Clariton Ltd: Financial Report on Sources and Planning, Analysis

This report examines the financial strategies of Clariton Ltd, focusing on identifying suitable sources of finance for an incorporated business, considering both venture capitalists and bank loans as viable options. It assesses the impact of different financing sources, evaluating their legal and financial implications, and the significance of financial planning, including budgeting and the information needs of various stakeholders. The report delves into the preparation of a cash budget, calculation of unit costs for pricing decisions, and the use of investment appraisal techniques. Furthermore, it analyzes the key components of financial statements, comparing formats and interpreting Clariton Ltd's financial performance through ratio analysis, providing a comprehensive overview of the company's financial health and strategic decision-making processes.

MFRD

Table of Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Identifying the sources of finance for incorporated and unincorporated business...........3
1.2 Assessing the impact of different impact source of finance............................................4
1.3 Evaluating the impact of suitable source of finance for business....................................6
TASK 2......................................................................................................................................6
2.1 Assessing the cost of different sources of finance...........................................................6
2.2 Defining the significance of financial planning...............................................................7
2.3 Identifying the information needs of different stakeholders............................................7
2.4 Analyzing the impact of different sources of finance......................................................8
TASK 3......................................................................................................................................8
3.1 Preparing cash budget and take suitable decision............................................................8
3.2 Calculating unit cost for making pricing decisions........................................................10
3.3 Assessing the viability of project by using investment appraisal techniques................11
TASK 4....................................................................................................................................13
4.1 Analyzing the key components of financial statements.................................................13
4.2 Comparing the financial statement formats of different type of business.....................15
4.3 Interpreting the financial statements of Clariton Ltd through ratio analysis.................16
CONCLUSION........................................................................................................................18
REFERENCES.........................................................................................................................19

INTRODUCTION
Decision making in relation to the management of financial resources are highly
crucial which is highly concerned with the achievement of organizational goals. In this,
manager pays a vital role in making contribution in the attainment of objectives by ensuring
effective management of financial resources. Moreover, manager primarily makes assessment
of monetary requirements and thereby frames strategies. Further, company is also required to
make selection of suitable proposal by evaluating each and every possible alternative. For this
project report, Clariton Ltd has been selected that offers highly antique products to the
customers. In UK demand for unique or innovative products are increased significantly.
Hence, present report will describe the sources of finance that are available to Clariton Ltd
for expansion. Besides this, it will also describe the manner in which financial plan helps in
making optimum use of financial resources. Further, it will also shed light on the manner in
which investment appraisal techniques help in making selection of suitable project. The
present report will also help in assessing the financial health and performance of Cariton Ltd.
TASK 1
1.1 Identifying the sources of finance for incorporated and unincorporated business
Incorporated business
 Venture capitalists: It is the main external sources of finance which offers financial
and advisory services to the customers. In the present times, venture capitalists firm
provides fund to emerging business units and thereby makes contribution in the
growth of firm who have potential (Venture capitalists, 2017). In this regard, by
taking fund from venture capitalists Clariton Ltd can execute its business plan more
effectually.
 Long-term loan: Bank is the major sources of finance which provide financial
assistance to the business unit at suitable interest rate. Hence, by taking loan from
financial institution on the basis of collateral security company can generate finance.
 European Union or government grant: Now, UK government provides high level of
monetary support to the business units which are highly growing. In this, by
generating fund from European Union Clariton Ltd can implement its business ideas
in the best possible way.

Unincorporated business
 Sales of assets: In the business unit, by selling unused assets such as land & building,
plant & machinery etc Clariton Ltd can enhance fund. Moreover, there are several
assets which are not used by firm in other productive activities (Frydman and
Camerer, 2016). In this way, through the means of selling of assets company can raise
finance.
 Short-term loan: By taking loan from co-operatives and other banking institution for
short term such as less than 1 year Clariton Ltd can raise finance and thereby would
become able to meet its monetary requirements.
 Profit margin: In the dynamic business environment, with the motive to meet
contingent situation company makes focus on retaining profit margin rather than
spending. Hence, by making use of such gross margin Clariton Ltd can execute its
business plan.
1.2 Assessing the impact of different impact source of finance
Sources Legal Financial Dilution of
control
Bankruptcy
Internal sources of finance
Sales of assets After selling,
business unit
does not have
right in relation
to making use of
assets. However,
after selling
such asset
Clariton can
take it on lease
according to the
requirements.
For attracting
large number of
investors or
potential buyers
business unit
places
advertisement
on newspaper,
social media etc.
Hence,
advertisement
and registry
expenses impose
cost in front of
the firm
No No

(Razumovskaia
and et.al., 2016).
Profit No Such source of
finance has
opportunity cost
to the firm
which in turn
affects
organizational
success.
No No
External sources of finance
Venture
capitalists
In accordance
with legal
aspect, Clariton
Ltd is required
to offer voting
rights to equity
investors.
Dividend is the
major aspects
which in turn
has financial
cost in front of
business
organization.
Control level of
venture
capitalists is
high on the
business
operations and
functions of
Clariton Ltd.
At the time of
bankruptcy,
venture
capitalists can
demand for
money after the
fulfillment of
obligations.
Short and Long-
term loan
For taking loan
for both short
and long term
duration
company is
required to
fulfill all
documentary
process as well
as formalities.
Interest amount
has financial
impact on
business
organization.
Dilution of
control is
moderate in the
case of bank
loan.
Bank has right
to demand for
amount provided
by it when
company
becomes
bankrupt.
European grant Law entails that
business unit
needs to make
use of fund in
Government
charges
comparatively
less interest as
EU does not
have more right
to make
interference in
-

the activities for
which it is
applied to
government.
compared to
other
institutions.
the business
practices (Engle-
Warnick, Pulido
and de
Montaignac,
2016).
1.3 Evaluating the impact of suitable source of finance for business
Monetary and non-monetary gains are the main aspects which Clariton Ltd needs to
consider while making selection of source. Moreover, saving of cost is one of the major
objectives of business organization. Hence, by considering such aspects it can be said that
venture capitalists and bank loan are the most effectual sources that Clariton Ltd should select
for raising finance. Thus, suitable sources of finance are as follows:
 Venture capitalists: Owner of Cariton should make focus on convincing We finance
Ltd capitalists for meeting the monetary needs or requirements. Such external source
of finance is more effective which in turn helps company in enhancing fund at low
cost. Moreover, venture capitalists provide guidance to the company about the manner
in which they need to execute plan. Venture capitalists have wide range of
information about the market trend or behavior (Manske, Schmitz and Wilhelm,
2016). In this way, by taking consideration the guidance of venture capitalists Cariton
Ltd can frame suitable strategies for near future. However, business unit needs to
offer dividend to the shareholders whenever it earns profit. In this way, it influences
the retained profit and net margin of the company.
 Ban loan: Clariton Ltd should also undertake bank loan source which in turn helps in
meeting the monetary requirements to a great extent. Bank primarily prefers to give
secured loan to the entrepreneurs whose business ideas are sound. In this way, by
giving collateral security to the banking institution Clariton Ltd can generate fund to a
significant level (Ketcham, 2016). This source offers tax deductions to the business
entity and thereby enhances profit level. However, bank usually grants less amount of
loan in comparison to the figure for which company applies.
TASK 2

2.1 Assessing the cost of different sources of finance
 Dividend: Venture capitalists are equity investors who invest money in the business
organization with the aim to generate more income. Due to this, Clariton Ltd offers
return to the shareholders or investors in the form of dividend. Moreover, if business
unit does not provide stable or regular dividend to the investors then it will lose faith
of them from firm’s operations (Chang, Tang and Liu, 2016). It is cited in the case
that venture capitalists will take 20% stake in the firm’s venture. On the basis of this
aspect, dividend imposes both monetary and non- monetary cost in front of the firm.
 Interest: In bank loan, business entity has obligation to make payment of interest to
the financial institution. For instance: given case presents that bank will charge 2%
interest loan on the amount of financial assistance for the period of 10 years. In this
way, interest amount has cost to the firm.
 Tax: Venture capitalists source does not offer benefit to the firm in terms of tax
brackets. On the other side, under bank loan Clariton will get benefit in terms of tax
deduction or exemption of the amount which is paid by Clariton Ltd in the form of
tax.
2.2 Defining the significance of financial planning
 Budgeting: Clariton Ltd frames budget with the aim to make optimum utilization of
financial resources. Business unit places emphasis on the preparation of budget for a
specified time frame. In this regard, business unit primarily makes assessment of the
fund required for business activities and investment purpose (Budgeting and its
significance, 2017). In this way, budgeting technique helps in making co-ordination in
the different kind of business activities. Along with this, by framing suitable budget
firm can avoid financial discrepancies in an effectual way.
 Implications of failure finance inadequately: For smooth and effectual functioning
of the business organization firm needs to make focus on the proper allocation of
financial resources. Failure in relation to the allocation of finance highly impacts the
business activities and performance to a great extent (Vyas and et.al., 2016). Thus,
company needs to consider causes of deviations while framing financial plan.
 Overtrading: In order to achieve success in the highly competitive business
environment Clariton Ltd makes focus on expanding business operations and
functions more quickly. In this, company is required to prepare plan in relation to
spending of money. Moreover, overtrading may result into high interest burden in

front of company. This in turn negatively influences the liquidity and solvency
position of firm.
2.3 Identifying the information needs of different stakeholders
 Venture capitalists: Growing business venture is the first requirement of venture
capitalists when they take decision in relation to investing money. In this, they require
information about business idea, target market, STP approach, investment amount etc.
In this, after making in-depth assessment of each and every aspect venture capitalists
take decision in relation to employing money.
 Partners: The cited case scenario presents that business unit requires fund for
business entities of Clariton ltd requires fund for opening another store in London.
Hence, before taking decision about takeover Clariton Ltd requires information about
the profitability and financial aspects of firm. Along with this, partners also analyze
the extent to which customers prefer to purchase antique products (Manly, Wells and
Bettencourt, 2017). Hence, by making analysis of all such aspects partners can make
suitable business decision.
 Finance broker: In the financial institution, finance broker plays a vital role in
sanctioning loan. Moreover, broker is the one who gives presentation in front of
banking institution and presents business plan. Hence, broker also requires financial
and non-financial information for developing highly effectual presentation. Thus,
finance broker is highly concerned with the financial performance and position of
firm.
2.4 Analyzing the impact of different sources of finance
 Income statement: Profitability aspect of Clariton Antqiue Ltd will be affected to a
great extent from the amount of dividend and interest paid as well as brokerage
amount. All such are the expenses for the business organization so they are recorded
in the debit side of income statement. This in turn directly impacts the profit margin
of firm and thereby financial position.
 Balance sheet: In the case of venture capitalists share capital or premium of Clariton
Ltd will increase. In addition to this, bank loan is also liability for the business
organization. Thus, share capital and amount of long term debt of liabilities side will
increase to the significant level (Phillips, 2016). According to the dual aspect concept,
cash amount of bank will also incline from the amount of bank loan and share capital.

TASK 3
3.1 Preparing cash budget and take suitable decision
Clariton Ltd frames cash budget by including the revenue, income and other expenses.
In this regard, business unit makes proper estimation of expenses which it needs to incur for
the generation of sales revenue (Kiso and Hershey, 2016). Such financial expression of
business activities help company in making optimum use of money.
Cash budget of Clariton Ltd for the period of six months are as follows:
Particulars
Janua
ry (in
£)
Februa
ry (in
£)
Marc
h (in
£)
April
(in £)
May
(in £)
June
(in £)
Opening cash
balance
11000
0
-
539750
-
3920
00
-
7675
0
4850
0
1662
50
Cash sales in
similar month 15000 22500
3000
0
1500
0
1500
0 3750
Amount
received from
debtor (in one
month)
12000
0 240000
3600
00
4800
00
2400
00
2400
00
Received (in
two months) 22500 22500
4500
0
6750
0
9000
0
4500
0
Total cash
receipts or
inflow
26750
0
-
254750
4300
0
4857
50
3935
00
4550
00
Cash payments
Payment to
suppliers
80725
0 137250
1197
50
4372
50
2272
50
2197
50
Cash
shortage/Sur
plus or
closing cash
balance
-
53975
0
-
392000
-
7675
0
4850
0
1662
50
2352
50
The above mentioned cash budget shows that in the month of February negative cash
flow occurs such as £254750. On the other side, total cash receipts are also shows

fluctuating trend to the significant level. Moreover, in the month of March and May cash
inflow of Clariton Ltd was £43000 and £393500 which is highly lower as compared to other
investment proposal. Further, from January to March cash position or balance of Clariton
Antique Ltd was negative. In addition to this, closing cash position also decreased from
£388750 to £235250. Thus, business unit needs to place emphasis on making continuous
monitoring of cash position. In this way, by finding the causes of deviations and taking
corrective action business unit can improve its cash position and performance.
3.2 Calculating unit cost for making pricing decisions
Business organization incurs several expenses to offer high quality services to the
customers. Moreover, advertisement, salaries of personnel, rent of the store, electricity,
miscellaneous and several other expenses which company has to incur for offering product b
or services to the customers. Hence, in this, business unit can set suitable price of antique
item only when it has information about financial expenses. For this purpose, Calriton Ltd
requires to determine total cost which is highly associated with the offering if antique items
to the customers (Rubin, 2016). Thereafter, by dividing such total cost from number of
antique item offers unit cost can be determined in an effectual way. Clariton Ltd has
determined goal in relation to the attainment of profit margin such as 22% for 250 antique
items which it will offer. Hence, by doing calculation it has been assessed that by selling each
antique item at £107.36 Calriton can generate suitable return.
Calculation of unit cost and price:
Particulars
Cost
incurred
(in £)
Depreciation
on fixed
assets 2500
Fuel charges 1800
Salaries of
personnel 5000

Repairs and
Maintenance 1200
Miscellaneo
us expenses 1500
Interest 3000
Insurance 2000
Others
(Promotiona
l, electricity
etc.) 3000
rent of store 2000
Total cost 22000
Number of
antique
items 250
Profit % 22%
Unit cost of
antique item
(Total cost /
number of
antique
items)
22000 /
250 = £88
Profit per
unit (Cost *
profit %)
88 * 22%
= £19.36
Price of each
antique
product or
item (cost +
profit per
unit) £107.36
3.3 Assessing the viability of project by using investment appraisal techniques
In accordance with the given case, owner of Clariton Ltd can invest money in two
proposals such as option 1 and 2. With the motive to select suitable project manager has
setting down standard criteria. In this regard, business entities have taken decision in relation

to the employment of several tools such as payback, NPV and ARR. By this, attractiveness of
project can be assessed in the best possible way (Holston, Issarny and Parra, 2016).
Payback period
Years
Project A
(in £)
Cumulative
cash flows
Project B
(in £)
Cumulative
cash flows
0 8.6 -8.6 4.4 -4.4
1 1.6 -7 0.8 -3.6
2 2.8 -4.2 1.4 -2.2
3 3.4 -0.8 2 -0.2
4 3.6 2.8 2.4 2.2
5 4 6.8 2.3 4.5
6 4.2 11 2.6 7.1
Calculation of NPV and ARR
Years
Project
A (in
£)
PV
factor
@14%
Present
value
(in £)
Project
B (in £)
Present
value
factor
(in £)
1 1.6 0.877 1.40 0.8 0.70
2 2.8 0.769 2.15 1.4 1.08
3 3.4 0.675 2.29 2 1.35
4 3.6 0.592 2.13 2.4 1.42
5 4 0.519 2.08 2.3 1.19
6 4.2 0.456 1.91 2.6 1.18
Total
discounted
cash inflow
(TDCF) 11.98 6.93
Initial
investment
(II) 8.6 4.4
NPV
(TDCF –
initial
investment) 3.38 2.53
Total of
cash inflow
19.6 11.5