Sources of Finance - Assignment
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Added on 2020-01-23
Sources of Finance - Assignment
Added on 2020-01-23
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Financial Resource and Decision Making
ContentsTask 1..........................................................................................................................................................2The sources of finance available to..............................................................................................................2Unincorporated business..............................................................................................................................2Internal Source........................................................................................................................................2Retained earning..................................................................................................................................2Share capital........................................................................................................................................2External Sources......................................................................................................................................2A bank loan.........................................................................................................................................2A bank overdraft..................................................................................................................................3Share capital........................................................................................................................................3Business Angels...................................................................................................................................4B) Incorporated business.............................................................................................................................41.2 The implications for using;....................................................................................................................5A.) Internal sources of finance.....................................................................................................................5Internal Funding versus Bank Financing.................................................................................................5Internal Funding versus Offering Stock...................................................................................................6Internal Funding versus Government Grants...........................................................................................6Internal Funding versus Offering Assets.................................................................................................6b) External source of fund...........................................................................................................................6Safeguarding the Resources.....................................................................................................................6Growth.....................................................................................................................................................7Ownership...............................................................................................................................................7Interest.....................................................................................................................................................71.3 The most appropriate sources of finance for Clariton Antiques Ltd......................................................8Working with Investors:..........................................................................................................................8Crowd financing......................................................................................................................................8Debt Based Financing:.............................................................................................................................9
Task 2..........................................................................................................................................................9Analyse the costs of the two sources of finance under consideration..........................................................92.2 The importance of financial planning for Clariton Antiques Ltd...........................................................9A) Budgeting...........................................................................................................................................9b) Implications of inability to back satisfactorily...................................................................................10c) Overtrading........................................................................................................................................11The remedy............................................................................................................................................112.3 Assessment of the information that will be needed to make decision on financing the takeover by....12a) The partners.......................................................................................................................................12The partners...........................................................................................................................................12Venture capitalist (We Finance Limited)...............................................................................................12Finance broker.......................................................................................................................................122.4 The impact on the financial statements if Clariton Antiques Ltd choose to go with............................13Venture capitalist.......................................................................................................................................13Finance broker.......................................................................................................................................13Task 3........................................................................................................................................................143.1 Analyses of the cash budget for Clariton Antiques..............................................................................143.2 How unit costs will be calculated to make pricing decisions...............................................................143.3 The viability of the projects using NPV investment appraisal techniques...........................................14NPV.......................................................................................................................................................14Payback period......................................................................................................................................15Average Rate of Return.............................................................................................................................16Task 4........................................................................................................................................................174.1 Discuss the key components of financial statements...........................................................................17Income statement...................................................................................................................................17Statement of cash flows.........................................................................................................................17Statement of changes in equity and gains..............................................................................................17Statement of financial position..............................................................................................................17Notes to the financial statement...........................................................................................................184.2 Comparing the format used by Clariton Antiques Ltd to presenting their financial statement with that of a partnership..........................................................................................................................................18The Statement of Equity........................................................................................................................18
The Balance Sheet.................................................................................................................................19The Income Statement...........................................................................................................................19The Cash Flow Statement......................................................................................................................194.3 Interpreting the recent financial statement of Clariton Antiques Ltd using appropriate ratios and making comparison with the previous year...............................................................................................20Bibliography..............................................................................................................................................21Task 1The sources of finance available toUnincorporated businessInternal Source Retained earning This is the cash that is produced by the business when it makes profits, another vital source of capital for any business; Take not that retained earning can produce cash the minute trade begins.For case, a start-up offers the main clump of stock for £6,000 cash which it had purchased for £3,000 (Ehrhardt, 2016). That implies that retained earnings are £3,000 which can be utilized to fund promote extension or to income for other trade expenses and costs. Share capital Contributed by the shareholders, the establishing business person (/s) may choose to put resources into the share capital of an organization, established with the end goal of framing the start-up. This is a typical strategy for financing a start-up. The founder gives all the share capital of the organization, holding 100% control over the business.
External Sources A bank loanBank loan gives a long term kind of fund for a start-up, with the bank expressing the settled period over which the credit is given (e.g. 6 years), the rate of interest and the planning and measure of reimbursements. The bank will as a rule requires that the start-up give some security to the loan, in spite of the fact that this security typically comes as individual assurances gave by the business visionary. Bank credits are useful for financing interest in settled resources and are for the most part at a lower rate of premium that a bank overdraft. Be that as it may, they don't give much adaptability. A bank overdraftThis is a short term sort of fund which is broadly utilized by new companies and independent companies. An overdraft is truly a loan facility, the bank gives the business "a chance to owe it cash" when the bank balance goes below zero, as an end-result of charging a high rate of premium. Subsequently, an overdraft is an adaptable source of back, as in it is just utilized when required. Bank overdrafts are incredible for helping a business handle regular vacillations in income or when the business keeps running into here and now income issues (e.g. a noteworthy client neglects to income on time). Two further credit related source of fund merit thinking about: Share capitalThis is external financial investors for a start-up; the primary source of external (external) speculator in the share capital of an organization is loved ones of the business visionary.
Sentiments contrast on whether loved ones ought to be urged to put resources into a new business. They might be set up to contribute considerable sums for a more drawn out timeframe; they might not have any desire to get excessively required in the day, making it impossible to day operation of the business. Both of these are positives for the business visionary. Be that as it may, there are pitfalls. Inevitably, pressures create with family and companions as kindred shareholders. Business Angels This is primary sort of external financial investors in a new business. Business Angels attendants are proficient financial investors who commonly contribute £11k - £751k. They like to put resources into organizations with high development prospects. Angel’s attendants have a tendency to have profited by setting up and offering their own particular business – at the end of the day they have demonstrated entrepreneurial aptitude (Few, 2009). Notwithstanding their cash, Angels regularly make their own particular abilities, experience, and contacts accessible to the organization. Getting the support of an Angel can be a noteworthy preferred standpoint to a start-up, in spite of the fact that the business person needs to acknowledge lost control over the business. B) Incorporated business 1. They make benefit by offering an item for more than it expenses to create. This is the most essential source of assets for any organization and ideally the technique that acquires the most cash.
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