Financial Management for Success

This solved assignment delves into the crucial aspects of financial management, encompassing resource allocation, cost control, investment decisions, and strategic planning. It examines how effective financial management contributes to organizational success by facilitating informed decision-making and optimizing resource utilization. The assignment analyzes real-world examples and theoretical frameworks to illustrate key concepts and their practical implications.

Managing Financial Source and Decision
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Table of Contents
INTRODUCTION................................................................................................................................4
TASK 1.................................................................................................................................................4
1.1 Identification of Financial source for Pride Ltd company.........................................................4
1.2 Implication of different financial source....................................................................................5
1.3 Appropriate source of Finance for Pride Ltd.............................................................................5
TASK 2 ................................................................................................................................................6
2.1 Cost of different source of Finance............................................................................................6
2.2 Importance of Financial Planning..............................................................................................6
2.3 Information needed for decision makers or managers of the organisation................................7
2.4 Impact of finance on financial statement...................................................................................7
TASK 3 ................................................................................................................................................8
3.1 Analysis the budgets and making appropriate decisions...........................................................8
3.2 Calculation of unit cost and make pricing decisions using relevant information......................8
3.3 Assess the viability of a project using investment appraisal techniques....................................9
TASK 4...............................................................................................................................................10
4.1 Discuss the main financial statements.....................................................................................10
4.2 Compare appropriate formats of financial statements for different types of business............10
4.3 Analysis the financial statements using appropriate ratio and comparisons in both internal
and external....................................................................................................................................11
CONCLUSION..................................................................................................................................13
References..........................................................................................................................................14
Online.............................................................................................................................................15
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INTRODUCTION
Financial sources means the money available to the business for spending in various
businesses activities like cash, liquidity, securities and creditors. In order to enter in business
company need to insure the sufficient availability of funds to carry on business activities and not
just to carry on but to survive and overcome competition and then make profit. So the main aim of
this project is to understand the financial sources available for Pride company ltd. and the
implications of the financial sources are discussed. Further in the study evaluation of the
appropriate source of finance is mentioned and analysis of the cost of difference source of finance is
mentioned. Budget of the company is analysed and price decisions using relevant information is
discussed.
TASK 1
1.1 Identification of Financial source for Pride Ltd company
The main aim of company to achieve the goal of profit maximisation by carrying on various
activities of manufacturing goods or providing services. In order to achieve goals Pride Ltd
company need finance and for finance company need financial source. Financial source are sources
available for company to carry on business activities(Anderson, Sweeney and Cochran, 2015).
Business activities can be carried to fulfil short term or long term business operation. So according
to the time period the sources of finance are also available in short term and long term finance. So
following are the source of finance available for the company
 Equity: The major source of finance for any business firm or organisation is Equity source.
It is the source from which the company can raise millions of fund. Company can use
financial operation by equity, debt or both. Equity is cash incurred in business either by
owner's own cash or by group of investors(Yezegel A., 2013). So company issue shares and
collect fund. Share are issued in direct proportion to the amount needed by the person so
that majority of the money can be arranged to control business. It can be launched through
IPO or FPO.
 Debt: The second major source of finance that Pride Ltd. Company can arranged is from
debt source. Debt source is source from which a company takes loan from external source at
favourable interest rates like fixed or floating. In fixed interest rate the company pay interest
at fixed interest throughout loan period where as in floating interest rate where company
pays interest with principle amount in reducing balance method.
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 Retained Earning: A company does not distribute all its earning to its share holders. It
generally keeps some profit with it in form of retained so that it can be used in future if
company faces some problem. It is internal source of financing, so retained earning can also
be a major source of finance for pride Ltd. company.
 Private equity: Another source of finance is private equity in which the company takes loan
from private source and promise to pay loan within a certain time period. Some equity
source available for small business is friends and family, Business relatives and other
concerned people. But for large equity source of investment is from capital investment. The
purpose of this is to acquire equity ownership in the company.
1.2 Implication of different financial source
Equity Source of Finance: These are major source of finance for any business but it have
some advantages and disadvantages too. The advantages is that company can issue the require
capital and make fund available to business but for that company have to pay dividend to their
shareholders (Brigham and Ehrhardt, 2013). So the disadvantages is the dividend paid can be higher
then interest received and can increase cost of capital but advantages is interest is flexible and can
be managed.
Debt: Debt source is good source of finance but it have some disadvantages too. Its interest
rates are high as compared to other financial source and interest rate can be of two type fixed or
flexible. In fixed interest rates is fixed even paid interest rate with premium and may be costly for
the company. In floating interest rate changes and it is difficult for the company to measure the
profitability. A loot of paper work and legal issues is also faced by company and can be legal
implications for the company.
Retained Earning: Through retained earning source of finance Pride company Ltd does not
have any legal complication and it does not have any impact in controlling system so it does not
have any have any negative impact on firms activity.
Private Source: For private source Pride Ltd company can have a lot of legal implications
and paper work needed and have to be very clear in term of rules and regulation so that dilution of
power for shareholder can be made possible.
1.3 Appropriate source of Finance for Pride Ltd
In selecting appropriate source of finance Pride Ltd company needs to see cost incurred in
the sources an the time period in which sources are available is considered. So for that Equity, debt,
Retained earning and Private financial source is best for the company (Certo S., 2015). Pride Ltd
company also need to identify the current financial position of the company to select appropriate
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source of finance. So manager of Pride Ltd can look for the positive and negative aspect of these
financial sources so that needed fund can be raised and to carry on day to day operations of
business. If ride Ltd. uses equity source of finance then dilution of power can be made among
shareholder and if company use Debt source of finance then liability to pay in time in future can be
increased. Pride Ltd company can not use the private equity source of finance as it will increase the
majority in number of share holders which will create problem in dilution to shareholder and if
company take retained earning as source of finance the profit to share holders distributed will be
minimised and company can't fulfil their need from this source. So for pride Ltd company the best
source will be to Equity and debt.
TASK 2
2.1 Cost of different source of Finance
Equity: Cost of equity for the company is dividend paid by issuing of shares to their share
holders and cost incurred is issuing share. So equity share capital cost can be high for company if
company is paying high dividend and various rates and taxes by government and Securities
exchange board is also cost for the company. So to make favourable source its dividend paid can be
adjustable by top level management of the company.
Debt: Interest rates are cost for the debts of the company which can be of two type fixed or
floating. The Pride company can chose floating interest rate as its interest reduces as payment in
instalment gone to bank (Dekker and Fleischmann, 2013). Sometime fixed interest rate can be
higher because its interest never changes till the loan period. A percentage of discount in interest
offered by bank to company can be taken so it is up to company whether they go for floating
interest rate.
Retained earning: It is the only source of finance which company did not have to incurred
the cost because it is source available from fund of profit which will be distributed to shareholder.
So retained earning have zero cost in source of finance. So all the three sources of finance is good
source for the company in term of cost insured by company.
2.2 Importance of Financial Planning
Finance is the source which is very limited in nature and to generate money it is very hard
because of market cost and market competition. So financial planning for manages of Pride Ltd
company is important because best financial planning can achieve the all aim, objective or goal of
business. So creating a financial plan can help not only goals of business but also to achive
marketing objective of both short and long term(DRURY., 2013). It becomes easier for the company
to take financial decisions and keep on track of the current operation of the business and if deviation
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is found then measures are taken to correct it. So financial planning includes
 Determine the amount of fund needed to Cary out day to day business operation smoothly
 Determine the source of fund, securities pattern going to be issued.
 Determine the policies and procedure in suitable manner to proper utilise and administration
of fund.
So from this planning Pride Ltd company can properly utilise the source of fund and by
proper utilising of funds company not only achieve financial goals but also it develop extra external
source of finance that can be utilised in business.
2.3 Information needed for decision makers or managers of the organisation
Managers: Financial statement are the best source of information that managers can use at
different level to manage the current business activity and also to watch the proper utilisation of
fund is going in the company or not. So the mangers can manage the financial activities by sales,
purchase, marketing and operation department (Finkelman, A., 2015). In financial statement income
statements and balance sheet is best source of financial statement to analyse the current position of
the company. So the managers can take decisions of day to day financial operations of the business
at different department and their smooth functioning can be made in business.
Creditors: creditors are the one who lends money on business and for the lending by the
company the financial statement is best source of information that creditors can use to make
decision of how much amount should be given to Pride Ltd company. In financial statement
companies ratio analysis and balance sheet can be used by creditor to make decision on giving
credits to company.
Government: Government also needed financial statement of company to monitor taxes
being paid by the company or not because company is liable to pay taxes on business operations to
the government. So for that financial statement is helpful for government to monitor business
operations by company and whether the company is doing business activities under rules and
regulations of the government norms or not. It also compare the actual tax that need to be paid by
the company and tax that company is paying.
2.4 Impact of finance on financial statement
All financial activity of the company affect the financial statement. Like if Pride Ltd
company take debt loan the it will affect on balance sheet of company. On one side of the balance
sheet Liability of company increases and on other side of the balance sheet the current cash of
assets increases. If company issue share the equity shareholder of the liability side is increased and
amount paid up capital of equity increase on other hand company receive cash and bank balance
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will also increase. So thus financial activity affect the financial statement.
TASK 3
3.1 Analysis the budgets and making appropriate decisions
Budget is a financial plan which determine the cost, revenue and resources of an
organisation and prepare a full report so that such resources and funds are utilized effectively
(Finkler, Smith, Calabrese and Purtell, 2016). Budget are prepared by the managers so that they can
control the resources, communicate the plans to there various staff members and motivate them to
achieve there certain goals and objectives. Basically a company can prepare a cash budget, which
contain all the cash item and make sure to secure enough cash balance so that it can be fully utilized
in future. So that budget are important tool in any organisation, such that if budget are not prepared
in a proper manner, a firm cannot determined the actual requirement of the fund and resources in
there operational activity. If we see the cash budget of ABC Pvt Ltd., Govt. give the bid which does
not exceed £300,000 but ABC Pvt Ltd. only invest £20000 into there business. We noticed that as
per the available fund £20000, ABC Pvt Ltd can decide there expenses and income as per there
budget. As a new establishing company, Sunshine should use there budget by making advertisement
expenses so that firm can make there brand image, ABC Pvt Ltd invest there capital in inventory so
that it give the negative balance of cash. The main reason of negative balance in cash is that ABC
Pvt Ltd expenses there more money in fixed and variable cost. So that the net sale of the company is
not in good position. So that to improve such conditions ABC Pvt Ltd can use two approaches in
cash budget such as they should increasing there sales and minimize there cost. In this way ABC
Pvt Ltd can use there budget effectively and appropriately.
3.2 Calculation of unit cost and make pricing decisions using relevant information
As considered the services which are provided by the ABC Pvt Ltd., firm have to invest
there capital by making expenses such as 20 euro in fixed cost and 5 euro in variable cost. So the
company's total cost is (20+5)= 25 Euro. In this case, if ABC Pvt Ltd. wanted to earn profit in there
service which is 40% in per service rendered that makes 4 Euro in per service which they are
rendered to there customers. ABC Pvt Ltd. also pay the tax such as 20% per services which are
given which means 2 Euro per service rendered. So that the net sale value of the per service which
are given to the customers at 20 Euro.
To determining the pricing strategy, break even point is used :
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Break Even Point= Fixed Cost/(Unit Selling Price- Variable Costs)
So as per the above,
Fixed Cost= 20 Euro
Variable Cost= 5 Euro
Unit selling price= 25 Euro
Hence, Break Even Point of Sunshine Pvt Ltd. = 20/(25-5)= 1 Euro
In this way, as per the above calculation it is clear that to achieve a net sales of 20000 Euro,
firm has to sell there 900 services per day.
3.3 Assess the viability of a project using investment appraisal techniques
Hence the payback for proposal A= 1+ 400/600= 1.667
Hence payback for proposal B= 3 Years
Comparatively proposal A seems better because it gains investment earlier that the proposal
B.
NPV for Proposal A= -1200+800/1.1+600/1.21+400/1.33+200/1.46+50/1.61
= 491.1934 Euro
NPV for Proposal B= -1200+300/1.1+400/1.21+500/1.33+600/1.46+550/1.61
= 530.28 Euro
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So as per the above calculation, by making comparison of all the two proposal, proposal A is better
than B because it have invest low amount of fund to achieve more profit.
TASK 4
4.1 Discuss the main financial statements
Income Statements- Income statements include the profit and loss account, which determine
the company's loss or profit condition, whether company earn profit or facing loss for the year
ended (DRURY, 2013). In this statements two sides are prepared, first side is income side which
record each and every transaction by which company can earn some profit and in expenditure side,
it include all the expenses which a company can occur to receive the profit in future. In this
statements, Net profit or loss can be calculated by deducting expenses from income. So that both the
Sainsburry and Dixons Carphone plc company maintain there income statement so that they can
determine the profit or loss of the company.
Balance sheet- Balance sheet is statement of affairs which represents the company's actual
financial position at the end of accounting period. It has two sides, assets side and liability side. In
asset side, there are divided into sub- groups such as current asset, fixed asset, cash, investment etc.
and in liability side it include shareholder fund, short-term liabilities, long-term liabilities, creditors
etc.
Statements of cash flow- Statements of cash flow is a statement which are used to determine
the actual net cash outflow and inflow in the company. It includes cash from operation activity, cash
from investing activity and cash from financial activity are divided into this statements. It also
describes that cash and there cash relevant changes there position in a company will also make
direct impact in balance sheet of the company. This statements are used to getting immediate
expenses occur during the year in a company and it also helps the person who want the clear picture
of the company, can follow the cash flow statements.
Statements of owner's equity- This statements represent the owner's position inn a company
who hold the equity share of a company. It include the various details such as number of shares,
amount, name of the owner etc. (Dekker, Fleischmann, Inderfurth and van Wassenhove, eds., 2013)
4.2 Compare appropriate formats of financial statements for different types of business
Income Statements- Income statements shows the financial condition of the company. It can
recorded all the transactions such as expenses and income which are recorded and occur during the
accounting year. In this loss or profit can be determined by deducting the expenditure from income
of the company. So that both the two company, Sainsburry and Dixons Carphone plc, prepare the
financial statements so that both the company should analysis there actual financial condition such
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loss or profit during the accounting period.
Balance sheet- Balance sheet shows the actual position of the company, that actually in
which position the company is stand. In small size business, the format of balance sheet is common
but in big companies balance sheet can be preparing by dividing into groups. In asset side, it
divided into current and long-term asset such as investment etc. In long-term asset it includes real
estate, equipment which are easily converted into cash. In liabilities side, in include current and
long-term liability.
Statements of cash flow- It shows the actual position of cash, such as during the year how
much net cash outflow and inflow are occur in an organisation (Brigham and Ehrhardt, 2013).
Hence as per the above financial statements it is clear that both the two companies
Sainsburry and Dixons Carphone plc can maintain all those statements so that they can analysis the
company's actual financial position during the year.
4.3 Analysis the financial statements using appropriate ratio and comparisons in both internal and
external
Sainsburry Plc ratio analysis
Particular Formula 2015 2016 Comment
Gross Profit
Margin
Gross Profit/ Sales 5.08 6.19 As per the gross
profit margin ratio
of Sainsburry Plc,
In 2016 the gross
ratio is higher than
2015.
Operating profit
margin
Operating Profit/
Sales
0.34 3.01 As comparison of
2015, the
operating profit
ratio is higher in
2016 with 3.01%
Asset Turnover Net Sales/ Assets 1.44 1.40 Asset turnover of
Sainsburry is less
in 2016 with 1.40.
Return on Capital
employed
Operating
Profit/Capital
Employed
-0.97 6.53 Sainsburry can
receive more
return on capital
employed as
comparatively
with 2015.
EPS Total Earning/
Outstanding
Shares
-0.08 0.23 Earning per share
of Sainsburry Plc
is higher in 2016
with 0.23%.
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Net profit ratio Net Income/ Sales -0.70 2.00 Sainsburry Plc
earn net profit
higher in 2016
with 2%.
Return on Equity Net
Income/Sharehold
er's Equity
-2.88 7.91 Return on equity
is higher in 2016
with 7.91%
Dixons Carphone plc Ratio analysis
Particular Formula 2015 2016 Comment
Gross Profit
Margin
Gross Profit/ Sales Nil 22.4 The gross profit
ratio of Dixons
Carphone plc is
higher with 22.4%
in 2016.
Operating profit
margin
Operating Profit/
Sales
4.4 3.1 Operating profit
Dixons Carphone
plc is lower in
2016 with 3.1%
Asset Turnover Net Sales/ Assets 1.72 1.41 The asset turnover
is lower in 2016
with 1.41% as
compare to 2015.
Return on Capital
employed
Operating
Profit/Capital
Employed (Baxter,
Bedard, Hoitash,
and Yezegel,
2013)
5.54 5.32 Company can
receive the return
on capital
employed is lower
in 2016.
EPS Total Earning/
Outstanding
Shares
0.09 0.14 EPS of the
company is higher
in 2016 with 0.14
Net profit ratio Net Income/ Sales 1.86 1.65 Company can earn
net profit margin
lower with 1.65%
in 2016.
Return on Equity Net
Income/Sharehold
er's Equity
6.23 5.63 Return on Equity
is lower in 2016
with 5.63
As per the above table Sainsburry and Dixons Carphone plc are compared and it is clear
that as per the ratio of the two given companies Sainsburry have higher opportunities to choose the
various financial management approaches so that company can earn more profit and accomplished
there goals. In 2016 Sainsburry gross profit, net profit, Earning per share, equity, return on capital
investments etc. are good and higher as compare to the Dixons Carphone Plc. So that such company
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should adopt new approaches and techniques so that they can improve there profitability, so that by
using new approaches they can manage there resources effectively to increases there sale.
CONCLUSION
As per the above research report, it have been concluded that financial function is an
important tool for effective management of resources. In this way company should analysis the
actual condition and situations so that they can determine there operational activity and maximize
there resources. It is concluded that financial statements such as balance sheet, income statements
etc. are main part of the business success. So that effective management of resources are necessary
for smooth business operational activity. It also describes the two factors business such as internal
and external firm Sainsburry and Dixon Carphone plc, and there approaches so that effective
business plan can be done and by analysing the various financial ratio analysis it is clear that as
compare to the Dixon Carphone plc performance, Sainsburry performance is good and they use best
techniques for there development.(Anderson, Sweeney, Williams, Camm and Cochran, 2015).
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Online
Managing Financial Resources & Decision. 2017. [Online]. Available through
<http://www.academia.edu/17007880/Unit_2_Managing_Financial_Resources_and_Deci
sions> [Accessed on 24th May 2017].
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