Financial Reporting and SMEs

MANAGING FINANCIAL
RESOURCES

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 Sources of finance..................................................................................................................3
1.2 Implication of financial resources..........................................................................................4
1.3 Appropriate source of finance for Lilliput............................................................................5
TASK 2............................................................................................................................................5
2.1 Cost of financial sources........................................................................................................5
2.2 Significance of financial planning.........................................................................................6
2.3 Information needs for making decision.................................................................................6
2.4 Impact of finance on the financial statements........................................................................7
TASK 3............................................................................................................................................7
3.1 Budget for assessing cash position within the company........................................................7
3.2 Computation of cost of one unit and selling price................................................................9
3.3 Assessing viability of one project with help of financial tools............................................10
TASK 4..........................................................................................................................................11
4.1 Discussion of financial statements along with their components and purposes..................11
4.2 Segregation between financial statements of various types of firms...................................11
4.3 Analysis of financial statements of Sainsbury Plc using various financial ratios................12
CONCLUSION..............................................................................................................................13
References......................................................................................................................................14

Introduction
Financial management is an essential part of business that supports an entity in expanding
their business and sustaining in the corporate world for longer duration. The prime objective of
any company is to gain high profit for that they have to utilize their monitory resources
effectively. With the help of effective management company can get succeed and can gain
competitive advantage too (Derrien and Kecskés, 2013). Government is supporting to the small
firms so that they expand their business and can contribute in the economy development of the
country. Present report is based on Lilliput which is an limited firm that provides kids weak in
UK and many more countries. Study will discuss the sources of finance and their implication in
the business. Cost of several financial sources will be analyzed in this assignment. Calculation of
cash budget, unit cost will be done in order to make effective pricing decisions.
Task 1
1.1 Sources of finance
Lilliput is working well in UK and Indian market; it offers variety of kids wear to
consumers. For the expansion of the firm or for opening more stores in the country cited firm
needed funds. Several sources of finance available for the entity are as described as below: Bank loan: It is an important source that can fulfill long term financial need of the
organization. Financial institutes grant loan for the expansion to business units. As per
the scheme of government “ Big opportunities of small firm” financial institutes have to
grant the loan to small firms at lower interest rate. They offer them short and long term
financing. Apart from this repayment schedule is easy so small firms can afford it easily,
that does not create huge burden on the entity (Knyazeva, A., Knyazeva and Masulis,
2013). Venture capitalist: There are many investors those who invest their money in the small
firms to gain high returns. They look for the profit margin of the entity and accordingly
they take their investment decisions. Lilliput can convince the investors so that they
invest their money in the cited firm. Retained earnings: It is another source of finance available to the Lilliput, in which cited
firm can retain its profit and can reuse the amount for the expansion of business. In this
organization will not have to pay interest to the lenders so liability will be control. That

can help in accomplishing the objective of the organization significantly too (Derrien and
Kecskés, 2013).
 Sales of assets: Lilliput can sale its assets for the development of the organization. It can
sales its building or any other equipment to collect money. Though it reduces the assets
of the organization but help in making control over liabilities.
1.2 Implication of financial resources
Different financial sources impact on the business units to great extent, it is necessary for
the entities to look upon implication and accordingly they have to make their decision.
Implications of different sources are as following:
Bank Loan:
It is one of the most common and effective source. Bank always charges interest over
lending amount that is the financial implication of this source (Knyazeva, A., Knyazeva and
Masulis, 2013).. Borrower like Lilliput has to pay documentation fees, security amount against
the loan amount. Financial institutes make contract with the borrower, in case if company fails to
repay on time then banks have power to cease its inventory to recover its loan amount, that is the
legal implication of bank loan source. In addition to this it is good financial source because in
this organization needs not to share its ownership with the banks, they can take business
decisions by own. But through bank loan company can collect huge money in one single shot so
that is positive impact on this source too (Derrien and Kecskés, 2013).
Venture capitalist:
In this Lilliput has to pay interest to the investors on its invested amount that is negative
implication of this source. That is the legal agreement between capitalist and borrower and both
have to follow terms and conditions. The negative implication of this source is that Lilliput will
have to share its ownership with the capitalist. Individual becomes shareholder and company will
have to pay divided to the shareholder every year. Apart from this, investor become able to
influence the business decision of cited firm (Knyazeva, A., Knyazeva and Masulis, 2013)..
Retained earning:
It is the type of source in which own capital or part of profit is being used by the firm for
further development. No financial implication is attached with it. In addition to this ownership
does not get diluted by opting this source for expansion of business.
Sales of assets: