Financial Planning and Resource Management for Clariton Antiques

This report delves into the financial management strategies of Clariton Antiques, a company seeking to expand its operations. It examines various sources of finance, including retained earnings, personal savings, bank loans, debentures, and share capital, evaluating their impacts and suitability for t...Read More

MANAGING
FINANCIAL
RESOURCES AND
DECISIONS

Table of Contents
.........................................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Various sources of finances..............................................................................................1
1.2 Impact of utilizing different sources of finances..............................................................3
1.3 Most befitting sources of finance for cited firm...............................................................4
TASK 2............................................................................................................................................5
2.1 Cost of of the two sources of finance...............................................................................5
2.2 Necessity of financial planning for the said venture........................................................6
2.3 Information need for decision making.............................................................................6
2.4 Impact of the financial statements....................................................................................7
TASK 3............................................................................................................................................8
3.1 Cash budget......................................................................................................................8
3.2 Unit cost and pricing........................................................................................................9
3.3 Calculation of NPV........................................................................................................10
TASK 4..........................................................................................................................................12
4.1 Key components of financial statement.........................................................................12
4.2 Compare the use of formates by Clarition and R.Riggs................................................13
4.3 Ratio analysis..................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial management is an activity of managing fiscal funds in a way that the financial
resources of the company can be properly allocated. In other words, it can also explicated as the
process of planning and controlling the funds to utilize the company funds effectually. In order to
ascertain company goals and motives, it is required to focus on allocation and managing
financial resources. With the preparation of this document, the learner will be able to develop
proper understanding over managing financial resources. The current report is based on the case
scenario of Clariton Antiques Ltd. The organization is found by the four partners. The core
motive of the stated venture is to grow and expand. As a result, the partners are planning to
establish its 2 branches in London. Additionally, they are also planning to acquire building in
Birmingham to open new branch. For the same, the establishment will be required to raising £0.5
million. Hence, the partners need to decide the appropriate source of finance. Apart from this,
they also need to understand the necessity of financial planning. It will provide assistance to the
company for making effective financial decisions (Kaplan and Atkinson, 2015).
TASK 1
1.1 Various sources of finances
Sources of finances help an individual and the organization to raise funds for the growth
and expansion of the business. There are various types of financial sources which are available
for the concerned businesses which is about to clarify beneath. Unincorporated businesses
Unincorporated businesses are operated and managed by an individual or a group. The
main disadvantage of the defined business is its unlimited liability for partners or the proprietor.
However, unincorporated business consist of partnerships, sole proprietorship etc. For the
mentioned organizations, there are certain sources of finances which are available and that are
explained below (Jackson, 2010).
 Retained earnings: It is the proportion of amount which is being kept by the owner out
of the revenues. In this case, the shareholders do not get the dividends because amount of
profits are used for further investments. Hence, the generation of sources can be done
with the help of retained earnings effectually.
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 Personal saving: Personal saving can be understood as the sum of money which is saved
form the part of income. Although, the service providers can adapt this source because it
does not carry any cost. As a result, the defined source can remain useful for the
organizations like partnership and proprietorship. Assets selling: In order to arrange or generate funds, selling of an asset can be fruitful for
the organizations. This process can be understood as the internal source of finance where
the firm sales building or land for generating financial resources. This process aids a
venture to attain their financial resource requirement in an effectual manner. Asset selling
will not result in incurring any additional cost but the fixed assets of the cited firms will
tend to decrease.
 Incorporated businesses
Incorporated businesses are the organization by which the proper legal process of
formation is being followed. These firms are totally different form the sole proprietors and
partnership firms in the legal and regulatory terms. The organization which falls under the
incorporated business having certain sources of finances available. Additionally, Clariton
Antiques also comes under incorporated concern for which following sources are defined
beneath (Yellen, 2016).
 Share capital: Share capital is a proportion of capital which is attainable by issuing
shares to the public. The investors can get shares of a company over fixed rate of interest.
As a result, the management of Clariton Antiques can gather funds by issuing shares to
the public and provide them a fixed sum of money. The firm has an option to issues
shares to the new or existing holders as well (Siano, Kitchen and Confetto, 2010).
 Bank loan: It is one of the most effectual sources of finance for management of the cited
firm. As per the past records of the company, the firm already took loan from the bank.
The motive of this venture is to grow and expand in London for which it requires £0.5
million. The stated establishment can borrow money for its expansion process. By
adapting this source, the organization is required to pay an unchanged rate of interest
through the maturity period (Jackson, 2010).
 Debentures: This is another source of finance which can be adapted by the management
of Clariton Antiques for the business expansion. Debenture is a loan that helps a firm to
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provide requisite amount of finance. Adaption of this source is going to be effective
because the organization needs to pay a fixed interest. The partners of the cited company
can use the above mentioned sources for establishing new branches in London.
1.2 Impact of utilizing different sources of finances
Adaption of different sources of finances will result in both positive and negative
implication to the owner. In order to understand the implications, both internal and external
sources are mentioned below (Siano, Kitchen and Confetto, 2010).
Internal sources
Internal sources are financial sources which are generated or gathered from the
organization itself. As per the present scenario, the internally generated sources are depicted
further.
 Retained earnings: Retained earnings do not have any legal implications on the owner
of the company. It is the amount generated through profits which is kept by the
organization for the future expansions. The positive impact will be on expenses of the
company as it does not carry any additional cost to the owners. On contrary to this, the
negative impact will be on shareholders because the shareholders do not get the amount
of dividend which affects their satisfaction level towards the firm (Jackson, 2010). Personal saving: Personal saving also does not have any legal impact on company’s
operations. It the sum of amount which is ransomed form the personal income for the
future use. However, utilizing the amount will not incur any cost to the management of
Clariton Antiques. On contrary to this, the negative implication is that the years of saving
will be lost in one time of use (Siano, Kitchen and Confetto, 2010).
External sources
External sources are those which are borrowed outside the firm in order to meet the
financial requirements of the organizations. The stated organization can have positive and
negative impact that are stated below.
 Bank Loan: Getting loan form the bank is not an easy task because the process is lengthy
and documentation is required. With the help of documentation, the bank authorities will
be able to trace the actual position of the company. However, the advantage of bank loan
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is that the organization can easily get the required amount in one shot. The financial
impact of this source will tend to be lower because the firm required paying interest.
Besides this, the dilution of control will also be nil because if the firm does not pay loan
they their collateral securities will get confiscated by the financial institution (Siano,
Kitchen and Confetto, 2010).
 Debentures: Issuing debentures have both the positive and negative implication to the
organization. The management needs to pay the interest against the amount gathered
through issuing debentures. In this situation the financial implication will be lower to the
organization. Additionally, the dilution of control wont get affected by the amount taken
by issuing debentures (Budgeting,2013).
 Issue of shares: Issue of share can contain both pros and cons by the organization.
Although, issuing share can one of the alternative of issuing debentures. Here, the
organization will not be responsible for the obligatory payment like interest. The firm
will be liable for the dividends which will be paid only if the firm earns profit.On
contrary to this, cons of the same are the ownership of the existing shareholders will get
diluted in the market.
1.3 Most befitting sources of finance for cited firm
In order to establish 2 new branches in London the management of Clariton Antiques can
consider the most appropriate sources which are going to be explained further. There are several
financial sources have been defined in above contexts. Apart form this, the implications of these
sources are also done. On that basis, the appropriate sources for the cited firm are elucidated
below.
 Bank loan: The mentioned organization can adapt bank loan for the process of business
expansion. Presently, the venture already have taken loans where it can remain fruitful
for the organization to take loan again. The management will be needed to pay the
amount of interest which is fixed. It will result in managing the financial resources
effectively and the management will also be able to take appropriate business decisions.
Borrowing amount from the financial institution will remain less risky to the stated
organization (Siano, Kitchen and Confetto, 2010).
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 Government grants: For the attainment of business need the organization can take
grants form the government. In this source, the financial assistance is being provided by
the government and other authorities. Here, the organization is liable to pay less amount
of interest comparatively to the bank.
 Personal saving: The management of Cariton Antiques can use the amount of personal
saving. According to this, the firm will not be liable to pay any interest or the additional
cost is also zero. Therefore, the stated firm can adapt any of the sources explained above.
It will assist the organization to incur low cost over the borrowed amount
(Budgeting,2013).
TASK 2
2.1 Cost of of the two sources of finance
With the help of above evaluation of all the sources of finance the management of Cited
company can adapt the two sources i.e. bank loan and shares. If the firm adapts the two sources
then it will also associate certain level of cost. It is necessary for the defined venture to trace the
associated cost with the two sources which are explained below.
Sources of finances Implications( legal and financial implications)
Bank loan If the organization borrows amount form any financial
institution then it will be liable for the rate of interest on
monthly basis. For the cited firm, interest is a financial cost
which is incurred. It is seen that the organization requires
arranging £0.5 million for the expansion of new branches. If
the firm borrows money then the ultimate impact will be on
fund improvement. In addition to this, at the time of taking loan
the organization will also be liable for processing cost for the
attainment of documentation process. Besides this, insurance
cost will also get incurred at the time of taking loan ( Annual
Report and Accounts for 2015).
Shares In order to raise funds, if the shares are being issues by the
company then dividend is required to be paid to the
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shareholders. It is seen that the profits are kept after giving
dividends to the shareholders. However, the stated organization
will be liable for the certain level of cost at the time of issuing
shares to the new or existing shareholders. Initially, the firm
needs to prepare the project plan and brokerage charges will
also be incurred by the company. The firm will also be liable
for the processing fees at the time of share issues. Henceforth,
it can be said that both the sources contains certain level of cost
for which the organisation will be accountable
(Budgeting,2013).
2.2 Necessity of financial planning for the said venture
Budgeting is a procedure in which a plan is being created for spending money in a
defined direction. By preparing budget an organization will be able to trace the areas where the
funds are required. Proper planning of budget will result in appropriate allocation of funds.
Additionally, the process assist in balancing the expenses and incomes so that saving can be done
effectively. The organization needs to plan the budgets in a way that its financial objectives can
be attained. If the budgets are not properly prepared then it will result in poor cash flow. Apart
form this, the firm will also not be able to track the credit payments. On contrary to this, over
trading is the situation where the sales of the company grows faster as compared to its finances.
For the same, an organization necessitate financial planning ( Annual Report and Accounts for
2015).
Additionally, financial planning is required to lower down the impact of failure of
financial adequacy. If the stated organization is not able to meet financial adequacy then
preparing budgets will help the cited company. In context to this, the organization will be able to
track the areas where the finances will be required.
2.3 Information need for decision making
The cited company needs to make effective decisions for the achievement of
organizational goals and objectives. In order to make proper decisions the establishment required
to pass on the information to different parties. It is seen that various stakeholders needs having
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assorted information and data. Following parties will be needed certain level of information
which is explained below ( Annual Report and Accounts for 2015).
 The partners: The clariton Antiques is established with the contribution of four partners
where the object was to earn profits. It is seen that the profits and losses is being equally
shared by the partners. However, the owners of the company are mainly interested in
increasing their profits higher. Apart form this, the partners are also interested in the
balance sheet and trading account of the company. It will allow the partners to evaluate
and analyse the company's actual position. The partners will also be able to make take
proper decisions with the help of budgets (Yellen, 2016).
 Finance brokers: Finance broker plays an indispensable role between the clients and the
organizations. They provide requisite information to the customers in order to make
appropriate business decisions. For their services, they get brokerage as their fees if they
make the clients ready for the investments. During investments, the revenue generating
capability of the organization is being examined. If the organization has sound position
then the financial brokers will advice the clients for further investments. In this context,
the revenue generation capacity of the company is also examined by the customers and
clients. They also study the profit and loss account of the company for the examining the
net and gross profits of the institution (Annual Report and Accounts for 2015).
 Venture capitalist: The organization's risk and returns will be analysed by the venture
capitalist like We finance. The major focus of the venture capitalist is on the company
workforce and its market share. If the market share is being covered by the firm then the
venture capitalist will make proper investments in the company. It will help the
organization to take effective decisions with reference to the business concern (Tsai, Pan
and Lee, 2011).
2.4 Impact of the financial statements
As per the above sections, the requisite amount of money can be taken form the finance
brokers and venture capitalist. As a result, the balance sheet of the organization will have an
implication. The effect of the same can be seen by the below explanation (Yellen, 2016).
Venture capitalist: It is seen that the stated organization has made decision to go with venture
capitalist for raising the funds. The capitalist will be entitle for the dividends over the invested
amount. Apart form this, gathering funds form venture capitalist will result in increasing the cash
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worthiness of the organization. Besides this, the amount of money will be deducted form the
company balance. The impact of the same is explained below.
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).
Liabilities Amount (£) Assets Amount (£)
Venture capitalist xxx Cash Xxx
Finance broker: If the organization opt for raising funds from the finance brokers then the
aforesaid firm is required paying the brokerage to the brokers. This will have an impact over the
books of account of the organization. In this context, the amount of brokerage will be entered to
the debit side of the P&L account of the company. Apart form this, the amount of brokerage will
have zero implications on the company balance sheet. In order to understand the practical
scenario a table is given below. It will assist in understand the actual impact on the books of
accounts of the firm (Tsai, Pan and Lee, 2011). Finance broker plays an indispensable role
between the clients and the organizations. They provide requisite information to the customers in
order to make appropriate business decisions. For their services, they get brokerage as their fees
if they make the clients ready for the investments.
During investments, the revenue generating capability of the organization is being
examined (Yellen, 2016). 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
Particulars Amount (£) Particulars Amount (£)
brokerage xxx
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TASK 3
3.1 Cash budget
Participants January February March April May June
Receipts
Opening
cash balance
110000 -382250 290500 860750 738500 1051250
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
With the help of above cash budget, the cash balance of six months are explained above.
It can be stated that the opening balance of the organization is consistently increasing where the
cash balance of February is showing a negative impact. Besides this, the firm has enhanced its
sales form the month of January and a decreasing trend is seen in the month of April. Further, it
remained consistent in the month of may and in June the sales revenue has raised. Additionally,
it can be depicted that the closing cash balance of the organization is initially negative but
ultimately it kept on raising. This shows that the firm has capacity of enhancing cash in the
organization (Tsai, Pan and Lee, 2011).
3.2 Unit cost and pricing
Cost per unit
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Particulars Amount
Fixed expenses £60000
Variable expenses £30000
Total expenses or cost £90000
Output volume 900units
Cost per unit £100
Margin of profit in percentage 23.00%
Selling price per unit £120
On the basis of the above table, it can be asserted that the fixed expenses of the cited firm
is £60000 and variable expenses are £30000. Apart form this, the organization has £90000 of
total expenses. Additionally, worth £900 units of output volume the organization have. It is seen
that, the net income edge of the declared system is 23% and the merchandising prices of the
aforesaid is £123. It can be explicit that the structure can bring forth the net 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 (Throsby, 2016).
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3.3 Calculation of NPV
According to above table, the two investment proposals are considered where the first
investment is of £3.4 m and the another one is £2.5 m. By comparing the two proposals, the user
can adapt the first proposal whose NPV is £ 3.4m. According to the rule of NPV the project with
higher NPV is adapted.
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the above table interprets the efficiency of both the projects in which the second
investment will be adapted by the investor. According to the payback period, it helps in
determining the time in which the invested amount is aback. As a result, the investor should
adapt the second project as it is taking less time to get the returns (Yellen, 2016).
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As per the selection rule of a project, the investor needs to adapted the investment having
higher rate of return. On that basis the second project has higher ARR (Throsby, 2016).
TASK 4
4.1 Key components of financial statement
There are several financial statements are being prepared by the organizations which are
explained below.
 Income statement: In order to investigate the financial position of the company, income
statement is fruitful. The investors and other stakeholders can use this statement for
making proper analysis. With the use of it, the firm will be able to evaluate the profit and
loss of the company. In order to get clear vision of the company, income statement gives
a clear picture about the organizational performance (Yellen, 2016).
 Balance sheet: The company assets and liabilities can be easily evaluated with the help
of balance sheet. A company balance sheet is prepared on the point of time which depicts
the actual position of the company. The defined statement is not only fruitful for the users
but the company as well. The management uses balance sheet for the making expansion
decisions in the organization. If the balance sheet of a company is stable then the
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investors will get attracted towards the company. Stable position shows that the company
has good position in financial terms (Locatelli, Invernizzi and Mancini, 2016).
 Cash flow statement: This is the another financial statement of the organization which is
prepared with a motive to trace the actual inflow and outflow of the cash. The
organization and other users can adapt this statement for tracing the cash position of the
establishment. In order to examine the cash effects the firm is liable to prepare the cash
flow statement. It assist the organization to make effective plans and strategies with
reference to cash flow (Yellen, 2016).
4.2 Compare the use of formates by Clarition and R.Riggs.
Basis of difference R. Riggs Clariton Antiques
Types of business The cited firm is operating as
the sole proprietor. The
motive of this company is to
earn and generate good
revenues. Sole proprietorship
is mainly operated by a single
owner (Mohsin, 2013). In
addition to this, the said
business has no separate legal
entity where the business and
owner has no distinction.
As per the scrutiny, Clariton
Antiques is established with the
efforts of four partners with an
object to share equal profits and
losses. In context to this, the
profits and losses can be shared
in profit sharing ratios or as per
mentioned in the partnership
deed.
Financial statements The owner of the cited
venture uses income
statement to trace the
coampny position. Besides
this, the firm also need to
prepare the balance sheet,
cash flow statements and
The owners of Clariton
Antiques are mainly focused on
company profits and their
individual share. For the same,
profit and loss is being
considered by the firm
(Throsby, 2016). Additionally,
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statement of finanacial
performnace.
the statement of equity is being
prepared by the partnership
business. In order to trace the
inflow and outflow of cash,
cash flow statement is also
being prepared by the partners.
Rules and regulation Different forms are being
filled by the owner of this
company. With the help of
these regulation the owners
are liable for the taxes.
Each and every partner of the
business plays an indispensable
role in the business. Apart form
this, proper allocation of profits
and losses must be done by the
partners. The partners must
decide and make their
contribution clear in the
partnership deed.
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4.3 Ratio analysis
According to the above comparison, quick and current ratio of the company is calculated
above. 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 (Locatelli, Invernizzi and Mancini, 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.
Gross profit ratio: On the basis of comparison, the gross profit ratio of the firm is 14.34
and 14.18% respectively for the year 2015 and 2016. In the year 2015, the firm had better
company position in terms of gross rates (Yellen, 2016).
CONCLUSION
The present report has considered the case study of Clarition Antiques where the firm has
aimed at opening 2 new branches in London. For the same, the organization is required to
manage £0.5 million. The stated organization can raise funds with the help of bank loan and
personal saving. The organization will be needed to pay less amount over the borrowed amount.
Besides this, different key components of financial statement have been discussed in the above
report. It has remained helpful for the aforesaid company to gain good knowledge over the
various statements.
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