Financial Resource Analysis and Decision Making for Clariton Antiques

This report provides a comprehensive analysis of financial resource management and decision-making in the context of Clariton Antiques Ltd. It begins by identifying various financial sources available to a firm, differentiating between unincorporated and incorporated businesses, and assessing the implications of using different sources such as bank loans, share issues, retained profits, and leasing. The report then evaluates the most suitable financial sources for Clariton Antiques Ltd. Task 2 delves into the costs associated with different sources of finance, including dividends, interest, and tax, emphasizing the importance of financial planning and assessing the information required for decision-making by partners and venture capitalists. It also examines the impact of these sources on financial statements, considering budgeting and overtrading. Task 3 focuses on preparing a cash budget analysis, calculating unit costs for pricing decisions, and evaluating project viability using investment appraisal tools. Finally, Task 4 explores the key components of financial statements, the format used by Clariton Antiques Ltd, and the interpretation of recent financial statements using suitable ratios, concluding with a holistic view of financial management strategies.

Managing Financial
Resources and Decisions
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TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Identification of the financial sources available ...................................................................3
1.2 Assessment of implications in using different sources..........................................................4
1.3 Evaluation of most suitable financial sources for Clariton Antiques Ltd..............................4
TASK 2............................................................................................................................................5
2.1 Analyzing the costs of sources of finance..............................................................................5
2.2 Importance of financial planning for Clariton Antiques Ltd.................................................6
2.3 Assessing the information which is required for decision making........................................7
2.4 Impact of sources on the financial statements.......................................................................7
TASK 3............................................................................................................................................8
3.1 Preparing an analysis of the cash budget for Clariton Antiques............................................8
3.2 Manner in which unit costs can be calculated for making pricing decisions.......................10
3.3 Viability of the project using investment appraisal tool......................................................11
TASK 4..........................................................................................................................................14
4.1 Key components of financial statements.............................................................................14
4.2 Format used by Clariton Antiques Ltd.................................................................................15
4.3 Interpretation of the recent financial statements using suitable ratios.................................15
CONCLUSION .............................................................................................................................17
REFERENCES..............................................................................................................................18
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INTRODUCTION
Financial resources is considered as the money that is present to the firm for spending in
form of cash, liquid securities as well as credit lines. Before commencing any business an
entrepreneur is required to secure adequate amount of financial resources for the sake of
operating in an effective manner and attain greater success. Financial management is regarded
as suitable management of funds (Ball, Jayaraman and Shivakumar, 2012). This is comprised of
planning, directing, controlling as well as monitoring of the financial resources of the firm. In the
present study managing financial resources has been discussed in context of Clariton Antiques
Ltd. The report includes suitable financial sources. Further it covers the importance of financial
planning for organization.
TASK 1
1.1 Identification of the financial sources available
There is presence of various sources of finance that exists for the firm. This act as an aid in
accomplishing the need foe the purpose of carrying out organizational performance. Financial
sources for unincorporated and incorporated organization is different to a greater extent. This has
been demonstrated in manner as under:
a) Unincorporated business
It is considered as the kind of business which is not able to make issue of shares and
enhance funds through public for the purpose of achieving business targets. Under this firm can
use various financial resources which involves retained profit, bank loan and sale of old assets.
Further the business can make utilization of owner capital so as to increase the return and
achieve expectations of several parties to a greater extent (Funke, 2007). Clariton can use above
sources in order to expand. Further short term sources can be used by the management in order
contribute towards firm's success. The sources which can be attained with less efforts includes
assets and bank loan.
b) Incorporated business
It is regarded as the type of business that attain funds through various sources like issue of
shares, retained profit, bank loan and leasing. With this firm business can attain funds in order to
carry out organizational operations in an effective way. Moreover issue of share is being done in
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order to raise long term finance with which business is able to fulfill the expectations of several
parties to a greater extent. Beside this retained profit is considered as the source which can be
arranged in less time period (Maynard, 2013). Through this Clariton Antique can expand in years
to come. The incorporate firm possess scope for growth and development. In accordance with
such they can effectively access long term sources.
1.2 Assessment of implications in using different sources
There is existence of several sources that can be availed by the firm in an effective way.
As per the case Clariton is required £0.5 million in order to attain building within Birmingham.
In this regard various sources are demonstrated in manner enumerated below:
Loan from bank: With respect to case, Clariton Antique Ltd is developing plans for the sake of
project expansion. In this regard loan can be taken and it is considered as appropriate financial
source. In this relation firm can make payment of interest against the borrowed amount. In
situation of default legal actions can be taken by the banks against the cited business.
Issues of shares: The present scenario demonstrates that Clariton limited is considered as limited
firm and thus it can make issue of shares. Such is suitable in reducing the risk associated with
loss. Under this firm needs to pay divided to shareholders (Bhandari and Iyer, 2013). In case it
does make payment on time then legal actions can be taken by the public.
Retained profit: This is referred to as source of finance which can be arranged within lesser
duration of time. With the use of such the firm can lose control of money that they possess in
order to meet the contingencies for long run. Attainment of such does not require the business to
repay the amount after fixed time period. Thus retained profit is regarded suitable as it assist in
attaining building in Birmingham.
Leasing: This is regarded as suitable source of finance as under this company can gain machine
that can assist in production of the antique items. Such play significant role in making reduction
of the burden of firm in relation to start up of activities with respect to production. For getting
machine rent has to be paid (Nobes, 2014). In case of delay in making payment of rent legal
actions can be taken against the cited business. This affects the credit rating of organization in
the market.
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1.3 Evaluation of most suitable financial sources for Clariton Antiques Ltd.
The most suitable financial sources are being chosen as per the budget. This is for the
sake of minimizing the risk and attaining the financial resources in less time period. In this
relation the financial sources that can be utilized by firm are as below:
Loan from bank: The business is planning in relation to expansion of its operations with greater
effectiveness (Uyar, 2012). Through loan it has ability to attain the need for future term. In this
context business is needs to pay interest and installments within fixed time span.
Issue of shares: It is demonstrated within the scenario that Clariton Antique is limited firm. Thus
it can raise funds through issuing of shares. Under this business needs to pay part of profit to
shareholders within fixed time period. This can result in affecting the profitability of firm to a
greater extent.
Retained profit: This sources is regarded suitable as it can be arranged in less time period. Under
this management of Clariton can gain finance in order to expand. At the same point it is regarded
as cheapest financial source (Zoan, 2014). Thus with this short term requirement of the business
can be accomplished.
Leasing: Such is regarded as important financial source as with this organization cam attain
machinery and other tools in order to produce the antique items for firm (Siano, 2011). This is
important as with such organization can save huge funds which can be invested in purchasing the
assets in order to carry out the operations.
TASK 2
2.1 Analyzing the costs of sources of finance
For Clariton Limited enhancement in the financial sources is suitable while there is
effective utilization of the resources. Such is based on recognition of the economic position data
of the business for past years. Therefore several aspects are required to be determined for the
year 2015 and 2016 in context of dividend, interest as well as tax. Dividends: This kind of cost is required to be examined by means of comparison of the
dividend in the year 2015 and 2016. As per the table, there is existence of same
performance in relation with dividend in the respective years. Such funds allocation
needs to be attained through several firm in order to develop new outlet. Dividend
demonstrate the business cost which is associated with liquidity and organizational
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monetary performance. Such is determined that firm can use financial source in order to
minimize the condition attached with crisis. In this case when firm issue share with
public then it needs to bear such in terms of making payment of part of profitability to
holders of shares. Such is referred to as dividend. Interest: The monetary sources that is attained by means of loan affects the economic
status of firm. Such results in increasing the interest rate which influence of the business
quality in negative manner. On the other hand reduction in rate of interest increases the
efficiency of organization (Vickerstaff and Johal, 2014). Therefore economic situation of
Clariton can be examined by means of devising adjustments in relation to interest rate
fluctuation.
 Tax: By means of analyzing the table it is being determined that organization such as
Clariton can invest huge funds towards paying tax within the year 2016 in comparison
with the year 2015. There is decline in the position in the present year in financial terms
as compared with performance in past year. This is being assessed that bank is required to
amend the tax rate as there is imbalances in the revenues and expenses. Such is
considered as appropriate in the development of nation (Ittelson, 2009). On the other
hand it result in influencing the Clariton's performance. This is being achieved that in the
year 2016 the firm's financial position is worse in comparison with past year. The issue in
expansion is the economic crisis.
2.2 Importance of financial planning for Clariton Antiques Ltd
The financial planning process has major objectives which is attached with expansion of
organization operations. Moreover it involves production of appropriate ideas for the sake of
making utilization of the resources with effectiveness. It involves tools that are associated with
budgeting and strategic planning for resolving the problem. In addition to this as per the case of
Clariton is planning to achieve financial resources by using various tools that offers ideas in
relation to assessing the sources that involves its forecasting. Budgeting: This tool involves development of strategic financial plan for the sake of
activating further organizational transactions. It involves forecast and procedure of
developing decision so as to execute the action plan (Wahlen, 2011). In same way
Clariton is making plan in order to attain funds by means of utilizing tools of budgeting.
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Recognition is being done from the past year with respect to actions of the firm. Further
development of plan is done with respect to quality and quantity of production. Implication of failure to finance adequately: Though it has been determined that Clariton
require financial resources for the sake of expansion but such seems to fail. There is
presence of several limitation when allocating financial resources. Such is comprised of
ineffective interpretation of the statement, huge amount of funds which seems to fail with
respect to attainment of target. In addition to this it involves uncertain alterations which
firm cannot control (Götze and et.al., 2007). Therefore sufficient amount of funds cannot
be attained as per the planning and forecast done by the manager. This doe not lay
emphasis on the strategic plan in an effective manner and lack of coordination in
achieving the task. The advantage takes place while allocating the financial resources.
Further the business is facing challenge in resolving the issue.
 Overtrading: It includes transacting the products and services to a greater extent. This
emerges because of absence of balance in the revenues and expenses. Thus imbalances in
the export or import of activities like transaction results in either profit and loss.
2.3 Assessing the information which is required for decision making
The partners: The cited firm need data in relation to business which Clariton require to attain.
The data in relation to other opportunity for firm, capital structure and asset is required. On the
basis of data partner have the ability in relation with decision taking associated with the
investment.
Venture capitalist: The firm require data with respect to profitability and capital structure of
Clariton and organization which cited firm needs to attain (Herman, 2011). In case Clariton's
financial position is not sound then it will carry out the acquired business with greater
effectiveness.
Finance broker: The particular decision makers need information with respect to financial
amount that Clariton requires in attaining another firm. Apart from this none of data is needed by
such kind of decision maker (Sabău, 2013).
2.4 Impact of sources on the financial statements
In situation financial resources are gained by Venture Capitalist then such affects the
balance sheet by increasing the share equity on the liability side. Due to such receipt of cash
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there is huge increase in the current asset of firm. Therefore the value of both side will increase
in the balance sheet. The dividend amount will be demonstrated in income statement. This will
decrease the profitability of firm.
profit and loss
Particulars Amount
Profit XXX
- Interest (XXX)
balance sheet
Particulars Amount
Capital XXX
+ Venture capital XXX
In situation when funds are gained through financial broker then loan from bank would
enhance. Due to this there assets and liabilities are being altered (Melo, 2012). Fees that has to be
paid to broker is included in the income statement that affects the organizational profitability.
Profit and loss
Particulars Amount
Profit XXX
- Interest@2% (XXX)
-Brokerage@1% (XXX)
Balance sheet
Particulars Amount
Equity
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Capital XXX
+ Bank loan XXX
Liabilities
Bank loan XXX
TASK 3
3.1 Preparing an analysis of the cash budget for Clariton Antiques
Particulars January February March April May June
Receipts
Received in same
month(W.N.1) 15000 22500 30000 15000 15000 3750
Received in one
month(W.N.1) 120000 240000 360000 480000 240000 240000
Received in two
month(W.N.1) 22500 22500 45000 67500 90000 45000
Total receipts 157500 285000 435000 562500 345000 288750
Payments
Payment to suppliers 807250 137250 119750 437250 227250 219750
Shortage/Surplus -649750 147750 315250 125250 117750 69000
Opening cash
balance 110000 -539750 -392000 -76750 48500 166250
Closing cash balance -539750 -392000 -76750 48500 166250 235250
Table 1: Working notes
Months Novem Decem Januar Februa March April May June July
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ber ber y ry
Sales 150000 150000 300000 450000 600000 300000 300000 75000 150000
Received in
same month 15000 22500 30000 15000 15000 3750
Received in
one month 120000 240000 360000 480000 240000 240000
Received in
two months 22500 22500 45000 67500 90000 45000
Interpretation:
The development of cash budget is being done by the organization for the sake of
achieving knowledge in relation to alteration in the inflow and outflow of cash within the firm in
context of receipts and payments. The recording of the income is done through several sources in
order compensate the influence of all types of expenses that are being borne in the firm such as
Clariton. The budget above is whole based upon taking into account receipts like trade
receivables and payments that are being made by suppliers. The main assumption that is being
utilized in preparing the cash budget is the sales that is credit sales achieved into various
categories of receipts. The organizational performance is demonstrating adverse position in the
first three months. Such has enhanced as the month pass. In the end the negative balance results
in affecting the entire receipts of the following month to a greater extent. The reduction in cash
balance of present cash budget is because of fluctuation in the position of all receipt in form of
cash that is produced in all respective months. The payment to supplier is greater in comparison
with receipts that are produced by firm over months in whole cash budget.
3.2 Manner in which unit costs can be calculated for making pricing decisions
Particulars Units Cost (£)
Variable cost
Direct material 10000 25000
Direct labor 10000 20000
Direct expenses 10000 5000
Total variable cost 30000 50000
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Fixed cost
Labor 10000 15000
Production overhead 10000 10000
Aggregate fixed cost 20000 25000
Total cost 50000 75000
Cost per unit (CPU) Selling price (SP)
Marginal costing = TVC/ number of units
= £50000/5000 units
= £10
= £10 + (£10*20%)
= £10+ £2
= £12
Absorption costing = TC/ number of units
= £75000/10000 units
= £7.5
= £7.5+ (£7.5*20%)
= £7.5 + (£1.5)
= £9
Scenario B:
TVC increased by 10% = £50000+ (£50000*10%)
= £50000 + £5000
= £55000
TC = £55000 + £25000
= £80000/10000 units
= £8
Cost per unit (CPU) Selling price (SP)
Marginal costing = TVC/ number of units
= £55000/10000 units
= £5.5
= £5.5 + (£5.5*20%)
= £5.5 + £1.1
= £6.6
Absorption costing = TC/ number of units
= £75000/10000 units
= £7.5
= £7.5 + (£7.5*20%)
= £7.5 + (£1.5)
= £8.6
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Based upon the calculation of the unit cost several strategies relating to method of pricing
is assessed by Clariton. This is in order to set the prices of the product. This has been enumerated
in the manner stated as below: Cost plus pricing method: It is regarded as approach that is being complied with by
various firm wherein the pricing of the product is being done through considering all the
types of elements in addition with the profit element as well.
 Differentiation: Various prices are being provided to huge range of customers based upon
the present buyers negotiation power (Mitchell and Theeke, 2008). The competition
development would assist customers through providing product at reasonable prices in
comparison with competitors of firm.
3.3 Viability of the project using investment appraisal tool
Pay back period: It is considered as essential tool of capital budgeting which is being utilized for
the sake of assessing time in which the amount of initial investment can be recovered. The
project having shorter span of time would be selected. However rejection of project having
longer pay back is done.
Years Project A Cumulative cash flows
0 8.6 -8.6
1 1.6 -7
2 2.8 -4.2
3 3.4 -0.8
4 3.6 2.8
5 4 6.8
6 4.2 11
Calculation of payback period
= 3+0.8/3.6
=3+0.22
=3.22 years
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