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Managing Financial resources and decisions

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3 1.1 Identify the sources of finance available to a.)unincorporated and b.) incorporated business .............................................................................. 3 1.2 Assess the implications for using a.) internal and b.) external sources of finance ...................... 4 1.3 Evaluate the most appropriate sources of finance for Clariton Antiques Ltd. 8 2.3 Give an assessment of the information that will be needed to make decision on financing the takeover by: a.) the partners, b.) venture capital

Managing Financial resources and decisions

   Added on 2020-02-03

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UNIT 2 MANAGING FINANCIAL RESOURCES AND DECISIONSNAME: GABOR FEHERID: 13825COURSE: HND IN BUSINESSTUTOR NAME: RANSFORD GREY1
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CONTENTSINTRODUCTION ....................................................................................................... 3TASK 1 ..................................................................................................................... 31.1 Identify the sources of finance available to a.)unincorporated and b.) incorporated business................................................................................................................................ 31.2 Assess the implications for using a.) internal and b.) external sources of finance ...................... 41.3 Evaluate the most appropriate sources of finance for Clariton Antiques Ltd. .......................... 7 TASK 2 ..................................................................................................................... 82.1 Analyse the cost of the two sources of finance under consideration with reference to: a.) dividends, b.)interest and c.) tax. ....................................................................................................... 82.2 Explain the importance of financial planning for Clariton Antiques Ltd. With reference to: a.)budgeting, b.)implications of failure to finance adequately and c.) overtrading. ........................... 8 2.3 Give an assessment of the information that will be needed to make decision on financing the takeoverby: a.) the partners, b.) venture capital [We Finance Limited] and c.) finance broker................................................................................................................................. 92.4 Explain the impact on the financial statement if Clariton Antiques Ltd. Choose to go with: a.) venturecapitalist, b.) financial broker. ........................................................................................ 9TASK 3 ................................................................................................................... 103.1 Prepare an analyses of the cash budget for Clariton Antiques and advice on decision that can be takento improve their financial position. ................................................................................. 103.2 Explain how unit costs will be calculated to make pricing decision giving suitable example. ...... 113.3 Assess the viability of the projects using investment appraisal techniques and state whether theoptions satisfy Peter’s criteria for investment. .................................................................... 12TASK 4 .................................................................................................................... 134.1 Discuss the key components of financial statement. ......................................................... 134.2 Compare the format used by Clariton to presenting their financial statement with that of a sole traderor partnership or both. ................................................................................................ 14 4.3 Interpret the recent financial statement of Clariton using appropriate ratios and making comparisonwith the previous year. ................................................................................................. 15CONCLUSION ......................................................................................................... 16REFERENCES .......................................................................................................... 172
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INTRODUCTION Finance is a fuel of business. Managing financial resources in terms of time efforts and money is acrucial task for success and accomplishment of goals for the business. Every Business organisation whethersmall or large, incorporated or unincorporated requires finance at every stage to excel. Finance can take thebusiness from ice cream's van to dragon den. Finance can be raised through various internal and externalsources of finance. Various sources comes with distinct risks and costs associated with it. In order to makeefficient choice of funds or source options should be critically evaluated on basis of length of available funds,risk of control and costs involved in the same. Clarion Antiques being a partnership accommodating 4 partnersis an excelling firm and growing at good speed. However finance sources vary for partnership firm andcompany, influenced by various factors. Financial planning including preparing budgets and capital budgetingplays a major role in presenting a clear picture of the project and its future profitability. Budgeting gives aportray of company's liquidity and cash status in future. Capital Budgeting techniques such as NPV, IRR andpayback period offers a comparison of various projects and their selection and rejection based on it.TASK 11.1Finance being one of the major functions of the organisation. It is a crucial business decision to be taken onfrom where to raise the funds to fulfil the business requirement. Also feasibility of various sources dependsupon the type of business such as incorporated or unincorporated. (Caglayan and Demir, 2014). a.) Unincorporated business/sole traders and partnership: this the business where individual comes togetherto perform the operation to earn profits. This does not have its own legal entity. Therefore all the risks andliabilities of business belong wholly to the persons and individuals who are owner of the business(Bishop,2015). These firms can raise finance from undermentioned sources:Venture Capital / New Partner: Unincorporated firms who are not legally registered as a separateentity can raise funds in form of investments from venture capitalist who are interested in the idea ofbusiness. Venture capitalist are individuals or group of individuals who have surplus funds and want toinvest them in some profitable business to multiply the savings. These are risk takers and by investing inbusiness reap profits therefrom. Also capital of the business can be raised by admitting a new partnerwho in turn will bring cash as charge against goodwill and finance into the business in return of sharingprofits.Bank Loans: Raising of funds by receiving a bank loan is also a good option available with thebusiness. Long term loans can be raised from banks or financial institution. Loans involve interest costand scheduled repayments at particular intervals. However loans affect the financial risk and liquidity ofthe business.3
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Retained earnings: Business can use the undistributed parts of profits retained by owners in thebusiness and this is best internal source as does not involve any cost and scheduled repayments.Reduction in Working Capital Cycle: Short terms funds can be raised by reducing the working capitalcycle in terms of reducing the credit period extended to debtors or better stock selling activities forimproving liquidity.b.) Incorporated Business/ Private or Public Limited Companies: It is the form of business that have theirindividual legal status. All the risks and liabilities associated of the business are only responsibility of thebusiness and business and owners have separate legal entity. Some of the following sources of incorporatedbusiness are as follows.Issuing Share capital: can raise funds by issuing share capital to the public and receiving funds on thesame. Equity shares are financial instruments which transfers the ownership of the business to theshareholder and appropriation of profits against them. Shareholders have right over the profits of thebusiness and business distribute the profits in the form of dividends.Issuing bonds or debentures: can raise funds against floating debt instruments such as debentures orbonds in the market and receiving debt against the same from public. Debentures are financial debtinstrument that acknowledges the company against debt provided by the debenture holder. Retained earnings: it is that part of profits which are not distributed as dividends to the shareholdersand instead plough back into the business to multiply the amount by using as source of finance. It doesnot involve any financial costs or risk associated with them. Raising loans from Banks or Financial Institution: can raise funds by applying and receiving loansfrom Banks and financial institution for longer period of time. However loans have fixed rescheduledpayment of interest and principal which affects the liquidity of the company. Dividends which areappropriation of profits.4
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