Assignment on Managing Financial Resources and Decisions
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Added on 2019-12-28
Assignment on Managing Financial Resources and Decisions
Added on 2019-12-28
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MANAGING FINANCIALRESOURCES AND DECISIONS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Sources of finance available to the business firms................................................................31.2 Implications of sources of finance.........................................................................................41.3 Appropriate source of finance...............................................................................................6TASK 2............................................................................................................................................72.1 Cost of two sources of finance...............................................................................................72.2 Importance of financial planning for Clariton.......................................................................72.3 Information needs of decision makers...................................................................................82.4 Impact of finance on the financial statements.......................................................................9TASK 3..........................................................................................................................................103.1 Cash budget for the firm......................................................................................................103.2 Unit cost calculation............................................................................................................113.3 Project evaluation method...................................................................................................12TASK 4..........................................................................................................................................134.1 Financial statements of the firms.........................................................................................134.2 Format of financial statements.............................................................................................14...................................................................................................................................................16174.3 Ratio analysis...................................................................................................................23CONCLUSION..............................................................................................................................26REFERNECES..............................................................................................................................................27Figure 1Cash budget for the Clariton............................................................................................11Figure 2Calculation of per unit cost..............................................................................................12Figure 3Income statement of the company....................................................................................16Figure 4 Balance sheet of the company.........................................................................................17Figure 5Cash flow statement of the company...............................................................................18
Figure 6 Income statement of sole trader......................................................................................19Figure 7Balance sheet of sole trader..............................................................................................21Figure 8Cash flow statement of sole trader...................................................................................22Figure 9Income statement of partnership......................................................................................23Figure 10Balance sheet of the partnership.....................................................................................24Figure 11Profitability and liquidity ratios.....................................................................................25Figure 12Solvency ratios...............................................................................................................25Figure 13Effecinecy ratios.............................................................................................................26
INTRODUCTIONFinance is the one of the important resource that any firm required in its business. There aremany things that are related to the finance and need to be taken in to consideration in order to runbusiness smoothly. In the current study, varied finance sources are explained and implications ofsame are discussed. Budget is prepared and comments are made on same. Along with this,financial planning is also done and its importance is discussed in detail. At end of the study,project evaluation method is applied on cash flows and performance of the firm is evaluated byusing ratio analysis method. Comments are made on the firm performance.TASK 11.1 Sources of finance available to the business firmsBusiness operations at large and small scale are performed by the business firms and inorder to execute same at ground level lots of amount is required. It is usually observed thatbusiness firm does not have sufficient amount of cash in its business and due to this reason thefirm requires fund time to time (Philippon and Reshef, 2012). Some sources of finance which areoften used by the unincorporated and incorporated business firms are as follows.Unincorporated businessThose business organizations which are operated by the sole trader and partners areincluded in category of unincorporated business. Sources of finance that comes underunincorporated business are as follows.Venture capital: Unincorporated business often use venture capital as a source of financewhen they need huge amount of fund to finance large size projects which will acceleratefirm growth rate. In order to raise capital through mentioned source of finance, businessfirm is required to enter in the contract with VC Company. As per contract, VC firm willmake investment in the specific sequence up to certain amount in different intervals. VCfirm in order to make decisions take peculiar interest in the firm cash flows which arerelated to the current year and efficiency level of the management (Yescombe,, 2011).Through venture capital, large size projects regular funding is ensured by the firm.Bank loan: There is no company in the world which does not have debt in its balancesheet. This is because; every time the firm cannot fund its business project throughequity. If same will be done then there will be danger of imbalance in the capital structure
and fast growth in the finance cost. Hence, to meet short and long term finance needs,organization regularly finances their projects through bank loan.Lease: It is another source of finance that is used by the unincorporated business firms.Under this, Clariton take asset on lease from the owner of property. Sometimes, businessfirm does not have sufficient amount of money in its business (Hyman, 2014). Thus, inorder to meet finance requirement, organization takes asset on lease and abstain frommaking heavy amount of capital expenditure in the business.Retained earnings: It is a portion of sales revenue that remains after deducting all sortsof cash outflows from the cash inflow amount. This source of finance is used by the firmat the large scale.Incorporated business Incorporated business refers to the company which is a separate entity from its owners.Sources of finance for incorporated business are given below.Shares: Equity is issued by the firms that can issue shares through the stock exchange.Those firms who want to issue shares sign paper with stock exchange and bring their IPOin the market. Contact is established with the underwriter and in case offer remainunsubscribed then in that case underwriter purchase the firm’s shares. Thus, it is ensuredthat specific amount will be raised in each and every condition through IPO.Debentures: Debentures are the long term source of finance which is issued by the firmto obtain funds from the varied sort of investors. Under debenture, company guaranteespayment of certain amount of interest in the specific duration (Shreve, 2012). Thus, thosewho wants to earn regular income make investment in the debentures.1.2 Implications of sources of financeFinanceimplicationsLegalimplicationsDilution ofcontrolBankruptcyVenture capitalIf Clariton israising fundthrough relevantsource of financethen it will needto pay heavyIn VC it ismandatory toallow membersof relevant firmto participate inthe BoardControl isreduced withaddition of newshareholders inthe businessfirm. If firm getsbankrupt thenpayment is madeto the creditorsand then toshareholders.
amount of cost.VC finance is thedearer source forthe Clariton. meeting which isconducted onquarterly basis inthe business firm(Iqbal andMirakhor, 2011).Bank loanBank loan isavailable atstationary andnon-stationaryrate. In case ofboth, it ismandatory tomake payment tocreditors on time.In case ofdefault, creditorscan sue Claritonfor non-payingdebt amount tothem.Control remainunchanged.Same of venturecapital.LeaseRent amount ispaid to the lessor.Amount of rentdepends on theterms of contract.Mandatory topay rent amountto the lessor ontime.Control remainunchanged.Same of venturecapital.SharesIn case of shares,dividend amountis paid by thebusiness firm tothe shareholders.Cost of financeof equity is huge.It is notinevitable tocredit dividendamount each yearin bank accountoftheshareholders.Same of venturecapital.Same of venturecapital.Debentures Interest of fixedor flexible rate ispaid to thedebentureholders.Like bank loan, itis necessary topay interest tothe creditors.Control remainsame.Same of venturecapital.Internal sources of finance
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