Financial Analysis Report: Green Supplies Ltd's Expansion Strategy

This report provides a comprehensive financial analysis of Green Supplies Ltd., a company offering fitness products online. It begins by identifying both internal and external sources of finance available to the company, assessing their implications regarding legal, financial, and control aspects, and evaluating their suitability for Green Supplies' expansion plans. The report then emphasizes the importance of financial planning for the company and assesses the information needs of different decision-makers. It delves into the impact of financial instruments such as loans and equity investments on the income statement and balance sheet. Further, the report includes a four-month cash budget, calculations of unit costs, and pricing decisions. The report assesses the viability of projects using investment appraisal techniques, discusses the main financial statements, compares financial statement formats across business types, and interprets financial statements using ratio analysis. The report concludes with recommendations for Green Supplies Ltd. based on the findings of the analysis.

MFRD

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
a. Identifying different internal and external sources of finance which are available to Green
Supplies ltd. ................................................................................................................................1
b. Assessing the implications of different sources of finance.....................................................2
c. Evaluating the sources which are most suitable to Green Supplies Ltd..................................3
d. Analyzing the cost of the above identified source of finance.................................................3
TASK 2............................................................................................................................................4
a. Stating the importance of financial planning to Green supplies ltd........................................4
b. Assessing the information need of different decision maker..................................................4
c. Stating the impact of loan and equity investment upon the income statement and balance
sheet of an organization..............................................................................................................5
TASK 3............................................................................................................................................6
a. Preparing cash budget for four months ..................................................................................6
b. Stating the calculation of unit cost and pricing decision based upon it..................................7
c. Assessing the viability of project by using investment appraisal techniques..........................8
TASK 4............................................................................................................................................9
a. Discussing the main financial statements of the firm .............................................................9
b. Comparing the formats of financial statements of different type of business organization..11
c. Interpreting financial statements by using ratio analysis .....................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Finance refers to the money which is available to organization for spending in the
business activities and functions. It is that crucial element of the business which facilitates
effective implementation of the policies and strategies within the suitable time frame (Al-Bakri,
Matar and Nour, 2014). Finance manager of an organization plays a vital role in framing
competent financial strategies which ensures optimum utilization of monetary resources to the
large extent. This project report is based upon Green supplies Ltd who offers fitness product to
their customers through online means. The present report will discuss the sources of finance
which the company can use to meet its financial need or requirement. Besides this, it will also
develop understanding about the concept of unit cost and profit margin. Further, this report will
also shed light on the investment appraisal techniques which helps corporation in assessing the
viability of project. In addition to this, report will also examine financial health and performance
of Green supplies by taking i9nto consideration ratio analysis.
TASK 1
TASK 1
a. Identifying different internal and external sources of finance which are available to Green
Supplies ltd.
On the basis of cited case scenario Green Supplies ltd. wishes to expand its business
operations and activity in market. In this condition, various types of internal and external sources
of finance which are available to firm are enumerated below:
Internal sources of finance: It refers to the sources which are accessible within the
business organization. Internal sources of finance which company can use to meet their financial
need are as follows:
 Retained profit: This is most effective source of finance which helps corporation in
expanding the business operations in an effective manner. Moreover, each and every
organization retains part of profit with itself to meet the contingent situation which will
arise in near future (Batta, Ganguly and Rosett, 2014). By accessing such fund Green
supplies ltd. is able to increases its business activity in market.
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 Sale of non-profitable assets: Company can raise fund by selling the non-profitable assets
which are does not use in productive purposes. Thus, by selling the assets firm can meet
their financial needs for expansion plan.
External sources of finance: It includes the sources which are present outside an
organization. Green supplies ltd. can raise money by accessing the below mentioned sources of
finance: Bank loan: Green Supplies Ltd. can fulfill its financial requirements by approaching bank
for loan on the basis of collateral security. Therefore, by offering security to financial
institution company can get financial assistance and there be able expand its business. Issuance of equity shares: Organization can also generate fund by issuing equity shares to
the general public at large (Baum and Crosby, 2014. It is the most effective and cheaper
source of finance through which Green Supplies ltd.
 Factoring: By selling the receivables to third party green supplies is able to get money
before the due date. It is also the best source which offers opportunity to Green supplies
to receive money whenever it wants and thereby execute their business strategies and
policies.
b. Assessing the implications of different sources of finance
Internal and external sources have different implications in terms of legal, financial and
bankruptcy which affect decision making aspect of Green supplies ltd. Implication of different
sources of finance are enumerated below:
Sources of finance Legal implications
Financial
implications
Dilution of control or
Bankruptcy
Internal sources of finance
Retained profit As per the rule and
regulations each
organization require to
kept the fixed
percentage of profit
with itself to meet the
future contingent
By using retained
profit Green supplied
Ltd. can meet its
current financial needs
but in future it will not
able to face future
contingent situation
When company issues
equity share then
shareholders also
influence the
percentage of profit
with they needs to
keep with it.
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situation or liability.
(Brown and Petersen,
2011).
External sources of finance
Bank loan
According to legal
obligations company
needs to repay the
amount of loan within
the suitable time
frame.
In this, bank charges
high interest rate
which imposes
monetary cost in front
of an organization.
In bank loan, control
of financial institution
is limited to ceasing of
asset if company
makes default in
repayment of loan.
Issuance of equity
shares
On the basis of laws
and legislation
corporation needs to
give voting right to the
shareholders.
In order to build faith
in the mind of investor
firm requires paying
dividend to their
shareholders which
imposes financial cost
upon it.
When organization
issues equity share to
investors then they
become the owner it to
the amount which
thereby have invested.
Thus, in equity shares
dilution of control of
the firm is closely
affected.
b. Assessing the implications of different sources of finance
Internal and external sources have different implications in terms of legal, financial and
bankruptcy which affect decision making aspect of Green supplies ltd. Implication of different
sources of finance are enumerated below:
Sources of finance Legal implications
Financial
implications
Dilution of control or
Bankruptcy
Internal sources of finance
Retained profit As per the rule and
regulations each
By using retained
profit Green supplied
When company issues
equity share then
3

organization require to
kept the fixed
percentage of profit
with itself to meet the
future contingent
situation or liability.
Ltd. can meet its
current financial needs
but in future it will not
able to face future
contingent situation
(Brown and Petersen,
2011).
shareholders also
influence the
percentage of profit
with they needs to
keep with it.
External sources of finance
Bank loan
According to legal
obligations company
needs to repay the
amount of loan within
the suitable time
frame.
In this, bank charges
high interest rate
which imposes
monetary cost in front
of an organization.
In bank loan, control
of financial institution
is limited to ceasing of
asset if company
makes default in
repayment of loan.
Issuance of equity
shares
On the basis of laws
and legislation
corporation needs to
give voting right to the
shareholders.
In order to build faith
in the mind of investor
firm requires paying
dividend to their
shareholders which
imposes financial cost
upon it.
When organization
issues equity share to
investors then they
become the owner an
it to the amount which
thereby have invested.
Thus, in equity shares
dilution of control of
the firm is closely
affected.
c. Evaluating the sources which are most suitable to Green Supplies Ltd.
On the basis of the above identified sources of finance it is recommended to Green
Supplies Ltd that they needs to undertake retained profit, bank loan and issuance of equity
shares. These sources are the most effective ways through which company is able to meet their
financial needs or requirements. Organization will gain tax benefits if they access bank loan to
meet their needs. In addition to this, banks are always ready to give financial assistance on the
4

basis of collateral security. Further, company can limit the interference of shareholders in the
decision making process by making use of retained profit to the large extent (Chavis, Klapper
and Love, 2011). Along with it, company can reduce the periodical financial burden by issuing
equity shares to the general public at large. Moreover, in equity Shares Company give dividend
to shareholders only when then will earn sufficient amount of profit. Thus, by accessing all the
above mentioned sources of finance Green Supplies Ltd can fulfill their monetary requirements.
d. Analyzing the cost of the above identified source of finance
Green supplied ltd. have to incur several cost in terms of financial and opportunity when
it undertake bank loan, retained profit and issuance of equity shares in the following manner:
Financial cost: If green supplies Ltd, Take bank loan then they has to periodical interest
amount with installment. In addition to this, when the company issues equity shares then it is
required to pay dividend to their shareholders to meet their financial needs or requirements
(Drivelos and Georgiou, 2012). All these aspect impose high financial cost in front of the
corporation.
Opportunity cost: If Green Supplies Ltd. makes use of retained earnings to fulfill its
financial requirement for expansion then organization is unable to pay dividend to their
shareholders in respective year. This aspect closely affects the faith and investment decision of
several stakeholders.
TASK 2
a. Stating the importance of financial planning to Green supplies ltd.
Financial planning may be defined as a process which provides assistance to manager in
making most effective business decisions which are highly associated with money. By making
financial plan green Supplies ltd. is able to attain the desired level of outcomes or results.
Importance of financial planning
 Financial planning facilitates optimum utilization of fund by reducing the wastage and
thereby helps in overcome the problem of deficit.
 In addition to this, it provides assistance Green Supplies ltd. in identifying the financial
need which will arise in near future. Through this, company is able to take suitable
decisions through which they can fulfill their monetary needs (Ogayar and Vidal, 2009).
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 Financial plan helps corporation in evaluating the effectiveness of business strategies by
making comparison of actual performance with budget performance. Through this, firm
Green Supplies Ltd. is able to undertake corrective effective measures within the suitable
time frame and there by become able expand its business activities more effectively and
efficiently.
b. Assessing the information need of different decision maker
Different decision makers of Green suppliers Ltd. make assessment of all or one of the
financial statements to get information for decision making which are as follows:
 Management: Manager of an organization makes assessment of all financial statements
namely income statement, cash flow statement and balance sheet. Management of the
corporation employed effective strategies and policies which makes contribution in the
achievement of goals and objectives (Larkin, 2011). Thus, by making assessment of
financial statement manager is able to assess liquidity and solvency aspect of an
organization and thereby make most profitable investment decisions.
 Employees: Human resources undertake analysis of income statement to identify the
growth and revenue of the firm. Through this, they can assess the capability of an
organization in terms of giving bonuses, incentive and increment in basic pay.
 Shareholders: They undertake all financial statement to calculate ratios which helps then
in assessing the liquidity, solvency and financial aspect of an organization. It enables
them to make most profitable investment decision (7 Users of Financial Statements &
their Information Needs under IFRS, 2016).
 Financial institutions: They are highly interested in making assessment of balance sheet
of an organization (Maditinos and et.al., 2011). By assessing liabilities and assets of the
firm financial institution can analyze the capability of it in relation to the repayment of
loan.
c. Stating the impact of loan and equity investment upon the income statement and balance sheet
of an organization
Loan and equity investment places significant impact upon the income statement and
balance sheet of an organization in the following manner:
For instance company have undertaken the loan of £100000@15% as well as issue 10%200000£
equity share to meet their financial need.
6

Income statement
Debit side Credit side
Particulars Amount (£) Particulars Amount (£)
To Interest on loan 150000
To shareholders
dividend
20000
Balance sheet
Liabilities Amount (£) Assets Amount (£)
10%Equity share
capital
200000 Cash 200000
Bank loan @ 15% 100000 Bank 100000
TASK 3
a. Preparing cash budget for four months
Cash budget of Heath Ltd. for the months of June to September are as follows:
Particular June (£) July (£) August (£) September (£)
Revenues
Credit sales 550000 630000 770000
cash sales 60000 70000 75000 80000
Total cash revenues 60000 620000 705000 850000
Expenditures
Cash purchases 310000 450000 500000 520000
Credit purchases 55000 65000 60000
Rent 30000 30000
Other expenses 75000 80000 90000 95000
Loan installment 15000 15000 15000 15000
Total cash expenses 430000 600000 670000 720000
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Net cash balance -370000 20000 35000 130000
Opening bank balance 75000 -295000 -275000 -240000
Closing cash balance ' -295000 -275000 -240000 -110000
On the basis of the above mentioned cash budget it has been analyzing that outflow of an
organization is greater than inflow. Expenditure of an organization is continuously increasing as
compared to their income. Thus, it is the main cause due to which Heath Ltd. facing the problem
of cash deficit. Thus, company needs to frame competent strategies and policies which help them
in reducing the wastage of financial resources and thereby make improvement in the cash
position of an organization.
8

b. Stating the calculation of unit cost and pricing decision based upon it
Unit cost and pricing: Unit cost refers to the money which is incurred by an organization
in manufacturing the product or services. Whereas price may be defined as a summation of unit
cost and margin which organization wishes to earn by selling each product or services (Mathis
and Jackson, 2011).
Variable Cost per unit: £150
Fixed Cost per unit: £100
Total Cost per unit: £250
(i) Calculation of selling price per unit with 30% mark up cost and stating profit on 550 units
sold
Unit cost = £250
Profit margin = £250 * 30%
= £75
Profit margin on 550 units = 550 * 75
= £41250
Thus, Paracha Ltd will get £41250 profit if it will sell 550 units of sports equipment. By
attaining 30% Profit Company is able to recover their manufacturing cost.
(ii) Calculating selling price per unit with mark up 25% and the profit on additional 1500 units
sold
Given: Fixed cost is fully recovered if 550
In this unit cost of the product is:
Fixed cost = 550 * £100
= 55000
Variable Cost per unit: 1500 *£150
= 225000
Total cost = £225000 + £25000
= £280000
Unit cost = Total cost / number of unit produced
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= 280000 / 1500
=£186.67
Per unit profit = £186.67 * 25%
Price per unit = £186.67 +46.67
= £233.34
Profit on 1500 unit sold = 1500 * 46.67
= £70005
Paracha ltd. will earn £70005 profit if they will sell 1500 sports equipment to their
customers. In addition to this, company needs to sell its product £233.34 if they wish to earn
£46.67 profit margin by selling per unit cost of product.
c. Assessing the viability of project by using investment appraisal techniques
Calculation of payback period and net present value of Project A, B and C is as follows:
Cash
flow
Discou
nting
factor
@10%
(1)
Project
A (2)
Cumul
ative
cash
inflow
(3)
Discou
nted
cash
flow (1
* 2)
Project
B (4)
Cumul
ative
cash
inflow
(5)
Discou
nted
cash
flow (1
* 4)
Project
C (6)
Cumul
ative
cash
inflow
(7)
Discou
nted
cash
flow (6
* 1)
Initial
invest
ment
130000 150000 190000
Year 1 0.91 35000 35000 31815 50000 50000 45450 40000 40000 36360
Year 2 0.83 45000 80000 37170 50000 100000 41300 50000 90000 41300
Year 3 751 55000 135000 41305 50000 150000 37550 55000 145000 41305
Year 4 0.68 65000 200000 44395 50000 200000 34150 65000 210000 44395
Total
discou
nted
cash
flow
154685 158450 163360
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