Managing Financial Resources and Decision Making: Doc
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MANAGING FINANCIAL RESOURCESAND DECISION MAKING
TABLE OF CONTENTSINTRODUCTION.....................................................................................................................................4TASK 1.......................................................................................................................................................41.1Sources of finance available to the business firms..............................................................................41.2 Implications of different sources of finance.......................................................................................51.3 Appropriate source of finance for business projects..........................................................................6TASK 2.......................................................................................................................................................72.1 Analysis of cost of varied source of finance......................................................................................72.2 Importance of financial planning.......................................................................................................72.3 Information needs of different decision makers.................................................................................82.4 Impact of finance on the financial statements....................................................................................9TASK 3.....................................................................................................................................................103.1Cash budgets and sales budget for business firm..............................................................................103.2 Calculation of unit cost....................................................................................................................113.3 Project evaluation method...............................................................................................................11TASK 4.....................................................................................................................................................144.1 Financial statement of business firms..............................................................................................144.2 Format of financial statements.........................................................................................................154.3 Ratio analysis...................................................................................................................................20CONCLUSION........................................................................................................................................20REFERENCES........................................................................................................................................22Table 1 Computation of cash budget.............................................................................................10Table 2 Sales budget......................................................................................................................10Table 3 Computation of unit cost..................................................................................................11Table 4 Calculation of payback period..........................................................................................11Table 5 Calculation of ARR..........................................................................................................12Table 6 Calculation of NPV..........................................................................................................12Table 7 Computation of IRR.........................................................................................................13Table 8 Ratio analysis....................................................................................................................20Y
Figure 1 income statement of partners...........................................................................................16Figure 2 Income statement of sole trader......................................................................................16Figure 3 Balance sheet of sole trader.............................................................................................17Figure 4 Income statement of company.........................................................................................18Figure 5Balance sheet of company................................................................................................19
INTRODUCTIONA contract for an opening of Coffee concession is obtained. Café premises will be established inthe 1350 sq feet that offer 65 covers. This café will be opened in the museum and art gallery of theExeter. There is a huge opportunity in this business. Office of the firm will be opened in the Cleevdonarea of England. Firm is new in the industry and lots of financial problems will come in existence inupcoming time period. Finance is the important resource for the firm and it must be used with duecare because mentioned resource is scarcely available to the business firms. In the report sourcesof finance are described and their cost is evaluated. In middle part of the report, budgets areprepared and their values are interpreted in proper way. Project evaluation techniques are appliedon cash flows and most viable project is selected for the firm. At end of the report, ratio analysisis done and comments are given on the firm performance.TASK 11.1Sources of finance available to the business firmsThere are varied sources of finance that are available to the Coffee concession. All thesesources of finance have some merits and demerits. It depends on the firm that which source offinance it think is suitable for its business. Some sources of finance that readily available to thebusiness firms are as follows.External sources of financeEquity: It is the source of finance that are widely used by the business firms. Venture capitaland private equity are common variants that are used by small size firms in their business.Café business is opened at small level and for same there is no need to make use of equity.However, on large scale small size firms make use of this source of finance.Debt: It is a source of finance that is commonly used by each and every sort of the businessfirm irrespective of its size (Cao and Zhang., 2011). Debt is available at fixed and floatinginterest rate and firm have to select any option from available alternatives according to itsrequirements. Fixed interest rate debt is one in which finance cost remain fixed and remainunchanged even market conditions get changed. Contrary to this, in case of floating interestrate finance cost get changed with slight variation in interest rates of central bank. Fixed ratedebt provide safe zone to firms and most of them prefer to take debt at fixed interest rate.
Lease: Many times cost of buying an asset is very high and it is not possible to makeinvestment in same due to lack of finance. By taking asset on lease contractor can finance itsbusiness. There are varied sort of contracts that can be formed by lessor with lessee. Hence,one according to business requirement can enter in to specific type of contract of lease (Namand et.al., 2011).Internal source of financeRetained earnings: It is a part of revenue that remain at end of the year after deductingexpenses from same. There is no cost of this source of finance and due to this reason it isused by most business firms.1.2 Implications of different sources of financeFollowing are the implications of varied source of finance.Sources offinanceFinanceimplicationsLegalimplicationsDilution ofcontrolBankruptcyEquityFinance cost ofequity is veryhigh becauserate of dividendis always higherthen rate ofinterest on debt.Additionally,firm have to bearshare issueexpenses whichfurther elevatecost of equity.In order to issueequity throughventure capitalor private equityit is necessary tosubmit relevantpaper documentsto the investorfirm (Whan Parkand et.al., 2010).Dilution ofcontrol takesplace in case ofequity.In case ofbankruptcy ofbusiness firmpriority is givento the creditorsovershareholders inrelation torepayment ofcapital.DebtFinance cost isvery low but it isnecessary to payinterest everyIt is necessary tosubmit financialstatements to thebank forControl does notget dilute.If firm getbankrupt then itis liable first ofall to creditors
year or quarterlyto the creditorsofCoffeeconcession. Incase firm failedto pay bank loanfinancialinstitute can suesame.obtaining loanamount. Apartfrom this it isalso inevitable tocomplete somerelevant paperformalities.then toshareholders interms ofpayment ofamount.LeaseRent paid bylessor to lesseeis the financecost of lease.Amount of rentvary fromcontract tocontract forsame propertywith similarfeatures.Inevitable tosign papercontract withowner ofproperty.Same as above.Same as above.RetainedearningsNo financialimplications.Not legalimplications(Bolenz andet.al., 2010).Same as above.Same as above.1.3 Appropriate source of finance for business projectsAll sources of finance that are listed above have some merits and demerits. Each andevery source of finance cannot be suitable for all firms. This is because business conditions ofeach venture is different from each other. Therefore, fund requirements vary for each and everybusiness firm. Thus, before selecting any source of finance it is very important to evaluate all ofthem on specific factors. Equity is not the best source of finance for the Coffee concession. This isbecause it is going to build a small café for which huge investment is not required. Debt is best
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