Business Financial Analysis: Sources, Units and Accounting Methods

This report offers financial consultancy advice to prospective business owners, covering sources of short-term and medium-term finance, different forms of business units (sole proprietorship, partnership, and limited company) with their benefits and limitations, and a comparison between financial and management accounting. It discusses options like working capital finance, trade credit, inter-corporate deposits, factoring, and commercial paper for short-term funding, and commercial banks, lease financing, and hire purchase for medium-term funding. The analysis of business units details the advantages and disadvantages of each structure, focusing on liabilities, capital raising, and operational complexities. Finally, the report differentiates financial accounting, which focuses on external reporting, from management accounting, which supports internal decision-making.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting Financial Analysis Report
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Introduction:....................................................................................................................................2
Task 1: Discussing with examples the source of finance available to a business owner looking for
short term, medium-term sources....................................................................................................2
Task 2: Discussing the different forms of business units, while providing the benefits and
limitation of each.............................................................................................................................6
Task 3: Defining and comparing the financial accounting with management accounting, while
highlighting the difference between the two strands of accounting..............................................10
Conclusion and recommendation:.................................................................................................12
References and Bibliography:........................................................................................................13

2ACCOUNTING FINANCIAL ANALYSIS REPORT
Introduction:
The main aim of the assessment is to provide relevant information to the new prospective
clients regarding the business operations that they can own or control. The information regarding
the different sources of finance that can be used by business is also discussed. In addition, the
difference between the business forms are also provided with their adequate advantages and
disadvantages. Lastly, relevant information regarding the difference between the financial
accounting and management accounting is mainly provided to highlight the two strands of
accounting.
Task 1: Discussing with examples the source of finance available to a business owner
looking for short term, medium-term sources
The business owners have relevant options from which adequate source of finance can be
used for supporting their operations. There is specific short-term source of finance that can be
used by the business owners to support their operations on daily basis in CONFI Ltd. In addition,
the short-term source of the finance is mainly used for supporting different level of short term
and medium-term finance that is will be needed business owners for supporting their operations.
There is specific short-term source of finance, which can be used by the owners.
Short term source of finance:

3ACCOUNTING FINANCIAL ANALYSIS REPORT
Working capital finance: The Working capital finance is mainly supported by bank credit,
which comprises of loans, purchase bills, cash credit and overdraft. Hence, working capital
finance is mainly used for supporting the short-term needs of your organization CONFI Ltd. The
overdraft facility is one of the major finance sources, which can be used by your organization
CONFI Ltd to reduce the negative impact of short-term cash crunch (Gadenne 2016). The major
examples of working capital finance are overdraft and other short-term credits that is provided by
the banks to the organization for completing their operations. Thus, you can use the working
capital finance feature when severe cash crunch is presented during the operations.
Trade credit: The trade credit is considered one of the short-term sources of finance, which is
used by you for supporting its cash crunch. This source of finance is provided by the suppliers,
where adequate credit is given by the suppliers of the goods. This type of source of finance does
not have any kind of the interest charges or security that is required by the suppliers of the raw
materials. For example, a supplier provides a credit data of 60 days for payments of goods that is
Short Term
Source
Trade credit
Inter-
corporate
deposits
Factoring
Commercial
paper
Working
capital
finance

4ACCOUNTING FINANCIAL ANALYSIS REPORT
being delivered to the organization, which is considered to be trade credit. You can only use the
source of finance when the suppliers are willing to provide credit for the purchases.
Inter-corporate deposits: The relevant deposits conducted by companies in different
organization is mainly known as inter-corporate deposits. This type of deposit is mainly
conducted for six months, as it is considered working capital funding. For example, short term
corporate bonds dated for only 60 or 90 days is mainly used for curbing the cash crunch. You
can only issue corporate bonds for short term when the capital is required for supporting the cash
crunch.
Factoring: This method is used by the organization for selling the receivables arising out of sale
are sold by a firm. This type of finance source establishes a strong foundation, while maximizes
the profitability of the organization. In addition, it also helps in capturing growth opportunities
by the organization. However, the major limitation of the method is the cost and possible harm
that can be conducted to customer relation, while distorting the image of the organization (Carbo
et al. 2016). For example, companies are able to sell their bills receivable to banks and financial
institutions for acquiring the required cash for supporting its operations. You can sell the
receivable bills to financial institutions and bank, who will provide the payment after deducting
their charges.
Commercial paper: The method is mainly used by the organization for issuing the promissory
note, which is unsecured money market instrument. This type of investment options is mainly
used by the organizations for supporting the short-term obligations. For example, a promissory
note issued by the organization helps them to acquire additional funds for the duration of 60 to

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90 days. You can issue the commercial paper when the organizations CONFI Ltd have made a
mark in the market, as it will be easy to get short term loans without any securities.
Medium term source of finance:
The medium-term source of finance is mainly conducted between the timeline of 1 year
to 5 years. This type of funding is mainly used for supporting operations of the business by
conducting adequate repairs and other modernization of the machinery. The different types of
medium-term source of finance available for you are depicted as follows.
Commercial Banks & Financial Institutions: The medium-term finance is mainly provided by
the commercial banks and financial institutions, which is mainly conducted with the help of
adequate securities (Lee, Sameen and Cowling 2015). You need to provide adequate collateral
for the loans that is provided by the commercial banks and financial institutions. For example,
banks provide short term loans for 1 to 5 years at nominal interest rates to help the organization
support its decisions.
Medium
Term Source
Commercial
Banks &
Financial
Institutions
Lease
Financing
Hire Purchase
External
Commercial
Borrowings

6ACCOUNTING FINANCIAL ANALYSIS REPORT
Lease Financing: The other form of finance that can be used by you is lease financing, where
adequate contract is made between the lessor and lease. In addition, from the evaluation, it is
detected that adequate rent needs to be provided by you to the lessor for the machine or
equipment that has been bought. This type of finance will allow you to pay only for the use of
the equipment or machine, while reducing the total cost. In addition, the rent on the lease is
fixed, while the minimal sale risk occurs in this form of financing, which benefits the
organization. On the other hand, the major limitation of the method is the high fixed cost per
month, where the financing can be more expensive than the purchase. For example, companies
are able to use lease financing for buying equipment’s that can be used for increasing
performance of the organization.
Hire Purchase: This type of method is mainly used for purchasing the goods, where the periodic
instalments need to be conducted by you. The hire purchase is considered to be cheaper than the
personal loan and is relatively quick, while have low deposit than the personal loan (Khan 2015).
For example, companies buying machinery use hire purchase, as it reduces the high cash outflow
and makes normal installments by the organization.
Task 2: Discussing the different forms of business units, while providing the benefits and
limitation of each
There are different forms of business units such as sole proprietorship, partnership and
limited company, which has both benefits and limitations for an owner. The different forms of
business are mainly used for understanding the level of operations that is conducted by the
organization. The overall advantages and disadvantages of the different form of business are
mainly depicted as follows.

7ACCOUNTING FINANCIAL ANALYSIS REPORT
Sole Proprietorship:
The sole proprietorship is considered to be one of the simplest forms of business, which
is operated by only one individual. The sole proprietorship can be operated under the name of the
owner or under any fictitious name. The sole proprietorship makes the owner control the
elements and legal accountability for the finances and debts of the business. Sole proprietorship
is accountable for the unlimited responsibilities for the losses and debts that is incurred by the
business (Schaltegger et al. 2016). There are major advantages and limitations to the sole
proprietorship, which are mainly depicted as follows.
 The major advantage of the sole proprietorship is the low startup cost, which is required
in the setup. In addition, this type of ownership leads to only one boss, who enjoys all the
benefit and profit that is generated by the company. Furthermore, the sole proprietorship
also provides the owner with the maximum level of privacy in conducting its operations.
Moreover, the establishments and operations of the business is relevant simple, where the
business form has the easiest form of legal structure.
 There is significant disadvantage of sole proprietorship, where the owners have unlimited
liabilities for debts, where it has no distinction between private and business assets. In
addition, the business form as limited capability to raise the required capital for
conducting the business.
Partnership:
The partnership form of business comprises of two or more individuals who carry the
business as co-owners of the organization. In addition, the owners of the organization have
invested in the company, where the business setup comprises of both general partnership and

8ACCOUNTING FINANCIAL ANALYSIS REPORT
limited partnership. The major limitation and significance of the partnership firm is mainly
depicted as follows (Berek 2017).
 The major advantage of partnership is the support that is provided by different owners,
while starting the new business. The owners mainly provide adequate level of startup
fund in the business for smoothly conducting its operations. In addition, the business
form also provides flexibility and shared responsibility to the owners of the organization.
The flexibility is mainly provided on the smooth business process that is used by the
partners of the organization.
 The major limitation of the partnership business is disagreements, which can incur
between the partners of the organization. In addition, the major limitation of the
partnership firm is the taxation method, which is similar to the sole proprietorship. The
owners of the partnership company have to pay tax, as per the sole proprieties, which will
increase the level of cash outflows of the organization (Burns 2016).
Limited Company:
The limited company is a business form where the partners of the organization is liable
for only the portion of investments conducted in the business. The limited company can be
further classified under private limited company and public limited company. In addition, the
public limited companies have both advantage and disadvantage, which are depicted as follows.
 The major advantage of a limited company is minimization of the personal liabilities that
is faced by the investors of the organization. In addition, the business form also increases
the professional statues of the company, which in turn helps in improving the tax

9ACCOUNTING FINANCIAL ANALYSIS REPORT
efficiency and planning structure. Moreover, the business form also separates the legal
identity, creditability and trust of the investors.
 The significant constraint of a limited company is the high level of official work that is
needed for forming the organization. In addition, the limited company has to provide all
the relevant information in public record, which will be reviewed by everyone. Moreover,
a strict procedure and record keeping that needs to be maintained by the organization
during the financial year. The limited organizations have to provide confirmation
statements regarding the annual accounts that needs to be filed at Companies House each
year (Wood 2016).
There is specific advantages and disadvantages for private limited companies, which are
depicted as follows.
 The major advantage of private limited company is the high level of capital that is
available for the company to support its expansion. In addition, the risk is limited to the
number of shares associated with the investment. Moreover, owners of the business can
retain control of the business.
 The major limitation of the private limited company is the high-level requirements
needed for commencing the company. The share of the organization is not listed on the
stock exchange and not advised for selling purpose. There is low flexibility in selling
shares, as shareholders approval is needed for selling the shares.

10ACCOUNTING FINANCIAL ANALYSIS REPORT
Task 3: Defining and comparing the financial accounting with management accounting,
while highlighting the difference between the two strands of accounting
There is significant difference between the management accounting and financial
accounting, which relevantly allows the organization to segregate their operations. The financial
accounting is a system that is concerned with the preparation of the financial statement for
stakeholders of the organization. The financial accounting mainly comprises of the relevant
record keeping that needs to be conducted by companies, where adequate data regarding the
material information needs to be provided to the users. On the other hand, the management
accounting is considered to be one of the major contributors to the formulation of the policies by
the management of the organization. in addition, the management accounting is conducted to
support activities such as forecasting, planning and controlling that is needed for smoothly
completing the business operations.
The difference between the management accounting and financial accounting are
conducted as follows.
 Management accounting keeps the record of both financial and non-financial information
of the entity, whereas the financial accounting only keeps the financial accounts of the
organization.
 Moreover, the management accounting is conducted only for the internal management of
the organization, while the financial accounting is conducted of both external and internal
users of the organization (Collier 2015).

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 The financial accounting comprises of only monetary information about the organization,
whereas the management accounting comprises of the both non-monetary and monetary
information about the entity.
 The adequate format is provided for the financial accounting that is conducted by the
organization, whereas there is no format for conducting the management accounting of
the company.
 The financial accounting information is mainly used by its users for detecting the current
financial position of the company. On the other hand, management accounting
information is mainly used by the directors to evaluate the current performance and
devise adequate plan, which could increase the future performance of the entity
(Christiaens et al. 2015).
 Financial accounting is mainly conducted for one fiscal year, which is not in the case of
management accounting, as the it could be quarterly or half yearly as per the discretion of
the management.
 Management accounting is mainly a voluntary effort, which can be conducted by the
organization. On the other hand, financial accounting is a compulsory attempt, which
needs to be conducted by the company for completing the auditing process.
 Moreover, the information gathered under the financial accounting method needs to be
published and audited by the auditors. On the other hand, the information gathered under
the management accounting system is does not required any publishing or auditing, as the
information is only for internal use.
 Thus, it could be understood that financial management is a part of accounting
management, which compares different segments of the business to help project the