Report on Financial Planning and Expansion for Clariton Antiques Ltd

This report provides a detailed financial analysis for Clariton Antiques Ltd, focusing on the expansion of the business. It identifies potential sources of finance, including venture capitalists and bank loans, and evaluates their advantages and disadvantages. The report assesses the impact of financial sources on the company's financial statements, including the profitability statement and statement of financial position. It also explores the importance of financial planning, including budgeting and managing working capital, and the information needed by decision-makers. Finally, the report includes a cash budget and offers advice for making appropriate financial decisions, providing a comprehensive overview of financial management for Clariton Ltd's expansion plan.

MFRD

Table of Contents

INTRODUCTION
Financial resource management may be defined as a process which is highly concerned
with making optimum use of resources. It lays high level of emphasis on developing highly
competent framework which directly aid in the growth and success of firm. Moreover, without
having sound framework it is not possible for business unit to exert effectual control on the level
of expenses and monetary resources. Thus, by ensuring effective management of monetary
resources company can execute its business plan more effectively and efficiently. This
assignment is carried out on Clariton Ltd that provides customers with unique or antique items.
By considering the market trend and customers demand four partners have taken decision in
relation opening another store in UK. In this, report will shed light on funding sources which will
assist company in implementing the expansion plan within the suitable time frame. Besides this,
report will provide deeper insight about the financial tools and techniques that can be undertaken
by Clariton to assess the viability of project.
TASK 1
1.1 Identifying the sources of finance
Unincorporated business: Partnership, sole trader etc. comes under the category of
unincorporated business who do not possess a separate legal entity from its owners.
Sources of finance Description
Selling of assets By taking decision in relation to selling of
unused assets Clariton Ltd can get finance.
Moreover, now as time passes assets become
obsolete. In this way, by selling such kind of
assets business entity can generate fund and
can make use of it in other productive activities
(Zsidisin, 2016).
Use of profit To capitalize all the opportunities business unit
places emphasis on retaining some amount of

profit rather than spending. In this case, by
making use of profit firm can explore business
operations.
Incorporated business: Companies which are registered according to specific laws and
legislation considered as incorporated business. Hence, incorporated business organizations can
raise fund by using the following financial sources are:
Sources of finance Description
Issue of shares Clariton ltd can meet its financial requirements
by launching an IPO and thereby offering
shares top people. Moreover, now investors
prefer to invest money which offers high
return in the form of dividend (Van der Stede,
2016). Thus, by offering shares company can
generate enough funds and thereby would
become able to execute business plan.
Venture capitalists In the present times, there are several venture
capitalists are available who are ready to give
monetary assistance to the firm. Hence, by
approaching to the venture capitalists business
entity can generate money for the proper and
effectual execution of business plan.
Bank loan Financial institutions are the major external
sources that helps company in raising funds
to the significant level. (Mochizuki and et.al.,
2016). In this way, by framing and presenting
effectual plan Clariton Ltd can obtain enough
money.

1.2 Impact of monetary sources on Clariton Antiques Ltd
Financial
sources
Monetary
impact
Impact
according to the
laws
intensity of
control
Bankruptcy
Internal sources
Retained profit In retained
profit, business
entity s not in
position to offer
high dividend to
the shareholders
(Baurzhan, S. and
Jenkins, 2016).
Hence, when
company uses
retained earnings
then it imposes
opportunity cost.
No legal
implications
No At the time of
bankruptcy
owner gets
money after the
fulfillment of all
the obligations.
External sources of finance
Issue of shares Dividend which
is offered by
business unit to
the shareholders
imposes
monetary cost on
it.
Company Act
entails that
business unit
who issue shares
have to involve
their
shareholders in
the decision
making aspects.
Shareholders
take part in the
decision making
process which
shows that there
is high dilution
of control.
Investors are
also the owner of
business
organization to
the extent to
which money
invested by them.
Hence, owner
can get back
funds which is
remaining after
the fulfillment of

all obligations.
Loan from
financial
institution
In the case of
loan, business
entities are
obliged to make
payment of
interest on a
periodical basis.
In this way, such
source has
monetary cost to
the firm.
According to
legal aspects,
company is
obliged to
furnish suitable
and appropriate
information to
bank while
applying for
loan.
Under bank
loan, dilution of
control is
limited.
Moreover, bank
only monitors
that fund is used
by firm in
suitable activities
for which it is
granted (Manly,
Wells and
Bettencourt,
2017).
Financial
institution gets
priority at the
time of
bankruptcy.
Venture
capitalists
Amount which
is provided by
firm the venture
capitalists in
form of return
has high cost to
the firm in a
monetary way.
- High dilution of
control
Least priority
1.3 Assessing the suitable source of finance for Clariton Antiques Ltd
By making evaluation of all the above presented sources it has been assessed that
Clariton Ltd should make focus on raising finance from two sources such as venture capitalists
and bank loan. Both such sources will provide assistance to business unit in implementing the
business strategies more effectively and efficiently. Further, benefits and drawbacks of such
sources are enumerated below:

Venture capitalists
Advantages
 Venture capitalists provide guidance to
business organization and thereby aid
in making highly effectual as well as
competent decisions.
 Further, in this, there is no specified
repay schedule which in turn reduces
the financial burden of firm to the large
extent (Advantages vs. Disadvantages
of Venture Capital, 2017).
Disadvantages
 Due to having high level of concerned
towards invested money venture
capitalists lay high level of emphasis
on taking part in the decision making
aspects. This in turn closely
influences the freedom of business
entities of Clariton Ltd in relation to
decision making.
 Loss of management control is the
major drawbacks which highly
influences the significance of such
source.
Bank loan
Advantages
 Bank loan is tax deductible source
which in turn helps company in
developing competent plan.
 By taking monetary assistance from
bank Clariton Ltd can meet its short
and medium term financing.
Disadvantages
 Usually, banks grant lower credit in
comparison to the amount for which
business entity has applied. ‘
 Along with this, such source imposes
financial burden in terms of interest and
repayment amount (Advantages &
Disadvantages of Bank Loans, 2017).

TASK 2
2.1 Evaluating cost of financial sources in the context of expansion plan undertaken by Clariton
Ltd
 Dividend: Cited case situation entails that We Finance Limited will get 20% stake if it
offers financial assistance to the company amounted to £.5 million. In this, it is the
liability of firm to offer return to the venture capitalists in the form of dividend. By
considering such aspects it can be said that venture capitalists source imposes financial
cost in front of the business entity (Ziemba, 2016).
 Interest: Interest on loan is the main aspects which in turn imposes high cost in front of
firm. On the basis of case situation or scenario owner of Clariton will be obliged to pay
interest @ 2%. For example: If Clariton takes loan of £100000 then it has to pay £2000 to
bank in form of interest. In this way, such source of finance has highly influences the
profit margin of corporation.
 Tax: Loan which is undertaken by the business entities enables them to get benefits in
relation to the tax amount (Rubin, 2016). According to Income Tax rules, business unit
and individual has right to get tax deduction on the amount of interest paid by it during
the year.
2.2 Significance of monetary planning for Clariton Antiques Ltd
 Budgeting: Financial planning may be defined as a process that is undertaken by business
unit to make optimum use of financial resources. Monetary plan or framework direct
personnel in performing the activities which are associated with finance. Further, it also
offers opportunity to Clariton Ltd to evaluate the performance level of each department
by making comparison of the actual performance with standard aspects. Hence, it
enables owner of the firm to find out the causes of deviations thorough in-depth
investigation within the suitable time frame (Drake and et.al., 2016). In this way, by
making timely changes in the existing framework company can achieve success. Along
with this, by developing effectual plan business unit can avoid the situation of financial
discrepancies to a great extent. Along with this, by developing competent plan business
organization can also manage the activities of various departments.

 Impact on business operations in the case of inadequate funds: Clariton Ltd faces
difficulty in managing the business operations and functions if they fail to make proper
allocation of finance. The rationale behind this, in the absence of having sufficient
amount it is not possible for workforce to implement business ideas in the best possible
way. This aspect clearly presents that ineffectual plan closely influences the productivity
and profitability aspect of firm.
 Overtrading: It occurs when business unit explore their business operations more
quickly. Hence, overtrading aspect leads negative cycle to the significant level.
Moreover, when company quickly expands then it requires high level of fund. In this
situation, companies place high level of emphasis on taking loan from financial
institutions. Hence, such aspect directly affects the net profit aspect of firm and thereby
working capital (Singh and Wasdani, 2016). Moreover, high loan amount imposes burden
in front of firm regarding interest etc. Due to this, working capital aspect of firm is
affected in the negative direction. Hence, Clariton Ltd needs to take decision by keeping
all such factors in mind.
2.3 Information needed by decision makers for taking financing decision
 Partners: In the context of Clariton Ltd, partners require information in relation to the
financial position and performance of firm. Moreover, partners prefer to put extra money
in the venture when it is highly growing. Further, by evaluating all such aspects partners
would become able to develop highly competent and strategic framework for the near
future.
 Venture capitalists: They are the one who looking for firm which is highly growing and
profitable. Thus, by providing information financial health and performance company can
attract large number of customers.
 Finance broker: To present effectual framework in front of the financial institution
finance broker requires financial information (Hollander and Verriest, 2016). This in turn
enables them to prepare and to giving suitable presentation in front of banking authority.
2.4 Explaining the effect of selected sources on financial statements
Financial sources which Clariton Ltd will undertake has direct impact on financial
statements in the following manner:

Profitability statement: Venture capitalists and bank loan source closely influences the
profitability of firm. The rationale behind this, amount of dividend is the expense for company
which in turn directly influences its profit level. Further, interest amount such as 2% which is
charged by financial institutions also have an impact on net margin. Moreover, it is also treated
as an expense so accounting personnel records related amount on debit side (Davis, Cieniewski
and Birenbaum, 2016). In addition to this, finance broker also charges some amount to present
plan in front of financial institution. Hence, amounts of dividend and interest is mentioned by the
accountant in debit side because they are expense for the company.
Particulars Amount (in £) Particulars Amount (in £)
To Interest on bank
loan
xxx
To dividend on
shares a/c
xxx
To brokerage a/c xxx
Statement of financial position: Assets side of balance sheet will be inclined from the
monetary assistance provided by venture capitalists and banking institution. Besides this, in
accordance with the double entry system of book keeping liabilities side of firm increased with
the similar amount.

TASK 3
3.1 Preparation of cash budget and give advice for making appropriate decisions
Cash budget is the quantitative plan which is prepared by the firm to co-ordinate all the
business activities more effectively and efficiently (Higham, Fortune and Boothman, 2016). It
clearly highlights the expenses which will be incurred by the firm during the specified time
frame. Besides this, it also entails the sources which business unit will generate income during
the specified time frame.
Cash budget of Clariton antique ltd from January to June are as follows:

Cash budget presents that receipts of Clariton Ltd shows fluctuating trend. Moreover,
inflow of Clariton Ltd increased from £157500 to £562500 in month of May. On the other side,
in month of June cash receipts of Clariton Ltd accounts for £345000. Hence, business unit
requires to makes changes in its credit policies. Thus, by giving less time to debtors in relation to
credit business unit can make significant improvements in the financial aspects. Along with this,
cash expenditure increases due to the rise in sales pattern. Hence, by making continuous
monitoring of expenses company can enhance its cash position and performance. In this way,
closing cash balance can be improved by firm significantly through the means of sound strategic
framework.
3.2 Calculation of cost per unit
Every business unit needs to determine appropriate cost for each unit of its product. It is
through fixing of suitable selling price that the organization is able to earn sufficient amount of
profit (Zsidisin, 2016). The cost per unit is determined through various methods such as: cost
plus pricing and return on capital employed. As an illustration, the selling prices are determined
through adoption of both the methods.
Table 1: Cost plus Pricing
Particulars Amount (in £’s)
Fixed cost 30000
Total Variable cost 25000
Total cost 55000
No. of units 500
Per unit cost 110
Targeted gross profit margin 30%
Selling price 143
Table 2: Selling price through fixed return on capital employed
Particulars Amount (in £’s)
Amount of capital invested 70000
Annual return required on capital employed 15%
Amount of return required on capital employed 10500
No. of units produced 500
Per unit cost 110

Per unit profit to be earned to meet required return
on capital employed 21
Selling price per unit 131
The table presented above indicates that the business unit can set a selling price by
adding fixed percentage of gross profit margin to per unit cost. Further, the organisation has an
option to anticipate the return to be generated on capital employed. This in turn would help in
estimating selling price (Van der Stede, 2016). However, in both the cases business unit is
responsible to ascertain per unit cost. It is through estimation of per unit cost that the corporate is
able to decide adequate selling price. This in turn leads to achievement of required profitability
and return on part of the business unit.
3.3 Assessing the viability of project by using investment appraisal techniques
On the basis of cited case situation two investment opportunities are available to Clariton
Ltd. In this, by applying various tools and techniques such as payback period, NPV and IRR
manager of business unit has taken decision in relation to the selection of proposal (Mochizuki
and et.al., 2016).
Computation of payback period

Payback period
Proposal Outcome
Investment proposal 1: 3 + (8.6 – 7.8) / 3.6
= 3.2 years
Investment proposal 2 3 + (4.4 – 4.2) / 2.4
= 3.08 or approximately 3.1 years

Outcome of investment appraisal analysis entails that payback period of investment
option 1 and 2 is 3.2 & 3.1 years respectively. It clearly presents that investment option 1 will
offer opportunity to Calriton Ltd in relation to making profit 1 month earlier in comparison to
other alternative. Further, IRR of project A and B is 37.98% and 43.56%. In addition to this,
NPV of project A and B is £3.4 and £2.5. Thus, by taking into account all such aspects it can be
said that Calriton Ltd should invest money in project B. Moreover, initial investment which is
with project B is highly lower than other alternative proposal. This in turn offers opportunity to
the firm to enhance both productivity and profitability by investing money in other proposals
which are available to the firm.

TASK 4
4.1 Discussing the key components of financial statements Income statement: Profitability account provides information regarding the income
generated and expenses incurred during the specified time frame. By evaluating all such
aspects company can develop suitable framework for the near future (Baurzhan and
Jenkins, 2016). Income side includes gross margin and other income generated by the
business entity during the specified time frame. Example of expenses includes lighting,
salary and other expenses etc.
 Statement of cash flows: Activities of cash flow statement can be distinguished into three
parts such as operating, financing and investing. All these clearly entail information about
cash inflow and outflow. Hence, by evaluating all such aspects company can take future
investment decisions more effectively and efficiently. Clariton Ltd prepares cash flow
statement to assess financial aspects by including the following information’s are
enumerated below:
Operating activities NP, operating expense, changes in assets and
liabilities
Investing activities Add: Assets sold
Less: Investment in fixed assets
Financing activities Add: Issuance of shares and debenture
Less: Redemption
 Statement of changes in equity and gains: It gives information about the fluctuations in
relation to the equity and reserves. Hence, by considering such statement company can
take further decision for ensuing proper balance in the financial structure.
 Balance sheet: It is the main statements of final account which provides deeper insight
about the position of assets and liabilities. Assets side include fixed and current which in
turn helps in getting information about land & machinery, furniture’s & fixtures, cash,
debtors etc. In contrast to this, liabilities side includes shareholder’s equity, long term and
current obligations (Manly, Wells and Bettencourt, 2017). Hence, by using such
information company can evaluate its liquidity and solvency aspect in an effectual way.

 Notes to the final accounts: Clariton Ltd also gives summary detail of all the accounting
rules and regulations undertaken with to motive to develop faith among stakeholders. It
clearly presents the accounting principles that are employed by firm while preparing the
final accounts.
4.2 Compare format of financial statements
Clariton Antiques Ltd, being a public listed company, prepares financial statements in
accordance to the set accounting standards at national and global level. The organisation tends to
abide by GAAP & IFRS. Further, the annual statements are prepared not only to ascertain the net
profit at end of the year. The business unit tends to meet information needs of different
stakeholders through preparation of financial statements. Further, net profit is attributable to
shareholders of the organization into consideration (Rubin, 2016). In case of the public listed
company, shareholders’ fund constitutes certain categories such as share capital, retained
earnings, capital and reserves. Moreover, a corporate tax is imposed on Net profit earned on
annual basis. It can be said that financial statements are prepared as per the acceptable norms by
publically listed company.
Financial statements in case of partnership business are prepared with separate heads of
capital accounts for different partners. The profit is apportioned among different partners in
decided proportion of their share (Ziemba, 2016). Unlike, public listed company, the separate
accounts are prepared for distinct sets of partners. Partners tend to work together so as to earn
sufficient amount of profit through combined efforts.
The sole trader single handedly owns and operates business unit. The financial statements
are prepared to ascertain profitability and position of the firm. The simple procedures are
adopted to prepare income statement since it aims at ascertaining the amount of profit. Further,
the taxation is charged on sole proprietor who is managing the operations. The owner is not
obliged to abide by complex global standards (Singh and Wasdani, 2016). However, the purpose
of preparation of financial statements is to measure profitability and viability of business
operations.
4.3 Interpreting the financial statements of Clariton Ltd for further decision making
Ratio analysis of Clariton Ltd for assessing financial health and performance:

Profitability ratio analysis clearly presents that GP margin of Clariton Ltd was 14% in
both the years such as 2015 and 2016. On the other, net profit margin generated by firm over
expenses inclined from 2% to 3% at the end of 2016. It shows that profitability aspect of
Clariton was not highly effectual in the year of 2016. In this, business unit requires to reduce the
expense for the maximization of profit level.
By doing assessment, it has been identified that current ratio of firm inclined from .23
to .33 in 2015. Besides this, quick ratio also increased from .08 to .18 during the period of 2015.
Hence, by considering such position it can be said that current and quick ratio position of firm is
very far from ideal ratio. Thus, Clariton ltd requires making changes in existing strategic and
policy framework. In this way, by maintaining the level of assets company can make significant
improvement in its liquidity position and performance.
In the period of 2014 and 2015, solvency ratio of Clariton Ltd was 1.12 & 1.05. Hence,
such trend reveals that company had made payment to debt holders in the year of 2015.
However, still solvency position of company is very far from ideal ratio such as .5:1.Thus, firm
is required to make focus on developing highly suitable financial structure by issuing shares in
the near future.
CONCLUSION
In conclusion to this report, it can be said that Clariton Ltd can expand business
operations by using the sources like venture capitalists and bank loan. Besides this, it can be
revealed from the report that both venture capitalists and bank loan source will help company in

framing highly structured and effectual financial structure. It can be inferred that monetary
planning helps in making optimum use of financial resources to a great extent. Further, it has
been articulated that profitability, liquidity and solvency of Clariton Ltd was not good during the
accounting period. Thus, for making improvement in the financial position and performance
company is required to make modifications in the existing strategic framework.