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Sources of Finance Report - Sweet menu business

   

Added on  2020-01-15

23 Pages5606 Words154 Views
MANAGING FINANCIALRESOURCES AND DECISIONMAKING
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TABLE OF CONTENTSINTRODUCTION ..........................................................................................................................1TASK 1............................................................................................................................................11.1 Identification of the sources of finance which are available to the Sweet menu in order toexpand their business operations.................................................................................................11.2 Implications of sources of finance........................................................................................21.3 Appropriate source of finance for Sweet menu restaurant....................................................4TASK 2............................................................................................................................................42.1 Cost of sources of finance.....................................................................................................42.2 Importance of financial planning..........................................................................................52.3 Assessment of the information needs of the different decision maker of Sweet menu........52.4 Impact of the sources of finance upon the financial statements of Sweet menu which areundertaken by them to meet their financial needs.......................................................................6TASK 3............................................................................................................................................73.1 Analysis of the budget and appropriate business decision based upon it.............................73.2 Calculation of the unit cost to determine the pricing of the product and services offered byBlue Island restaurant..................................................................................................................83.3 Assessing the viability of the project by taking into consideration the investment appraisaltools.............................................................................................................................................8TASK 4............................................................................................................................................94.1 Discussing the essential or main elements of the financial statements.................................94.2 Comparing the formats of financial statements for the different types of businessorganization...............................................................................................................................104.3 Interpretation of the financial statements by making analysis of the ratios of both therestaurants.................................................................................................................................16CONCLSUION..............................................................................................................................18REFERENCES..............................................................................................................................19INDEX OF TABLESTable 1: Income statement of Sweet menu......................................................................................6Table 2: Balance sheet of Sweet menu............................................................................................6Table 3: Percentage change in budget elements..............................................................................7
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Table 4: Calculation of payback period method..............................................................................8Table 5: Calculation of NPV............................................................................................................9Table 6: Ratio analysis...................................................................................................................16ILLUSTRATION INDEXIllustration 1: Balance sheet for sole trader...................................................................................10Illustration 2: Income statement of sole trader..............................................................................11Illustration 3: Income statement of partnership.............................................................................12Illustration 4: Balance sheet of partnership...................................................................................13Illustration 5: Company balance sheet...........................................................................................14Illustration 6: Income statement of company.................................................................................15
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INTRODUCTION Finance is one of the essential elements which facilitate execution of the businessstrategies and policies in the right direction. Financial manager of an organization plays a vitalrole in making optimum utilization of the financial resources by framing cost effective strategies.The present report is based upon the different business scenario which will discuss the sources offinance which are available to the Sweet menu business organization. Besides this, it also depictsthe implication and cost of the sources of finance which are undertaken by an organization tomeet their financial need. Further, it will state the importance of the financial planning inachieving success in the dynamic business arena. In addition to this, this report will developunderstanding about the calculation of the unit cost which plays an important role in makingappropriate pricing decisions. This report will also shed light on the investment appraisaltechniques which helps in making suitable investment decisions. Further, it represents the ratioanalysis which helps organization in assessing the financial health and performance of anorganization.TASK 11.1 Identification of the sources of finance which are available to the Sweet menu in order toexpand their business operationsThere are several long and short term sources of finance which are available to Sweetmenu restaurant. By using the appropriate source of finance Sweet menu restaurant can raisefinance and there by become able to open the two new branches in Central London and Croydon.Long term sources of finance are those which provide financial assistance for the long period oftime and include share capital, retained profit and bank loan. Whereas short term sources refersto leasing and hire purchase which helps organization in fulfilling their short term financialrequirements. Sources of finance that firm can use are as follows.Share capital- Under this source of finance capital is arranged by issuing shares in thecapital market (Akortsu and Abor, 2011).In this regard firm needs to pass certain criteriathat are determined by the stock exchange. Only after passing these criteria firm can raisecapital by listing its shares in the primary market.Bank loan- Under this Sweet menu restaurant raise a loan from the bank at a specificinterest rate. This happens in case of fixed interest rate. In case of floating interest rate of1
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finance cost is not determined. It is advisable to the firms that they must take a loan at thefixed interest rate instead of floating interest rate.Retained earnings- In case of this source of finance operations are financed from theinternal sources. In this regard retained earnings are used which are a part of the earningsof the firm that remains after deducting all expenses from the cash flows. Hire purchase- This is a unique source of finance which is short term in nature. Underthis arrangement an asset is taken on lease and rent is paid (Ha and Lee, 2011). If rentpaid amount becomes equivalent to the purchase values then the asset is given to thelessee. Means that an asset is purchased by lessee from lesser by making payment ininstallment.Venture capital - Under this source of finance there is a company that gives a capital tothe firm. In return it gets a shareholding in the company. Such company participates inday to day management meeting and gives guidance to the firm regarding its investmentactivity (Beddow and Cohen, 2003). Along with this it also charge sitting fee for giving aconsultancy services.Debentures- It is a written acknowledgment of the debt taken by the firm from thegeneral public. In return firm pay an interest to the debenture holders at a specific rate. Asper law it is necessary for the firm to pay interest on debentures on a pre determined date.If default happen in same then debenture holders have a right to sue firm for nonpaymentof interest or principle amount to them.1.2 Implications of sources of financeFollowing are the implications of sources of finance.Sources offinanceAdvantagesDisadvantagesLegalCostSharesFinance cost canbe adjust as percompanyfinancialconditionIssue of sharesreduce control ofexistingshareholders onthe companyNeeds tocomplete paperformalities withthe regulatoryauthorities andunderwritersDividend paid onshares is a financecostBank loanNo dilution ofFinance cost canNeeds toInterest paid on2
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control on thecompany.increase if loan istaken at thefloating interestrate (Adams,2003).complete paperformalities withthe banks.bank loan is afinance cost forthe bank loan. Retained earningsNo finance costNon proper use ofretained earningsincreaseopportunity costfor the firm.No legalimplications.Opportunity costis cost of thissource of finance.Hire purchaseCapital asset isacquired and paidin installment.Hence, firm bearsless financeburden.By the time whenfirm madepurchasetechnology maybe obsolete.Need to sign acontract withlesser which isthe owner of thecapital asset.Rent paid tolesser is a cost ofraising capitalfrom this sourceof finance.Venture capitalFinance cost isadjustable innatureDilution ofcontrol on thecompanyRequire to signcontract withventure capitalfirm (JKirigia andet.al. 2008).Setting fee andreturn given to theventure capitalfirm is a cost ofthis source offinance.Debentures No dilution ofcontrol of thefirm takes placein the firmFirm have to bearfixed financeburden.Require to followrules andregulationdetermined by theregulatoryauthority.Interest paid onthe debentures isa cost of thissource of finance.3
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