm for expansion. Bank loans can be suitable form of
financing. Owner can collect a large amount with the help of same. After getting this money,
firms need not to look further for new funds. It creates creditability in the market. In addition,
repayment is quite easy because interest rates are low. However, monthly instalment can easily
Document Page
be paid by the proprietor. Radisson plc can gain tax benefit by taking loan from financial
institutions (Lin and et. al, 2015). . Sales of assets can be the suitable option for the Radisson plc.
By opting this obtion company's liability will be in control so it will have option to gain more
profit. Hence, it will be suitable source of finance.
ď‚· Retained profitability will be the best option for Radisson plc as it can reinvest its own
profit for further operations. As it has long term objective then company can choose it
because it will help to minimize the liability of the firm and also it will raise money to
great extend.
ď‚· Bank loan will be appropriate source of finance because company can fulfil its medium
term objective with the help of this form. It helps in collection of huge amount with
minimum interest rate which is easily affordable by Radisson plc. In addition to his
company has tax benefit on choosing bank loan for raising funds.
LO 2
2.1
The company has many options of raising funds. However, it is the responsibility of
finance manager to select appropriate source of finance so that organization can accomplish its
objective. Radisson Plc aims at expanding the business and wants to provide software services
to big companies. Various costs are attached to different sources, which are stated as follows:ď‚· Interest and documentation cost: Radisson Plc will have to pay interest on borrowing
amount, apart from it, company will have to pay documentation, file charges at the time
of taking loan from financial institutions. Bank over draft is also come under the interest
cost, in this kind of source enterprise will have to pay amount, though it is cheaper but
mandatory to pay. Whenever entrepreneur takes loan from banks, individual is liable to
pay interest. Apart from this, it charges documentation fees from borrowers. This
includes file charge, administration, insurance etc. which also results in increasing
liability of the entity (Siano and et.al, 2010).ď‚· Dividend cost: This type of cost is attached with retained earning source. Radisson Plc
has to circulate dividend to all its stakeholder, this can reduce the money which is going
to reinvested. In capital share also Radisson Plc will have to bear divided cost. Primary
expenses of share capital is too much high.Dividend cost: This type of cost is attached
with retained earning source. Radisson Plc has to circulate dividend to all its stakeholder,
Document Page
this can reduce the money which is going to reinvested. In capital share also Radisson Plc
will have to bear divided cost. Primary expenses of share capital is too much high.
ď‚· Fluctuation cost:it is attached with the sales of assets, prices can get changed any time
and company will have bear loss if it gets down in future. It is also attached in leasing
cost, may be possible that in future equipment will be depreciated so this fluctuation will
give loss to Radisson Plc .
ď‚· Opportunity cost is attached with retained earning source. Apart from his it can harm the
financial position of the organization. By selling assets firm can gather huge amount but
it will reduce assets side and worthiness of the corporation and can harm the economic
condition of the business unit (Kuntchev and et. al, 2012). Leasing cost are attached with
leasing, company has to pay rental for hiring any equipment. In overdraft source, interest
cost and repayment cost of total amount is attached with it. And if owner fails to pay
interest then banks can charge heavy late payment charges on it.
Debt financing will be suitable for the Radisson Plc because in this company's
ownership does not get diluted. In addition to this, lender is liable to repay only the lending
amount only and it needs not to share its profit with anyone in near future.
2.2
Proper management of cash inflow and outflow is an essential key activity of business
units. Economic forecasting supports entities in evaluating the risks and uncertainties of the
workplace. For increasing market share by expanding business, Radisson Plc has to plan
properly so that resources and funds can get utilized effectively. It is a systematic approach
through which manager of Radisson Plc can plan to utilize the available resources effectively and
can estimate the future financial needs of the company. Importance of financial planning are
maintained below:
ď‚· Proper financial planning aids finance manager in determining the budget. Shortfalls can
easily be analysed and manager can plan to minimize the risk (Simon, 2015).
ď‚· Ratio analysis is a part of economic forecasting, through this manager can evaluate the
performance of competitors and can also judge its position in the market.

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
ď‚· With the help of proper financial planning, allocation of budget for each department can
be done effectively. Cash flow projections, balance sheet, income statement etc. can
assist in reducing the operational cost of the Radisson Plc.
ď‚· Financial planning assists in analysing the strengths and weaknesses of the company so
that organization can plan for utilizing strong points effectively and can decrease the
shortcomings.
ď‚· It supports in raising cash in the organization (Tarantino, 2001).
ď‚· With the help of financial planning Radisson Plc can mange its income and expenses
effectively.
ď‚· It acts as guide and assist in taking appropriate decision of investment.
ď‚· It is important to measure the financial goal and improve control over the financial
management.
ď‚· It helps to save money and these amount can be used by Radisson Plc in crucial time
period.
ď‚· Objective of financial planning is to ensure the availability of funds in the organization.
For proper planning, finance manager of Radisson Plc needs various information
regarding current position of the company and present market situation. Income statement, profit
and loss account, cash statement etc. can support business unit in extracting all the relevant
information.
2.3 ď‚· Operational level: Lower employees need informations about market worth, current
position, assets, liability, satisfaction level of employees, profit margin, dividend policy
of the Radisson Plc so that they can make appropriate decisions (Valle and Gomes,
2014). These informations help them to know their carrier path in the organization and
benefits for them. (Vij, 2012)
ď‚· Tactical level: Middle group persons such as managers, HR etc. need the information
about sales of the company, competitors performance, current trends, incentive schemes,,
sales target so that they can analyse these and can formulate plan to improving its own
position.
ď‚· Strategical level: It is used by top management of Radisson Plc, they need information
about daily operations, existing and historical data about customers, political changes, tax
Document Page
policies, trade regulations, etc. all detail needed by strategic level persons of Radisson
Plc.
For taking appropriate decision various stakeholders need some necessary detail. These
information assist them in taking their judgement. There are so many internal and external key
persons who are essential for the effective working of the Radisson Plc, they need varied
information. At several level company need various informations:
2.4
Table 1: Financial statements
Resource of
finance Income statement Balance sheet Cash flow statement
Issue of new share/
share capital no effect capital will increase cash flow will increase
Retained profit no effect capital will increase cash flow will reduce
Bank loan interest will reduce
profit
it will increase
liability increase cash flow
Bank overdraft no effect it will increase liability increase cash
Leasing profit will increase no effect no effect
Income statement does not get affected by share capital source, but balance sheet impacts
on it as share capital will increase capital side of his financial statement. It will increase the cash
flow in the organization.
Retained earning is internal source of finance so it will not affect the income statement on
the company but it reduces the cash inflow in the Radisson Plc because company will have to
reinvest its money and it can not hold it for longer period.
On Bank loans Radisson Plc will have to pay interest so it will increase liability of the
organization for medium term and will increase cash inflow in the firm.
Document Page
Leasing will increase income of the company to great extent. Bank draft will enhance the
liability of the firm for medium time period.
Availability of funds influence the financial position of the company. Being a small firm
Radisson Plc has to prepare balance sheet, cash statement profit, loss account, etc. These
financial statements get influenced by cash inflow in the organization (Wahlen, 2011). If
Radisson Plc borrows money from banks for long period, then it will be reflected as a long term
liability of the firm. This liability will affect the cash inflow and outflow of the corporation thus,
it will impact on cash statement and balance sheet. Banks charge interest on lending amount,
these interest will be expenses for the entity and it will impact on profit and loss account of the
organization. Rent paid, machinery purchased, salaries paid to employees, electricity bills all are
expenditures of the business unit and these will influence the cash flow statement and balance
sheet of the entity .
LO 3
3.1
Radisson Plc is currently using management tools for making sound decisions regarding
budget. Finance department of the company analyse cash inflow and out flow of the organization
and finalised budget. This is beneficial tool to track spending variances and to identify the
performance of the entity. Financial planning is very important to know the actual position of the
company and changes needed to improve those. Owner can identify the sales revenue and
expenses with the help of financial planning and can control over it.
Table 2: Projected budget for Radisson Plc
Income/Expenses June July August
Septem
ber October November
Cash revenues
Sales revenues 27000 28000 35000 60000 73000 95000
Total incomes 27000 28000 35000 60000 73000 95000
Acquisition 10000 12000 17000 29000 35000 44000

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Rent of premises 3000 3000 3000 3000 3300 3300
Purchase of
computers 4450 - - 4000 - 2000
Salaries to software
manufacturers 3000 3000 3000 3000 3200 3200
Additional
disbursement(Interest
and utilities) 500 500 600 650 680 750
Overall cash
expenditure 20950 18500 23600 39650 42180 53250
Net cash
flow(Surplus/Deficit) 2500 9500 11400 20350 30820 41750
Opening cash balance 6050 3450 7950 12400 18420
Closing cash balance 6050 3450 7950 12400 18420 23330
From the above projected budget, it can be concluded that from June to November
Radisson Plc revenues are continuously increasing. It means it is performing well and there are
huge chances of getting success if it expands its business. Sales revenues of the organization
reaches from ÂŁ27000 to ÂŁ95000 that reflects that bespoke software's demand is very high. So, in
near future also entity can earn huge profit if sales get increase in same manner. Closing cash
balance is continuously increasing which is positive sign for the business unit. Above
calculations show that Radisson Plc needs to control over their payments and has to pay salaries
to developers as per their skills and work performance. This financial planning is important to
identity the excess expenditures and will be able to reduce the expenses of the organization.
Company has sufficient NCF so it should invest in alternative areas to increase cash inflow in the
firm. This will support in enhancing market share of the corporation.
Why the company has spent more? What has happened?
Document Page
As Radisson Plc has estimated that demand in future will get high so it has hired more
employees but actual results was different. Thus, it has recruited more people but in such ration
demand of the product was less. Thus, this situation happened.ď‚· Planning: Radisson Plc is required to make contract with other candidates those who are
ready to work for the organization whenever it needs them. In the workload period these
candidates can work for the firm or it can say company should hire employees for short
term period.ď‚· Control: Managers need to cut their salaries if they do any wrong activity or perform
poor in the workplace.
ď‚· To measure performance: Radisson Plc needs to adopt performance evaluation technique
to measure performance of labour. Team leader needs to make report on individual
employee's activity and performance and should report to higher authority.ď‚· To improve: Higher authorities should divide people in group and team leader of each
group should report to supervisors. Supervisors need to coordinate with top management
by this way communication will be improve and message will pass to each section
effectively. Apart from this Radision can use feedback system this will enhance
coordination between employees and employer.
ď‚· To motivate: Managers should analyse the needs of each employees and should fulfil
their monitory or non monitory needs. Rewards and recognition is the great method to
motivate people in the workplace.
3.2
Cost is the major factor that affect the overall profit of the organization. It can be divvied
into two sections; variable and direct costs. Direct costs are those factors those are attached wih
the company and can not be changed such as firm has to pay salaries to staff members, has to pay
rent of building etc. Whereas variable costs are those elements which get changed as per the
market demand and production in the organization. Such as electricity bills, raw material
purchase cost etc. These all expenses can affect the profit margin of the entity, higher
expenditure can decrease revenues of the organization to great extent. Whenever Radisson Plc
manufactures a software, the company has to bear some fixed and variable expenses. These
expenditure costs can be used to calculate per unit cost of the product. Computation is as under:
Unit cost = Total cost / produced units
Document Page
Cost per unit = Total production cost/number of units produced
Table 3: unit cost calculation
Expenses Cost
Machinery cost ÂŁ24,000.00
employees cost ÂŁ13,000.00
Other fixed and variable expenses ÂŁ11,000.00
Total expenses ÂŁ48,000.00
Number of produced units 4000 units
Total cost / produced unit (ÂŁ48000/4000) = ÂŁ12
Pricing decision: Radisson Plc can use cost oriented method to calculate pricing. It can
be computed by adding cost with desired profit percentage. For instance, Radisson Plc desired
profit percentage is 15% then computation is as under:
Selling price = Cost + Expected profit percentage
= ÂŁ12 + 15% of ÂŁ12
= ÂŁ12 + ÂŁ1.8
= ÂŁ13.8
It can be articulated that if Radisson Plc sells its software at ÂŁ13.8 unit cost then it can
generate 15% profit and can increase its market share (Managing Financial Resources and
Decisions, 2013).
Market based pricing: It is the pricing strategy which includes competitors, position in the
market and needs of customers. This strategy focuses major on consumers and competitors and
accordingly set its cost of products so that it can gain desired profit margin. Prices is not set
internally by the managers, this model concentrates on skim pricing, value in use, segment
pricing strategies. The advantage of using this market based strategy is that by using this cited
firm can maintain sales and can gain loyalty of its customers.

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
3.3
Investment appraisal techniques are essential method through which company can select
suitable project which enhances its sales and provide support in expansion. In context to
Radisson Plc, with the help of this technique the company can take proper decision regarding
acquisition of resources such as computers, employees etc. Payback period, Net present value,
Accounting rate of returns etc. are some important methods.
ď‚· Pay Back Period (PBP): It is the effective accounting tool and supports in knowing the
time length in which Radisson Plc can recover its investment cost.
PBP = initial investment / cash inflow per period
Table 4: PBP
Year Project A Project B
Cumulative
cash flow of
Project A
Cumulative cash
flow of Project B
0 -25000 -22000 -25000 -22000
1 10000 -8000 -15000 -14000
2 12000 -10000 3000 4000
3 15000 12000 12000 8000
4 10000 7000 2000 1000
5 5000 6000 3000 5000
Payback period for project A = 2 +3000/ 15000
= 2.2 year
Payback period for project B = 2 + 4000 / 10000
= 2.4 year
So investment in project A will be beneficial for the organization because by choosing
this, it can recover the cost in less than 3 year.
Document Page
ď‚· Net Present Value (NPV): Difference between present value of cash inflow and cash
outflow termed as NPV. This technique is used by the business unit to analysis the
profitability of a projected investment (Basic investment appraisal techniques. 2012).
ď‚· NPV with 10% and 30% discounting factor:
Table 5: NPV calculation
Project A Pv @10% Present value Project B PV @ 30% Present value
Initial
investment 25000 25000
1 20000 0.909 18182 18000 0.769 13846
2 35000 0.826 28926 19000 0.592 11243
3 28000 0.751 21037 37000 0.455 16841
4 37000 0.683 25271 38000 0.350 13305
5 42000 0.621 26079 41000 0.269 11042
6 0 0.564 0 0 0.207 0
Total 119494 66277
NPV 94494 41277
377.98% 165.11%
Calculation shows that if Radisson Plc invest in project A then it can get high returns on
its investment. So, it will be better option for the organization.
Discounting rate is the rate which is decided by federal bank and differed from market rate. It is
used to analyse the discounted cash flow for determining the present and future cash flow in the
organization.
Zero is not good.ď‚· IRR (Internal rate of returns): It is the method which is mainly used in the capital
budgeting for the calculation of profitability on invested amount. It defines the actual rate
of return of invested amount.
Formula of IRR: IRR = a + A x (b - a)
B+A
Negative signs denotes that inflow is lower than outflow, it means less return on invested
amount and positive sign shows that inflow is higher than outflow.
Document Page
Calculation
IRR= 10+ 94494 (30-10) / (94494- 41277)
IRR = 10+ 94494 * 20 / 53217
IRR= 35.51
LO 4
4.1
Financial statements shows the economic position, strength, solvency and liability of the
company. The main financial statements of Radisson Plc are as below maintained:
ď‚· Statement of financial position: It is prepared by the firm at the end of financial year in
the month of March. It is known as balance sheet, consists of three components; assets,
liability and equity. Assets show the worth of the company, current financial position of
Radisson Plc is quite well. It has good records of cash in hand, inventory, account
receivables, building and machineries. Liabilities can be explained as obligations which
are necessary to pay in near future. Such as over draft, loans etc.
A= C+L
Radisson Plc assests can be calculated by using this formula. For instance in 2013 total
liability of company was 116,268 and total capital was 204,222 so assets will be 320490. So
assets shows worthiness of the organization and liability shows its debt. By putting both figures
financial statement can be prepared.
ď‚· Income statement: It is also known as profit and loss account. Sales revenues, dividend
income etc. are considered in the statement. Over all income after subtracting the
expenses, reflect profit of the company. Expenditures of the enterprise are as salaries,
depreciation of machinery, insurance of building, rent of premises etc. (Mariott
International Inc., 2016). Income statements show the revenues, profit or loss, expenses
of the organization. In the year 2013 Radisson Plc earned 22527 profit. Net sales of the
firm was 950484. In 2012 profit was 31222. It means Radisson Plc has reduced its
earning and comparatively has gain less profit than previous year. By making income
statement firm can compare its income with competitors and with previous performance.

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
ď‚· Cash flow statement: Overall cash inflow and outflow of the company is reflected in the
cash flow statement. Radisson Plc has good records of sales so as a small firm its cash
inflow is quite well. Investment activities, sales of assets etc. increase cash inflow in the
business unit. Statement of cash flow theory states that company is required to follow
norms and direction of GAAP while preparing cash flow statement. It is classified in two
phase receipts and payments. Receipts show the cash inflow and payment shows the
outflow. There are direct and indirect method to prepare this statement. Net cash flow can
be calculated by deducting inflow from outflow.
4.2
Table 6: difference between sole traders and public firms
Difference Sole trader Public or private company
Meaning It is the firm which has single
entrepreneur. Only owner has
control over its operations.
It follows the norms of company
act, all shareholders have equal
rights in the entity. Radisson Plc is
the private company.
Financial statements It is nor compulsory for the firm to
prepare such statements. Through
profitability statement company
can measure its performance.
CA, 2006 make it compulsory to
prepare all financial statements
such as cash flow statement,
balance sheet, profitability
statements and fund flow
statement.
Auditing It depends upon the choice of
owner.
Mandatory
Radisson Plc is a Private medium firm and it has to follow the standards of accounting. It
is mandatory for the organization to prepare all financial statements such as profit and loss, cash
flow etc. Company has to follow international accounting standards. TESCO is the public limited
Document Page
firm in which product price is can be fixed as per the market price. It is common for the Radisson
Plc to not to pay dividend to stakeholders but for TESCO it is compulsory to pay dividend.
Radisson Plc is the private firm it is very necessary to prepare cash flow, income,
balance sheet statements for the company according to the norms of GAAP. Whereas Softwire is
small sized sole trader firm. It is not necessary to prepare these statements. Softwire is sole trader
so need to to follow much instruction of GAAP. It can deduct expenses from earning to get
profit. But Radisson Plc has to calculate revenues, net income, net profit, net sales, etc.
4.3
Marriott International hotel is one of the largest hotel in UK. To compare it with another
company Sainbury is being taken into account which is operating in retail sector (Wahlen, 2011).
Table 7: Ratio analyses of Marriott International hotel
Ratios Formula 2014 2015
Profitability ratios
Gross profit 1966 2123
Net profit 753 859
Sales revenue 13796 14486
Document Page
Gross profit ratio GP / net sales * 100 14.25% 14.66%
Net profit ratio NP / net sales * 100 5.46% 5.93%
Liquidity ratios
Current ratio Current assets / current
liabilities
0.63 0.43
Quick ratio Current assets –
(Closing stock +
prepaid expenses) /
current liabilities
0.39 0.37
Efficiency ratio
Asset turnover ratio Sales / total assets 2.02 2.24
Receivable turnover
ratio
12.65 13.15
Table 8: ratio analyses
Ratios Formula 2015 2014
Profitability ratios
Gross profit 1208 1377
Operating profit 76 1009
Net profit (166) 716
Net Sales 23775 23949
Gross Profit Ratio (Gross Profit/ Net Sales) *100 0.05 5.75
Operating Profit Ratio (Operating Profit/ Net Sales) *100 0.003 4.21
Net Profit Ratio (Net Profit/ Net Sales) *100 (0.006) 2.99
Liquidity ratios
Current Assets 4505 4362

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
Current Liabilities 6923 12171
Closing Stock 997 1005
Current Ratio Current Assets / current Liabilities 0.65 0.36
Quick Ratio (Cu. Assets - Cl. Stock)/Cu. Liabilities 0.506 0.28
Effciency Ratios
Net Sales 23775 23949
Total Assets 16537 16540
Total Assets Turnover
Ratio Net Sales/ Total Assets 1.43 1.45
Cost of goods sold 22567 22562
Inventory 997 1005
Inventory Turnover
ratio COGS/Inventory 22.63 22.45
As per the above maintained ratios it can be concluded that Marriott International hotel's
gross profit ratio is 0.14 and Sainsbury’s 0.05 so Marriott is having good profit because sales of
the company is higher than other organization. Inventory turnover ratio explains that Sainbury is
using its assets in effective manner than to Marriott (Mariott International Inc., 2016).
Ratio calculation
Table 9: Ratio comparisons
Formula Sainsbury Morrison
Gross profit (GP/ sales)*100 5 (761/16816)*100=4.5
OP ratio (OP/ sales)*100 .3 (909/16816)*100=5.4
Return on capital (profit b4 tax &
interest / capital
employed)*100
548/169+5539*100
=9.60
792/
(2508+3594)*100=12.
97
Document Page
Liquidity ratio: The main objective of calculating liquidity ratio is to find the liquidity position of
the organization, so that mangers can make effective strategies to control over liabilities.
Table 10: Liquidity ratio
Formula Sainsbury Morrison
Current ratio Current assets+ current
liability
4505+6923
=11428
9171+ 5,543=14714
From the calculation it can be said that Morrison is performing well and it has sound
liquidity position.
Gearing ratio: The objective of calculating this ratio is to compare the equity of owners with
borrowed funds. By using this tool investors can identify that whether company will survive in
economic downturn or not.
Gearing ratio of Morrison
long term debt / (debt+equity)*100
2003/(2004+3756)*100
=34.77
Gearing ratio of Sainsbury
=169/169+5539*100
=2.96
So it can be said that Morrison is performing well.
Profitability ratio: With the help of this ratio actual performance of the company can be
measured by the managers easily.
Table 11: Profitability ratio comparison
Sainsbury Morrison
Gross profit ration 0.05 (Gp/rev)761/16816
=0.04
Operating profit ratio 0.003 (Op/rev)909/16816=0.054
Document Page
Return on capital 471/169+5539
=0.082
761/2004+3756
=0.132
From the calculation it can be said that Sinsubury is working well, so to improve its
earning more it will have to control over its liability. Company is using its assets well so it
should maintain that by this way it will be able to gain more profit.
Liquidity ratio
Sainsbury Morrison
Current ratio 0.65 1144/2273
=0.503
Receivables period of Morrison's:
(Trade receivables / Turnover) * 365 /days/
(239 / 16816) * 365 = 5 /days/
Payables in days, using the formula;
(Trade creditors / Cost of sales) * 365 /days/
( 2211 / 160055) * 365 = 50 /days/
CONCLUSION
It can be concluded that management of financial resources assist in smooth running of
business, by managing financial resources properly, company can expand its business and can
generate huge profit. Bank loans and personal savings can be the best financial resources for the
Radisson Plc. This in turn helps in increasing cash inflow within the entity. By calculating unit
cost and pricing effectively, the organization can properly select the best project and can increase
its market share.
REFERENCES
Books and Journals
1 out of 25
[object Object]

Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

[object Object]