Sources of Finance for Businesses
Added on 2020-02-14
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MANAGING FINANCIALRESOURCES & DECISIONS
Table of ContentsINTRODUCTION...........................................................................................................................3LO 1.................................................................................................................................................31.1...........................................................................................................................................31.2...........................................................................................................................................41.3...........................................................................................................................................6LO 2.................................................................................................................................................72.1...........................................................................................................................................72.2...........................................................................................................................................82.3 ..........................................................................................................................................82.4...........................................................................................................................................9LO 3.................................................................................................................................................93.1...........................................................................................................................................93.2.........................................................................................................................................113.3.........................................................................................................................................12LO 4...............................................................................................................................................134.1.........................................................................................................................................134.2.........................................................................................................................................134.3.........................................................................................................................................14CONCLUSION..............................................................................................................................16REFERENCES..............................................................................................................................17
Illustration IndexTable 1: Financial statements.........................................................................................................11Table 2: Projected budget for Radisson Plc..................................................................................12Table 3: unit cost calculation.........................................................................................................14Table 4: PBP..................................................................................................................................16Table 5: NPV calculation...............................................................................................................16Table 6: difference between sole traders and public firms............................................................18Table 7: Ratio analyses of Marriott International hotel.................................................................20Table 8: ratio analyses...................................................................................................................21Table 9: Ratio comparisons...........................................................................................................21Table 10: Liquidity ratio................................................................................................................22Table 11: Profitability ratio comparison........................................................................................22
INTRODUCTIONManaging financial resources aims to develop an in-depth understanding in relation withthe techniques of accountancy to manage financial resources significantly. Considering thenature of present market which is highly competitive and complex, in such a situation, it is thebiggest challenge for organizations to operate successfully. To survive in present competitivemarket, a small entity needs to take proper decision so that it can sustain for longer period andincrease its market share (Brunzell and et. al, 2013). For the present report, Radisson plc is beingtaken into account. It is a medium sized computer software manufacturing company. Currently, itis limited to London only but now, it is planning to expand its operations around UK. Sources offinance 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 11.1Organizations have many options of raise finance, it totally depends upon the size andnature 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 ofsmall sized firm significantly. It is very important to understand attached cost also because largeorganization can collect money easily but for small firms it is difficult task so they should choosesuch sources which help to control over its liability. So enterprises needs to opt such options inwhich less prices are attached. Radisson plc is working well in the market, to increase its marketshare it needs various source of finance. For expanding the business, it needs huge financialsupport. Operation manager of the organization believes that there are lots of opportunities ofexpansion. With the significant use of funds, corporation can accomplish its objective. Mainlythere are two types of sources of finance:InternalExternalInternal sources
It is the source of capital which is generated by internally by the business. Funds can beraised from internal sources, these are easily available funds for the company. Categorizations ofinside sources are below:Share capital: It consists of all funds which is raised by the firms in the exchange forother shares such as preferred shares etc. The amount of share capital is shown in thebalance sheet and if owner of Radisson plc wishes to resell these in secondary thenindividual can sale it easily. Difference between both prices do not impact on the sharecapital of the organization.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 showninto balance sheet of the organization. This retained profit can be used by the Radissonplc for further operations.Sales of assets: To raise funds in the enterprise, sales of assets can be choose as internalfinancial source. Radisson plc can sell its such assets which have no future value for thecompany. As it is software manufacturing firm so many time machines become out-datedand have no use then in such condition Radisson plc can sell its non useable machineries.External sourcesBank loan: Being a small firm, bank loan is a suitable source of raising funds in thebusiness 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).Bank over draft: This type of financial source can give benefit to the organization tomange its funds. Financial institutions provide over draft facilities to business persons asper their credit worthiness. If Radisson plc opts this option then it will has to payminimum interest rate on it.Suppliers / creditors: It is the external source of finance in which Radisson plc can raisefunds by this form. It can buy machineries and equipments on credit. Supplier calledtrade creditor of the firm. After certain time period company will have to pay totalamount.
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