Financial Sources, Analysis, and Ratios for Sweet Menu Restaurant

This report delves into the financial aspects of a restaurant, specifically focusing on Sweet Menu Restaurant. It begins by identifying and analyzing various internal and external sources of finance, such as friends and family, retained earnings, bank loans, hire purchase, and the issue of shares. The report assesses the legal aspects, risks, and benefits of each source, along with their suitability for different scenarios. It then compares these sources based on their costs, legal requirements, and potential impact on the company's financial health. Furthermore, the report examines financial statements and calculates various ratios to evaluate the fiscal perspective of the restaurant, aiming to determine the best financial strategies for growth and expansion. The analysis includes a cash budget and an investment proficiency analysis to aid decision-making. The report concludes with a comparative analysis of financial ratios to determine which restaurant has a stronger financial position.

MFRD

Table of Contents
MFRD..............................................................................................................................................1
Overview..........................................................................................................................................1
TASK 1............................................................................................................................................1
1.1...........................................................................................................................................1
1.2...........................................................................................................................................2
1.3...........................................................................................................................................4
Task 2...............................................................................................................................................6
2.1...........................................................................................................................................6
2.2...........................................................................................................................................6
2.3...........................................................................................................................................7
2.4...........................................................................................................................................8
Task 3...............................................................................................................................................8
3.1...........................................................................................................................................8
3.2...........................................................................................................................................9
3.3.........................................................................................................................................12
Task 4.............................................................................................................................................14
4.1.........................................................................................................................................14
4.2.........................................................................................................................................14
4.3 Calculation of various ratios to find out the best company............................................15
CONCLUSION..............................................................................................................................19
References......................................................................................................................................20

Overview
Finance can be referred to a component of economics that deals with the management,
acquisition, investment and distribution of resources among the available departments of
company. In other words, it could be state that finance includes the process of providing fund in
each and every projects and department properly. Finance deal with all types of matters that are
related with the money and the market.
The following project interprets different sources which can be used by the company in
order to increase the level of its capital with an aim to meet various requirement. Along with this,
there are some of the best sources that can be used by Sweet with an aim to expand its company.
In this report, implications of varied financial sources identified have been discussed. For this
purpose, benefits of planning financial activities to Sweet restaurant are discussed. In this report;
different types of information needed by different stakeholder are also mentioned.
In this report, cash budget of Blue Island is examined with an aim to discover the flow of
cash. In this two projects are analysed by undertaking the investment proficiency in order to
identify which proposal should be selected by Blue Island restaurant. Additionally, discussion on
varied form of financial statement are even been discussed. Along with this, the various types of
financial statements which need to be prepared by the different organization are interpreted. At
last, ratios have been compared for the purpose to analyse which restaurant fiscal perspective is
good.
TASK 1
1.1
Following are few of the financial sources that can be taken into account by organization for the
purpose of raising fund either externally or internally.
INTERNAL SOURCES OF FINANCE
Friends and family
members
A restaurant can increase its finance by adoption it from its
friends or family members. This is one of the cheap method
through which company can raise its funds (Barnes and Pancost,
2010). Normally, the firm is required to pay less rate of interest
to friends if they borrow from them.

Retained earning It is a part of the profit which is deducted out of the net profit
earned by the company. This part of profit is kept by the Sweet
Menu restaurant as a reserve in order to grab various
opportunities in future.
Selling the unused assets It is another method by which Sweet menu restaurant can raise its
capital. This is a method in which company sell out his old and
obsolescent assets. This source of fund can be taken into account
by the Sweet Menu restaurant for the purpose of meeting its short
and long-term requirements.
EXTERNAL SOURCES OF FINANCE
Bank loan In this, fund can be attained from bank with specific period of
repay against the security deposits. In order to avail this facility
Sweet Menu restaurant is required to submit collateral security to
the bank (Barnes and Pancost, 2010). In addition to this,
company is also required to pay interest for the fund borrowed.
Hire purchase/leasing It is the method by which Sweet Menu restaurant can use asset
and property without purchasing it. In this method, the firm pays
the pre decided instalments in order to use the asset for a
particular time period.
Issue of stock certificate By issuing stock certificate to the general investors the Sweet
Menu can also increment its funds. It is one of the best methods
to gain large amount of funds for short time period.
1.2
Sources Legal Aspects Risk of Bankruptcy Dilution
Friends and family
members
If company pay
interest or issues
shares to the friends
than the company is
In case of bankruptcy,
friends and family
members can recover
their money by selling
Ownership of the
capital borrowed by
the company changes.
2

required to follow
legal procedure
(Bhowmik and Saha,
2013).
the assets of the
company.
Retained earning Company is not at all
oblige to adhere with
any legal formalities.
The condition of
bankruptcy will not
occur if retained profit
is available with the
company.
Ownership of the fund
remains with the
company itself.
Sale of assets At the time of selling
the asset, the company
is required to follow
the legal procedure.
If situation of
bankruptcy arises than
in that case creditors
can recover their
money by selling the
assets of the company
(Brigham and Daves,
2012).
Ownership of the
assets changes when
asset is sold out.
Bank loan Legal procedure need
to be followed by the
company by simply
filling up the
application form.
If condition of
bankruptcy arises than
in that case bank
seizes the collateral
security provided by
the company.
Ownership of the fund
borrowed by the
company changes.
Hire
purchase/leasing
At the time of leasing
any property or assets,
the firm required to
follow a legal
procedure in order to
form an agreement.
If the situation of
bankruptcy arises than
in that case, company
stops paying the
instalments to the
owner of the assets.
Ownership of the
assets changes as and
when all the
instalments are paid up
by the company.
Issue of shares In order to issue shares Company stops Ownership of the share
3

to the general public
company is required to
follow the legal
procedure.
paying the dividend to
the shareholders at the
time of bankruptcy.
changes when they are
issued to general
public (Eccles and
Holt, 2005).
1.3
Sources Benefits Limitation Suitable For
Issue of shares This method will aid
the Sweet menu
restaurant to raise
ample sum of capital
within a limited time
period (Efendi,
Srivastava and
Swanson, 2007). In
addition to this no
organisation are
required to refund the
money taken.
Sweet menu restaurant
is required to pay the
dividend to the
investors from the
profit received by the
them. And no the other
hand profit earned by
the firm will reduce.
This method is most
suitable for the
company who want to
expand its units.
Bank loan Menu restaurant can
raise its capital within
a short period of time.
This source will also
aid the company to
meet up the urgent
requirement of fund.
Owner of the
restaurant is oblige to
give high rate of
interest to the bank.
Along with this,
company is also
required to submit the
collateral security.
It is another source
that is suitable for
purchasing any new
machinery or property.
In addition to this it is
also suitable for
expanding the business
unit.
Retained earning Sweet menu restaurant
is not at all required to
repay the fund used
Once the fund is used
in that case, Sweet
menu restaurant will
This is suitable for
expanding the new
business or to grab any
4

back. Further, the
company is not
required to pay any
interest.
not be able to grab any
better opportunities
which can occur
further.
best opportunity
(Elsevier, 2011).
Leasing By using this method
Sweet menu restaurant
can use the asset to
generate income
without financing any
money.
One of the biggest
disadvantage of using
this method to Sweet
menu restaurant is
they are required to
pay lease rentals to the
lessor on the regular
basis.
This method is suitable
for using the assets for
some time period.
Hire purchase Hire purchaser
becomes the owner of
the assets by paying
some instalments after
the certain period of
time.
Amount of instalments
paid through this
method is much more
as compared to actual
cost of the asset.
This method is suitable
when Sweet Menu
restaurant want to
purchase the assets but
is not capable of
purchasing it at that
particular time.
Trade Credit It is one of the easiest
method of raising
short term finance. At
the time of raising
finance through this
source Sweet Menu
restaurant is not
required to prepare
any formal agreement.
Benefits of this
method can be avail by
only those companies
which have good trail
record of repayment of
money in past.
This method is
suitable for the
company to meet its
short term requirement
of finance.
5

Task 2
2.1
Issue of shares: - Through issuing share, Sweet can be able to increase sum of capital
within a limited time period. Cost that might be beard by company on using share capital is
dividend (Fund, 2013). In lieu of which the profit margin can be reduced. Along with this,
company is also obliged to pay expense while issuing the shares.
Bank loan: - Sweet Menu will be able to get fund within a short period of time in order to
expand its business or to meet its urgent requirement. But, this in turn will can enhance the
expenses of the restaurant. Company is mandatory to pay interest rate to the bank. In addition to
this, the organization have to submit collateral security with the bank.
Retained earnings: - This method will aid the company to easily expand its business
without the fear of paying the money back. The cost is opportunity cost (Healy and Palepu,
2012). At the same time the firm may not be able to avail the other benefits that can arrive in
future.
Leasing:- This is another source that can be used by Sweet for the purpose of availing the
advance of using the asset without purchasing it. But at the same time financial cost of the Sweet
Menu restaurant increases. They are required to pay monthly instalments to the lessor which in
turn increases the expenses of the company.
Hire purchase:- This is method which can be utilize by restaurant with an aim to use the
asset without buying the asset at that particular time. In in method company is required to pay a
pre determined instalments in order to purchase the asset. This on the other hand builds up the
financial cost of the firm. The amount paid through instalments for the purchase of assets is more
as compared to its actual value.
2.2
Maintenance of the balance between flow of the funds:- Financial planning aids in
maintaining the flow of cash within and outside to Sweet Restaurant
Helps to avoid wastage of funds: - Through proper planning of all the activities, Sweet
menu restaurant can able to avoid the wastage of funds. Proper planning will aid the company to
properly allocate the funds in each and every project.
6

Reduce the state of precariousness: - advance planning of the transaction will also assist
the restaurant to minimize or avoid the condition of uncertainty that can arise with the change in
the businesses environment. (Elsevier, R., 2011).
Able to properly administer the funds to all section: - Further, planning of the activities
support organization to decently allocate the fund in all section. Proper allocation of the fund will
help the Sweet menu restaurant to get over the condition of surplus and shortfall.
Proper utilization of resources: - Advance planning of the transaction aids the cited
restaurant to utilize the available resources to the last extent. This certainly assists the company
to minimize the wastage.
Helps to manage the accessible income in an effective manner: - Financial planning of
the transaction will assist the company to utilize the accessible income to the last extend in order
to achieve the desired objectives.
Sale forecast: - Financial planning in advance aid the Sweet Menu restaurant to forecast
its sales. This supports the company to manufacture the goods as per the demand.
2.3
There are varied forms of information that are needed by different stakeholders with an
aim to consider different measures. Thus, several of the documents by using which stakeholder
can collect various information are as follows:-
Director: - Director is the person who aims at achieving the organisational desired
objectives by forming various strategies. They want that company should generate more and
more profit (Kaplan and Atkinson, 2015). Thus, in order to prepare various strategies manager
prefer the financial statements of the company. They use these statements with a purpose to find
out the position of the company at the end.
Employee: Employee is the one who work for the welfare of the organisation. They want
that Sweet menu restaurant should pay those antitrust wages and continuous increment in the
salary. They favour the income statement with an aim to identify the net profit.
Supplier: - They are the one who deliver raw material on regular basis. They want that
company should make their payment for the goods supplied on time. Thus, they prefer to see
the financial statements to decide whether they should invest or not
Customer:- Customers doesn’t ask for any sort of financial information. Instead, they
usually ask for quality products at competitive prices so that their needs can be fulfilled.
7

Authorities: - Authorities are the one who work for the welfare of the society.
Government seeks every company should develop large number of employment opportunities
and at the same time earn profit (Mayer, Schoors and Yafeh, 2005). Government prefer the
financial statements and audit report of the company for the purpose of collecting tax payable
amount by the company.
Shareholders: - Shareholders are the individual who invest their saving in the
organisation. They want that every industry should render much profit so that more return on
their investment can be attained. Thus, with an aim to find out the profitability earned by the
enterprise they prefer the financial statements.
2.4
Issuance of share:- Transaction of issuance of equity shares are recorded at the liability
side of balance sheet under the head of Share capital (Melis, 2007). In addition to this, debit side
of P&L is used to enter amount of dividend paid.
Bank loan: - transaction of loan taken will be recorded in balance sheet under the head of
Non-current liability. Moreover, entry for adding interest to be paid is made at the debit side of
profit and loss account.
Retained earnings: - Retained profit is recorded at Equity side of balance sheet under the
head of Share capital.
Task 3
3.1
Income Expenses
15000 40850
15500 11630
18000 13230
20000 24280
8

After analysing the cash fund of the Blue it can be stated that fiscal perspective of the
restaurant is not fairly cracking. Its inflow and outflow of the cash is continually varying. It is
seen that in September and December the outflow of the cash was higher than inflow. Its inflow
was 15000 and 20000 in month of September and December whereas its outflow of funds was
40850 and 24280 respectively, which is almost twice and thrice time more than its inflow.
Similarly on the other hand it is found out that in October and November inflow of fund is higher
than its outflow. It inflow was 15500 and 18000 in the month of October and November
whereas its outflow was 11630 and 13230 respectively.
This indicates that restaurant is not able to decently manage all transaction properly. The
reason behind this could be that director of the restaurant is not able to develop various
strategies properly in order to maintain the balance between inflow and outflow of cash. Thus, in
order to overcome this problem Blue Island restaurant need to plan all its financial activities in
advance. In addition to this they should alter scheme with an aim to achieve its wanted objective
by maintaining a balance between flow of funds from the organisation.
3.2
It is the cost that is beard by the company when they are undertaking production activities
(Ross, 2008).
9

Pricing decisions:- It is the sum up of all the cost that is incurred by the company. By
using this method an organisation will be able to calculate the expenditures made by them
(Vitez, 2014).
Unit cost can be calculated as
Unit cost = Direct cost per unit +Indirect cost per unit
direct costs or variable cost=
streak(S) = 3
vegetables(V) = 1.5
labour(L) = 3.5
(S+V+L = 8)
Indirect cost or fix cost=2 (overhead)
mark-up =40%
cost = 100%
mark up = 40%
selling price = 140%
Name of Items Costs (In £)
Steak(direct) 3
Vegetables and other ingredients(direct) 1.5
labour(direct) 3.5
10