Understand the Sources of Finance | Sweet Menu

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Added on 2020-02-05

Understand the Sources of Finance | Sweet Menu

Added on 2020-02-05

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MANAGINGFINANCIALRESOURCES ANDDECISIONS

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TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1 FINANCIAL SOURCES FOR BUSINESS......................................................................11.1 Sources of finance for Sweet Menu.......................................................................................11.2 Implications of sources..........................................................................................................21.3 Evaluation of sources.............................................................................................................3TASK 2 IMPLICATION OF FINANCE........................................................................................32.1 Costs associated with the sources..........................................................................................32.2 Importance of financial planning...........................................................................................42.3 Information needs of decision makers...................................................................................52.4 Impact of finance on financial statements.............................................................................6TASK 3 FINANCIAL DECISIONS BASED ON FINANCIAL INFORMATION.......................63.1 Analyse budget......................................................................................................................63.2 Calculation of unit costs........................................................................................................83.3 Capital Investment Methods..................................................................................................8TASK 4 EVALUATE THE FINANCIAL PERFORMANCE OF COMPANY...........................114.1 Financial statements.............................................................................................................114.2 Difference between the statements......................................................................................114.3 Ratio Analysis......................................................................................................................12CONCLUSION..............................................................................................................................13REFERENCES..............................................................................................................................14

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INTRODUCTION Financial resources play an important role in the functioning of the business. The fundsare essential for survival. The purpose of this report is to understand the sources of financeavailable to the restaurant company Sweet Menu. It will reflect how the financial decisions aremade on the basis of the available information. It will also show the feasibility of differentbusiness projects by making use of investment appraisal methods. Some financial ratios are alsocalculated at the end in order to evaluate the financial position of the business. It is expected thatreport will be able to achieve its goals and objectives. TASK 1 FINANCIAL SOURCES FOR BUSINESS 1.1 Sources of finance for Sweet MenuFigure 1: Source of Finance Sweet Menu restaurant is making plans about opening its two new branches in CentralLondon and Croydon. A sum of £ 300000 and £500000 are needed for the investment (Ball,Jayaraman and Shivakumar, 2012). Hence, finance can be arranged from the two sources:Internal SourcesRetained profits – This amount is preserved after disposing off all the debts andliabilities. The source is mainly used in meeting the future contingencies such asexpansion, retrenchment etc (Bhowmik and Saha, 2013).1

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Sale of assets – It is the most easily available source within business. Funds can bearranged by selling some of the assets such as machinery, land, etc.  Personal savings – It is the most common form of finance available for theentrepreneurs. Three owners of Sweet Menu can arrange money from their respectivepersonal savings. External Sources Bank Loan – Most of the people arrange money from this source only. In these days,loans are available at easy formalities. Loan can be taken after fulfilment of certainrequirements (Brigham and Ehrhardt, 2011). Bank overdraft – The company will need liquid cash for managing its day to dayoperations. This need arises due to time gap between the collection and payments. Inorder to fulfil such gap, bank overdraft is the most preferred option. Issue of shares – It is another good option for Sweet Menu. Shares can be issued forsubscription among the public. It can be an IPO that is initial public offering. 1.2 Implications of sources The implications of the sources can be stated in the following manner:Retained earnings – The use of retained earnings can have an impact on the dividedpolicy of the company. The amount of dividend for the shareholders may get lower.However, there is no dilution of control and ownership in this option (Dada, Azim andUllah, 2014). There is no effect on the financial liabilities as money arising from thismode is regarded as the part of reserve and surplus.Bank loan – Under the option of bank loan, business owners of Sweet Menu are requiredto perform all the legal formalities. The deposition of collateral security to the bank isalso made (Winand and et. al. 2012). On completion of all the legal formalities, ownerscan make use of funds because the ownership is transferred to them. On the other hand, ifbusiness does not succeed, then collateral security given by the owners can go on sale.Bank overdraft – In this option, lender gives additional money to the entrepreneur. Theownership remains unaffected. Issues related to cash flows may arise because bankdemands overdraft to be repaid at a short notice (Ittelson, 2009).Hire purchasing and leasing – It is the most effective option when there is shortage ofcash. Hire purchasing and leasing can be done for any kind of machinery or equipment or2

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Understand the Sources of Finance | Sweet Menu