Financial Report: Clariton Antiques' Expansion and Funding Strategies

This report provides a comprehensive financial analysis of Clariton Antiques, a company seeking to expand its operations. It explores various sources of finance, including personal savings, retained earnings, bank loans, and debentures, assessing their implications and suitability for the company's needs. The report evaluates the cost of different financing options, such as bank loans and issuing shares, and emphasizes the importance of financial planning for making sound investment decisions and managing budgets. Furthermore, the report delves into the creation of a cash budget, unit cost calculations, and Net Present Value (NPV) analysis. It also examines the key components of financial statements, comparing formats and utilizing ratio analysis to assess the company's financial health and performance. The analysis aims to guide Clariton Antiques in making informed financial decisions for its expansion plans.

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Different source of finance....................................................................................................1
1.2 Assess the implication of using sources of finance...............................................................3
1.3 Appropriate source of finance...............................................................................................3
TASK 2............................................................................................................................................4
2.1 Cost of two sources of finance..............................................................................................4
2.2 Financial planning importance for Clariton Antiques...........................................................5
2.3 Evaluation of business information for business decisions...................................................6
2.4 Financial statement's impact.................................................................................................6
TASK 3 ...........................................................................................................................................7
Cash budget.................................................................................................................................7
3.2 Unit cost and pricing.............................................................................................................8
3.3 Calculation of NPV...............................................................................................................9
TASK 4..........................................................................................................................................11
4.1 Financial statement's key components................................................................................11
4.2 Compare the use of formates by Clarition and R.Riggs.....................................................12
4.3 Ratio analysis......................................................................................................................14

INTRODUCTION
Finance is the most indispensable tool which is required to run a business effectively and
efficiently. It assist an institution to grab the upcoming opportunities in the form of growth and
expansion. Availability of funds provides an opportunity to the company to analyse the areas of
investment and expansion. However, a firm can efficaciously manage its financial resources with
the help of finance manager. The defined person aids the organization to get a proper direction of
investment and use of financial resources. In order to develop deep understanding of financial
management, Clariton Antiques is about to consider. The stated firm has maintained its good
reputation by selling quality antique items in London. The organization was formed by the four
partners and initiated as the unincorporated business. Further, the firm has grown and created
positive image in the minds of its customers. As result, the partners have decided to acquire a
building in Birmingham to open another branch. It would require around £0.5 million where the
management needs to make decision for arranging funds. Present document is prepared with an
intention to identify the suitable source of finance available for the stated organization.
Additionally, the report will also depict cash budget and financial statements of the adapted
company in order to trace the actual position of the firm (Jackson, 2010).
TASK 1
1.1 Different source of finance
a) Unincorporated business: Unincorporated businesses are the entities which does not have
separate legal identity from the owner. Majorly, sole proportioner ship and partnership business
comes under the category of unincorporated businesses. The stated business concern have
different sources of funds available for the growth and expansion. Following are explained
below. Personal saving- It is the amount collected and saved by the individual from his/her
income. The cited organization can use the amount of personal saving for the business
expansion. The major advantage of the adapting this sources is that the owner need not to
pay any interest over the amount. This can be considered as one of the appropriate source
of finance for the partners (Kaplan and Atkinson, 2015). Retained earning- Retained earnings is the amount which is being kept by the owner for
the revenues generated by the company.
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 Working capital- It is a amount that can be used for financing day to day operations of a
firm. This amount is a difference of current assets and current liabilities. It used for short-
term financing and it also aid the firm to achieve short-term financial needs.
 Sale of an assets- It is an another internal source of finance in which an organisation
generate its revenue by sale its assets such as machinery,land and building etc. However,
the management of the cited firm can adapt this source by selling the company assets.
This will assist the partners to generate the ample of fund for enhancing the business
activities effectively.
b) Incorporated business: Incorporated business are those which are different form sole
proprietors and partnerships. These are the organizations having limited liability and these
organizations sell the product over the product cost. The cited company can use the sources
which are going to be discussed beneath.
Bank loan: This is one of the most appropriate source of finance where the borrower needs to
pay a fix amount of interest over the amount borrowed. The amount of loan can be gathered with
the help of different financial institutions. However, the cited organization can take the amount
of loan form the public or private bank. It is seen that the management of Clariton Antiques has
already taken loan so it will not face any issues. Presently, the cited firm wants to purchase new
building to open new branch in Birmingham. However, the organization can take loan form any
financial institution.
Share capital: The stated firm has an option to issue share capital to the general public in order
to gather funds. The shares can be issued to the investors over the fixed rate of interest. As a
result, the stated organization will be able to manage its funds for the enhancement of its
development opportunities. Besides this, the organization can share the issues to its new and
existing shareholders as well.
Debenture: Debenture is a kind of loan which is being adapted by the medium to large
organizations for the borrowing of funds. These debentures carries a fixed amount of interest
against the taken amount. A debenture is like a certificate which is an evidence of the amount
taken to the company. It is one of the appropriate source of finance because the debenture
holders does not carry rights to vote.
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1.2 Assess the implication of using sources of finance
Internal sources
Personal sources: It is explained above, personal sources are those which are being generated
by the owner by keeping a part of income. Or the amount can also be taken for the friends and
relatives for the attainment of individual needs. The major implication of this sources is on the
saving of the owner as all the saved amount will lost. Additionally, there will be no legal
implication on this sources of fund. Besides this, there will also be zero implication on the
financial impacts. As the amount is collected form personal sources so there will not be dilution
of any control.
Retained earnings: The legal implications of retained earnings will be zero on the company
because retained earnings are the amount kept form the part of profit. However, it will not have
any legal implications on the company. It is the amount of company itself and it will also do not
have any financial implication on the performance of the organization. Besides this, there will be
no dilution of the control for the company (Yellen, 2016).
External sources
Bank loan: In legal terms, the owner will be required to attain some documentation and needed
to attain legal formalities. This will remain useful for the bank to analyse the position of the
bank and its credit worthiness. On contrary to this, the financial implication will be lower to at
the time of adopting this sources. The organization will be required to pay a fixed rate of interest
against the amount borrowed. In this context, the dilution of control will be zero because if the
firm is not able to repay the loan on time then the assets will be confiscate by the bank.
Debentures: At the time of gathering funds by issuing debentures the organization will be
required to pay the rate of interest over the concerned amount. In legal terms, the organization
needs to make an agreement with the part by whom the amount is issued. Additionally, there will
be lower implication on the finance because the firm will be required to pay a fixed interest.
Besides this, taking amount by issuing debenture will not dilute the control of the company.
Therefore, it can be said as one of the effective source of finance (Locatelli, Invernizzi and
Mancini, 2016).
1.3 Appropriate source of finance
The stated organization wishes to expand its operations where the organization will be
required to use proper funds. In above sections different sources of funds have been discussed
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where the most appropriate source is being adapted. Several impacts has been analysed with
reference to the sources of finance. However, the most useful source of funds for this company
are explained below.
Personal savings: The owners of the stated organization can collect the amount from personal
saving. It will assist the company to get required sum of money over zero rate of interest. It will
result in creating good amount of revenues with the help of limited amount of investment
(Mohsin, 2013).
Government grant: This is again another effective aspects which can be adopted by the
business to attain the financial needs. Legal or government authorities offer loan at highly
negligible interest rate. It will help the company in meeting the fund requirement of the business
while financial burden will be managed. It is a risk free and highly cost effective measure.
Bank loan: In order to attain the expansion objective of this company, the stated organization
can take loan from the bank. It will assist in creating a crucial implication on the growth of
business. Here, the management will be required paying a fixed amount of interest which will
assist the organization to manage its resources. It will remain less risky for the company and the
establishment.
TASK 2
2.1 Cost of two sources of finance
On the basis of analysis, the organization needs to evaluate the cost of two sources of
finance. In order to gather funds, it is required to pay a some of amount in the form of cost
against those funds. The analysis will help the organization to examine the cost with relation to
finance. The cost incurred against the two sources of finance are explained beneath.
Bank loan: Getting loan form the bank will aids the cited firm to generate money in order to
attain the demands of the organization. It is seen that the organization required to arrange £0.5
million for opening the new branches. Although, the firm required paying a fixed amount of rate
of interest to the bank against the loan amount. The ultimate effect of the same will be on
improving the fund management of the organization. Further, the loan amount will be paid in
lump-sum during the maturity of the loan (Locatelli, Invernizzi and Mancini, 2016).
Shares: If the stated organization issues shares then the cost will incurred in terms of dividend.
The organization will be required to pay dividends to the shares holders after keep the retrained
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profits. Using this source can stay accommodating for the organizations to run into their business
necessitate. It will benefit the organization in terms of fewer burdens because there is no loan to
repay. The institution will not be necessitate to pay like every month debt cost. It helps in
making more wealth to develop a business concern.
2.2 Financial planning importance for Clariton Antiques
Clariton Antique has generated revenues by selling the antique items and their products
has created positive image in the minds of customers. In order to enhance its current position, the
organization needs understand the importance of financial planning. This will provide assistance
to the company to make appropriate financial decisions. Additionally, the establishment will also
be able to make appropriate investment decisions. Besides this, it will enhance the firm's
capability to analysing the short and long term needs of the cited organization. The major
importance of financial planning is explained below to the management of Clariton Antiques.
 Budgeting: Financial planning is the process of evaluating the areas where the company
can invest and manage the financial funds. At the time of preparing budget, planning of
finances helps the manager to evaluate the fields where the investment is required. It is
seen that budgets are prepared on yearly basis. The establishment need to doings various
trading operations where they require paying sum of money or expend amount. Firms
need to pay taxes, bills and various payment are paid. For this the effective financial plan
is needed. It will help in evaluating the savings and investment for the company.
 Investment decisions: This is the another advantage of financial planning where the
management will be able to trace the opportunities and areas it can invest. This will assist
the company to make appropriate financial decisions in an effectual manner. Besides this,
the management will also be able to trace the direction of effectual working and
investment decisions can be made by them (Throsby, 2016).
 Income: This is the another benefit to this company where the financial planning will
remain helpful for the stated company. With the adaption of proper planning, the
organization will be able to evaluate the cost of production and other cost. Besides this,
the areas of payments can be better evaluated by the management of this firm.
 Saving: It is seen that the appropriate source for this company is bank loan. Although, if
the organization adapts he same then the finance manage of this company will be able to
save the money. After paying interest of bank loans and other expenses, the firm will be
5

able to keep the money aside and use the same for further investment purpose (Locatelli,
Invernizzi and Mancini, 2016).
2.3 Evaluation of business information for business decisions
For making proper business decisions, the organizations that will required business
informations. These firms will be needs the information with several purposes which are
explained beneath.
 The partners: The stated organization is formed by four partners where all the partners
has introduced this business with the motive to earn profits. All the partners share equal
profits and losses in this organization. Although, the partners of Clariton Antiques are
interested in the profit and loss account of the company. Besides this, they also focuses
on the company balance sheet and trading account. Additionally, the company budgets
will also being evaluated by the stated company.
 Finance brokers: Finance brokers are the individuals by whom the process of mediation
is done between the clients and organization. The clients are being advised by them about
the investment decisions. They get brokerage form the company where the client
invested. At the time of investment, they analyse the profit earning capacity of the
organization. For this, the financial brokers evaluates the balance sheet of the company.
In addition to this, they also focused on the ability of the company to generate revenues.
If the company is generating high revenues then they will suggest the client to invest in
the concerned firm. They also examine the profit and loss account of the company so that
they can identify the company's net profits and gross profit (Throsby, 2016).
 Venture capitalist: The venture capitalist like We finance will analyse the risk and
return of the company. They will focus on the number of employees of the company and
its position in the market. If the firm has good market share then they will invest in the
same. It will assist them to make effective business decisions. In order to take proper
knowledge of company information, the firm will be required to analyse the cash flow
statements and profit and loss of the company. It will provide a deep understanding about
the company and its current performance. With the help of the same they will be able to
make appropriate investment decisions (Locatelli, Invernizzi and Mancini, 2016).
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2.4 Financial statement's impact
On the basis of above sections, the management of the organization can take funds from
finance brokers and venture capitalist. However, this will have huge impact on the company
balance sheet. However, the effect faced by the organization is explained below.
Finance broker: If the organization decides to go with finance brokers then the organization is
liable to pay the brokerage to the brokers. Additionally, the brokerage to the brokers will be
shown in the debit side of the profit and loss account. Besides this it will have no impact on the
balance sheet of the company (Throsby, 2016).
Venture capitalist: If the company chooses to go with venture capitalist then it will be shown in
the liabilities side of the balance sheet. Here, the firm will be liable to pay dividends to them. In
addition to this, amount form venture capitalist will increase the cash of the company.
Additionally, the amount will reduced form the balance and cash (Tsai, Pan and Lee, 2011).
Particulars Amount (£) Particulars Amount (£)
brokerage xxx
Liabilities Amount (£) Assets Amount (£)
Venture capitalist xxx Cash Xxx
TASK 3
Cash budget
Participants January February March April May June
Receipts
Opening
cash balance
110000 -382250 290500 860750 738500 1051250
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Sales
revenue
300000 450000 600000 300000 300000 75000
Account
receivables
15000 360000 90000 15000 240000 11250
Total
receipts
425000 427750 980500 1175750 1278500 1137500
Payments 807250 137250 119750 437250 227250 219750
Total
payments
807250 137250 119750 437250 227250 219750
Closing
cash balance
-382250 290500 860750 738500 1051250 917750
The cash balance of clariton Antiques depicts the six months of opening balance of the
company. In February the opening balance of the company was negative but further the balance
got increased. Besides this, the sales of the company are consistently increasing. The reason
behind the increase in sales can be the firm may have lower down the cost of product. The
another reason of the increasing company sales that the firm taken the raw material at lower cost.
This has resulted in decreasing the over all cost of production. Additionally, the closing balance
of the company in January was negative, but later on the firm has improved its performance and
the balance has become positive (Locatelli, Invernizzi and Mancini, 2016).
3.2 Unit cost and pricing
Cost per unit
Particulars Amount
Fixed expenses £60000
Variable expenses £30000
Total expenses or cost £90000
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Output volume 900units
Cost per unit £100
Margin of profit in percentage 23.00%
Selling price per unit £120
9

As per the cost and pricing table, the organization has £60000 of fixed expenses and
£30000 of variable expenses. Besides this, the total expenses of the company are £90000 in the
given period. The total output volume of the company is 900 units where the cost per unit of the
same are £100. It is seen that, the profit margin of the stated organization is 23% and the selling
prices of the same is £123. It can be stated that the organization can generate the profit up to 23%
over the cost. With the help of unit, the organization will be able to trace the actual position of
the sales and profits. This will assist the organization to attain its goals and objectives in an
effective manner (Tsai, Pan and Lee, 2011).
3.3 Calculation of NPV
The above table depict the NPV of two investment proposals i.e. £ 8.6 and £ 4.4. As per
the comparison of the two proposals the most appropriate investment is the second one. It is seen
that the net present value of the second investment is greater than the first one. Therefore, it can
be said that investment 1 is adaptable than the another one. On this basis latter project is assumed
viable for the firm.
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Table 1: Calculation of Payback period
From the above table, it can be interpreted that, investment second should be adopted as
it is early in recovering the invested amount. It is seen that, project 1 is taking 3.2 years in order
to aback the invested amount. Whereas, project 2 is taking 3 years for taking the amount back.
Therefore, it is necessary to adapt the project 2nd as compare to the project first. It will help the
organization to cover the invested money earlier.
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Table 2: Computation of IRR
From the above comparison, the second investment has higher average rate of return it
can be considered as the profitable among the two investments.
TASK 4
4.1 Financial statement's key components
 Cash flow statement: It is the statement of the company which depicts about the
incoming and outgoing of the cash form the business. In order to investigate the financial
matters in the company, the cash flow statement can remain fruitful. If the organization
wants to analyse the cash inflow and outflow then it needs to prepare cash flow
statement. This assist in persuasion different root-age of currency that the institution has
to achieve advanced maturation measures in the economic system. Hence, by using this
evidence director can set up a plan of action for reconciliation cash flow in various
concern action.
 Income statement: This is one of the important aspect of fiscal investigation. With the
help of this statement the income and the expenses of the company can be evaluated. It
helps in analysing the earned or generated profits or revenues by the company. The net
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profit provided the clear vision of company's performance and thus helps the company in
analysing what and how to proceed with the business decisions.
 Balance sheet: It is one of the most important evidence for the business for evaluating
the assets and liabilities of the company. It is a momentous fiscal instrument for study the
enterprise perspective in the marketplace. This evidence approval wide in devising
effectual and well characterized concern determination. Adoption of this statement will
ascertain in evaluating the position of firm at period of time. If the balance sheet of a
company is stable then the investors will get attracted towards the company. Stable
position shows that the company has good position in financial terms (Throsby, 2016).
4.2 Compare the use of formates by Clarition and R.Riggs.
Basis of difference R. Riggs Clariton Antiques
Types of business R.Riggs is one of the sole
proprietor where the company
aim is to generate excess of
revenues and profits. These
kinds of organizations are
owned and operated by private
individuals.
On comparing with R.Riggs,
Clariton antique is formed as
the partnership firm where
the profits and losses are
being shared by all the four
partners on equal basis.
Financial statements The stated business owners
adapts income statment in order
to analyse the compny position.
Here, the partners of the
company are interested in
their share of capital which is
shown in profit and loss
account.
Rules and regulation A sole proprietor necessarily
filling various descriptor in
command to evaluate the inner
Each and every partner of the
business plays an
indispensable role in the
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revenues and imposes. business.
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4.3 Ratio analysis
Table 7: Calculation of liquidity ratios
The above table depicts about the two ratios i.e. quick and current ratio of the company.
However, the quick ratio of the company is 2.27 and 2.48 of the year 2015 and 2016
respectively. Whereas, the current ratio of the firm for the year 2015 and 2016 are 2.27 and 2.23
respectively. It can be interpret that the firm has good position in 2015 as compared to 2016.
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Net profit ratio: The net profit ratio of the company explains about the revenue proportion of
the company in a concerned year. Howsoever, the net profit of the company is 1.89% and 2.63%
in 2015 and 2016 respectively. However, it can be interpreted that the company has better net
profits in the year 2016.
CONCLUSION
Financial management is the process of arranging the company finances in a way that the
financial objectives can be attained. On the basis of above report, it can be explained that there
are different sources of finance have determined. Whereas, the stated firm has adapted bank
loans and venture capitalist.
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