Managing Financial Resources and Decisions: Clariton Antiques Report

This report provides a comprehensive analysis of financial resources and decision-making processes for Clariton Antiques Ltd. The report begins by identifying various financial sources available to businesses, categorizing them into unincorporated and incorporated businesses, and detailing specific sources such as sale of stock, owner's investment, venture capital, and bank loans. It assesses the implications of each financial source on a firm, including financial and legal implications, as well as the dilution of control. The report then evaluates the most beneficial sources for Clariton Antiques, considering both bank loans and venture capital, weighing their advantages and disadvantages. It further examines the costs associated with these financial sources, such as dividends, interest, and tax implications. The significance of financial planning, including budgeting, and the implications of inadequate financing and overtrading are also discussed. Finally, the report details the essential information Clariton Antiques needs to make informed financing decisions, including partner contributions, venture capital terms, and finance broker details, concluding with an analysis of the impact of financial sources on the company's financial statements.

MANAGING FINANCIAL
RESOURCES AND
DECISION

INTRODUCTION
In the corporate world, there are different types of companies which require money for
existing and operating in their respective industry. Hence, finance plays a vital role in business in
each and every organisational function. Without availability of financial resources, an
entrepreneur cannot start its business and produce goods and services. Beside it, for expanding
business in another market or enhance product range fund require as well. In the present scenario
there is a Clariton Antiques ltd company which is expanding its firm in another country i.e.
Birmingham. For this it requires fund for which there are different financial resources are
available. Further, it shows importance as well as affects of financial sources on the company
and its profitability. It describes about cash budget and capital budgeting techniques and tools
which helps to make investment decisions. At the last present report emphasise on financial
performance of the Clariton Company with helps to several financial ratios.
TASK 1
1.1 Identification of available various financial sources
A) Unincorporated business: These types of firms are free from legal laws and
legislations which are impose by regulatory body. In this overall ownership and liability is with
owner only, there is not any interferences of external party. These firms can raise fund through
using below described financing sources: Sale of stock: According to the source inventory which is available in the company is
supposed to sale in the market. Here it uses its internal stock which not creates any
burden on the firm and not any external party is involved in this (Greenbaum, Thakor and
Boot, 2015.). Owner's investment: Further, the entrepreneur can raise fund using his own investment
which is made in his personal life. In this firm not needs to give any cost of finance
which not decreases level of profitability as well as financial performance.
 Disposal of assets: In this fund comes in the business after selling those assets which are
unproductive and unused in generating sales and revenue. It is internal financing process
and using for medium-term.
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B) Incorporated business: Company which cannot start its business without completion
of legal formalities, known as an incorporated firm. Here the regulatory body imposes different
rules and regulations on respective businesses (Hodler, Luechinger and Stutzer, 2015). These
types of firms need money in order to enhance business, which is provided by below mentioned
sources: Venture capital: Most used external source of finance by incorporated firms is venture
capital which provides finance to such companies for business expansion. It imposes
financing cost in terms of stake of the business which creates expense burden on such
companies. Hire purchase: Another external financing source is hire purchase where company gives
some part of property or asset to external party on rental basis. In this the business raise
fund in instalments and after completion of all instalments, ownership is given to the
party.
 Additional partners: Further, according to respective source company can increase
partners who contribute in the capital. In this source there is not any cost of finance is to
be given after raising fund in the company (Ko and Lee, 2015). It has a drawback that is
amount of profit split in more ways.
1.2 Assessing implications on firm after using sources of finance
Sources of finance Financial implication Legal implication Dilution of control
Internal financial sources:
Sale of stock Here company sale
inventory which it
owns in the firm by
which assets reduce.
Not any legal
formalities require.
-
Owner's investment Not any type of
financial impact on the
company.
- -
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Disposal of assets In this case balance
sheet is affected in
which total assets
reduce by which
company will not able
to fulfil short term
obligations (Locatelli,
Invernizzi and
Mancini, 2016.).
In order to raise fund
through assets there
are not any legal
implication on the
business.
Overall control is with
owner only.
External financial sources:
Venture capital The company needs to
give financing cost in
terms of stake.
Further, to the
shareholders it has to
provide dividend on
stake which affects net
profit in negative way.
In this case as per the
legal rules and
regulations the
company has to
provide financial
position along with
return on investment.
Because VC allows
for fund when
company meet
criteria of ROI.
The owner loss control
on his firm and it goes
in hand of venture
capitalists.
Hire purchase Further, owner gives
it's some part of assets
to external party
which lead to reduce
total assets and impact
on balance sheet
adversely.
Documentation
process is required in
this case where terms
and conditions of
instalments are
mentioned (Akhtar
and Kröner-Herwig,
2015).
Dilution of control is
with the hire purchase
rather than
entrepreneur.
Additional partners Respective source All the legal Dilution of control
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impact on the profit
because it split in
more ways and divide
in additional partners
as well.
formalities needs to
follow and complete
by both the parties i.e.
firm and new
partners.
splits with new
partners.
1.3 Evaluation of most benefited sources for Clariton Antiques limited in order to raise fund
In order to increase capital in the company for expanding in another market there are
various sources available. Here Clariton needs finance for business expansion in another country,
for this bank loan as well as venture capital is the most suitable sources. Evaluation of both the
financing sources is mentioned below:
Bank Loan: As per the source Clariton has to fulfil all the legal formalities as well as
pay cost of finance in terms of interest. It is beneficial because it is easily available and within
lesser time in comparison to another sources. It provides loan on the basis of firm's valuation by
which Clariton able to know business value in the industry (Lake, 2016). However, it imposes
high cost of finance on the business which lead to highly effect profitability and financial
performance in the market. Further, it takes cost for long term such as 10, 15 or 20 years.
Venture capital: Another most appropriate source for raising finance in the Clariton is
venture capital which provides better financial services along with proper advice. Very main
benefit of respective source id that it gives proper suggestions to the businessman who takes fund
such as Clariotn ltd. Apart from this its financing charges are lower in comparison to another
source which are providing fund (Venture capital (VC), 2017). It can be evaluated that it leads to
increase shareholders of Clariton where it has to provide higher dividend amount by which
profitability affects in negative way.
TASK 2
2.1 Costs or charges imposes by two financial sources on company
A) Dividends: In the present case the Clariton company raising fund using venture
capitalist which imposes cost of finance on the business. It takes costs in terms of stake of the
Clariton firm, afterwards it turns into shareholders of the firm. Further, company needs to give
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dividend amount to the shareholders which are financing cost for respective business. Here VC
taking cost that is 20% of the whole business of Clariton. When the company raise fund with
help of venture capitalist then it will impact on the firm in terms of charging cost of finance.
Further, the option influence profit level of the firm in order to negative manner as well as
enhance indirect expenses.
B) Interest: Further, another source which is used by respective antique firm is bank loan
which imposes financing cost on the company (Baranov, 2015). It takes charges in terms of
interest amount of the whole loan amount, i.e. 0.5m GBP. The financing cost is given by
company to bank from profit which is generated by it. It leads to reduce overall level of yield as
well as financial performance in the industry where it operates. As per the bank financing option
the company is affected in negative way because it imposes higher cost of finance. Higher the
cost lead to increase interest as well as indirect expenditures of the firm by which net profit
decreases. Hence, it impacts on the financial position and performance of the firm in overall
industry where it operates.
C) Tax: It is one type of expenses for the Clariton but due to taking loan from Bank
Company no need to pay taxation amount. Furthermore, it leads to affect financial position of the
company in positive way. Due to allowing tax relaxation by bank to the company, it impacts in
positive way on the financial performance. Lower the taxation amount lead to reduce fixed costs
as well as increase net profit at the end of accounting period.
2.2 Significance for Clariton Antiques ltd of financial planning
A) Budgeting: A technique in which company or management able to estimate future
financial performance by using past financial transactions is identified as s budgeting process. It
can be possible with helps of appropriate financial plan as well as strategies (Dekker, Ding and
Groot, 2016). It helps to Clariton in order to provide financial services to functions as well as
helps in smooth functioning of the business process.
B) Implications of failure to finance adequately: When the company wants to run the
firm in an appropriate and smooth way then it needs adequate finance. Further, if respective firm
unable to give proper and adequate financial resources then overall firm hinder and affects in
negative way. Hence, it can be said that it is necessary to use proper financial planning.
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C) Over trading: As per the respective element when business produce high products in
comparison to available financial resources then situation of over trading arises. It hampers
smooth functioning of the Clariton Company (Stacchezzini, Melloni and Lai, 2016). Hence, to
overcome such situations financial planning plays very significant and important role in the
company. When the company occurs over trading situation then it will hamper profitability of
the Clariton and reduce financial performance in the industry. In order to overcome such
problems the management needs to use cost and stock control strategies, should make effective
policies as well as control over the resources for producing goods and services.
2.3 Assessing information which are needed for firm to make financing decisions
A) Partners: Clariton needs to take information from every partner regarding proportion
of capital as well as proportion of profit and loss. Further, it is necessary to know that if firm
generate loss then also all the partners should contribute.
B) Venture capitalist (We Finance Limited): While taking finance from We finance
limited (venture capital company) Clariton needs to know percentage of stake as well as method
od payment such as in instalments and within how much period of time. Apart from this venture
capitalist requires knowing financial position as well as ROI of the firm because it provide loan
when firm generates at least 50% ROI.
C) Finance broker: According to this company requires to collect informations from
bank in terms of financing cost. Further, Clariton needs to know method of payment because
some commercial banks taking prepayment (Persaud, Woodhouse-Jackson and Scriven, 2016).
Apart from this it needs to know that which type of evidence bank wants to take with him behind
providing loan.
2.4 Effect on financial statements of Clariton after using financial sources
Each and every financing source affects as well as influence to the financial statements in
positive as well as adverse manner. Further, it helps to increase profit and assets or liabilities as
well as reduce those elements. Clariton using bank loan and venture capital which impacts on its
financial statements are such as follows:
A) Venture capitalist (We Finance Limited): We Finance Limited taking charges in
form of stake which lead to create expense burden on the financial statements. Due to increase
dividend amount net profit of the Clariton is reduces while capital is increases by which total
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liabilities enhance. Hence, income statement affects in negative way while balance sheet
influence in positive way.
B) Finance broker: Further, raising fund through bank it takes interest amount and
broker charges brokerage which are expenses for firm. By increasing expenses profit decreases
in the statement of profit and loss account (Fernandez, Le Roy and Gnyawali, 2014). While in
capital is increases by which total liabilities enhance in the statement of financial position. If the
company has already high cash in the bank and takes debt from bank then interest rate not
affected. Further, if the company raise fund then interest will be added on the loan amount only,
there is no role of existing cash amount.
For example: interest rate on loan amount 0.5m GBP is 2% and brokerage amount is 1%.
Hence, total interest will be 10000 per year and for the 10 year it will be 100000 GBP.
Further brokerage charges for ten years will be 50000 GBP.
On the available cash in bank loan amount or interest will not affect.
TASK 3
3.3 Clariton's cash budget along with its interpretation
In the corporations, it is necessary to predict about the future financial position of the
business which helps to make effective business strategies and decisions. Cash budget is a
process of estimating cash inputs as well as cash outputs in the specific financial year. There are
two main headings in respective statement such as total cash inflows and total cash outflows. By
subtracting both the cash flows firm able to know net cash balance at the end of accounting year.
It is very helpful method for Clariton in order to allocate financial resource to every
organisational functions (Greene, Brush and Brown, 2015). Further, helps to analyse variance by
comparing actual and budgeted data. Cash budget for Clariton is stated below:
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Interpretation
Looking at the above cash budget, it can be interpreted that overall cash balance from the
month of January to June is good but after March is consistently decreasing. In the month of
January net cash balance is £-649750 which shows that inflows are lower in comparison to cash
outflows. Further, cash balance is increases up to two months and in the month of March it
reaches up to £315250. It can be seen from above table that in between both months inflows are
continuously increases while outflows are not. Afterwards, from March it starts to decrease up to
month of June. In the June net cash balance is £69000 which shows that Clariton take higher debt
and unable to manage its direct as well as indirect expenses in proper way within such months.
Apart from this in the same month cash collection is only 5% due to bank overdraft which is
another cause to reduce inflows as well as cash balance.
Suggestions to management for improve shortfalls
 In order to increase net cash balance, management of Clariton needs to prepare effective
marketing strategies which helps to attract more number of customers as well as enhance
profitability ratios.
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 It can be suggested to the Clariton that it should use cash control policies by which
management able to reduce and control expenses and increase incomes in the upcoming
accounting year (Salisbury, 2014).
 Further, the business needs to use economies of scale where output level increase and
cost of total production gets reduce.
3.2 Method for determining unit cost and price along with an example
The company when produce goods and services and sell then it must require calculating
unit cost as well as selling prices. There are different methods of costing and pricing by which
Clariton is easily able to know that which selling price will be beneficial for it. In context to this
fixed and variable both costs are used and then divided by total antique items or units. Cost
which are constant even if production level gets increase or decrease are identified as a fixed
cost. On the other side which cost changes according to the output level, known as variable costs
(Kumar and Rao, 2016). For respective service based company Clariton unit cost and price is
shown below:
particulars amount (in £)
Cost of designing 20000
maintenance expenses 4000
cost of carrying 6000
utility costs 5000
miscellaneous costs 3700
other expenses 4300
total cost 43000
Total number of antique items 215
Cost of one antique item £200
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margin of profit 35.00%
Price per antique item £270
From the above example it can be said that Clariton can sell its antique items in the
market at 270 GBP. Further, cost of one unit is £200 which is derived with help of total cost and
total items. For taking pricing decisions cost plus pricing method used that is 200 + 35% profit =
£270 selling price per antique item.
3.3 Assessing viability of project with help of capital budgeting
In order to know which one investment proposal will be beneficial from two or more
mutually exclusive project, capital budgeting techniques is using. It helps to Clariton to assess
the most profitable project by which company become highly beneficial in the market. Various
financial techniques and tools are such as IRR, NPV, ARR, payback etc (Wu and et.al., 2016),
which helps to Clariton in order to take decision to put investment. These tools are mentioned
below:
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From the above presented calculations it can be said that project two is better due to
having better ARR and payback period in comparison to project one. As per the given
benchmark for NPV, ARR and payback i.e. £2m, 35% and 2.5 years respectively both the
projects meet the criteria. NPV is widely used method because it considers time value of money
as well as discounting factor both. Hence, it can be recommended to the management of Clariton
that it should make investment in the project one which gives higher yield in the upcoming
financial year.
TASK 4
4.1 Key elements of several financial statements
Profit and loss account: Very main financial statement is profit and loss account which
shows company is how much profitable in the industry. Further it helps to compare past and
current level of profit by which owner is easily able to prepare effective business strategies and
decisions. Main components of the account are profit and loss where all the incomes and
expenses are recorded (Weaver, 2014). Further, by this management able to identify that at
which point cost is higher and lower.
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Statements of financial position: Another statement is balance sheet by which
management able to derive its ability in order to meet with short term obligations which are
taken by different sources. On the basis of statement of financial position it can easily determine
its liquidity as well as solvency ratio and able to compare from previous year. Key elements of
balance sheet are such as assets and liabilities where mainly two headings are shown. In both
assets and liabilities there are current and fixed assets as well as liabilities are mentioned. Apart
from this third key component of respective statement is total shareholder's equity.
Statement of changes in equity and gains: The statement which shows that respective
business is how much able to raise capital through shares as well as up to which extent efficient
to generate return form it. In this there are two main heading which are total equity capital of
shareholder's as well as retained profit (Hodler, Luechinger and Stutzer, 2015). In order to
calculate retained profit amount of dividend is deducting from total capital which is generated by
issuing shares.
Statements of cash flows: According to the financial statement company is easily able to
identify regarding its cash flows such as inflows and outflows. It shows that at the end of
accounting period the management is how much able to make closing cash balance. Further, it
describes disposals and incomes from each business activities such as accounting, production,
financing, operating etc.
Notes or disclosures of financial statements: Accounting rules and regulations as well as
various standard followed by the company while preparing financial statements are supposed to
show in respective notes. It helps to assessor while he analyses about the financial statements of
particular business in order to know accounting treatments (Ko and Lee, 2015). It shows UK
accounting standards, IFRS, GAAP etc. used in order to preparing several financial statements.
4.2 Comparison between financial formats of Clariton and sole proprietor firm
Basis of difference Clariton (partnership business) Sole proprietor
Meaning Those firms where two or more
owner run the business and
agreed to distribute profit or loss
whichever generates.
On the other side those
companies in which there is only
one owner and no require to share
profit. Further, in this any rules
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and regulations are not required
to follow.
Financial statements Necessary to prepare financial
statements such as:
 Cash flow statement
 Balance sheet
 Income statement
 Statement of equity and
gains
Not require to prepare all
statement but for recording
purpose the owner prepare
following financial statements:
 Balance sheet
 Profit and loss account
Capital accounts Number of capital accounts is
varied on the basis of number of
partners (Baranov, 2015).
There is only one capital account
due to only one owner.
Auditing Necessary to complete auditing
process.
Not any requirements of such
process.
Laws and standards While prepare financial
statements these firms have to
follow all the accounting
standards and laws such as UK
accounting standards, IFRS,
GAAP theory etc.
It is not necessary to use
standards while preparing such
statements.
Publications Necessary to publish financial
statements.
Not require.
4.3 Interpretation of Clariton's financial statements using financial ratios
Financial statements of any company can be interpreted by various measures which show
firm's financial performance in the industry. One of the best methods for measuring performance
of the company is financial ratios which are calculated on the basis of different financial
statements. In the present case the Clariton is operating in antiques items where it generates
incomes and profits in every accounting period. There are various ratios which help to know that
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Clariton is performing in the market up to which extent (Advantages and Limitations of Ratio
Analysis, 2014). The ratios are such as solvency, profitability, liquidity, activity turnover ratios
etc. As per the respective ratios financial performance of respective company is described as
below:
Liquidity ratios:
Ratios which shows that the company is how much able to meet with its short term debts
are known as liquidity ratio. The business fulfils its obligations by using assets and liabilities
which are easily convertible into cash form. The ratios are such as current as well as quick or
acid test ratio which is calculated using data of balance sheet (Stacchezzini, Melloni and Lai,
2016). In the accounting period 2014 Clariton's current ratio is 0.23 which increase in the year
2015 that is 0.33, which indicate that the company is able to pay debts or obligations. Further,
acid test ratio of the firm is 0.08 and 0.19 in the year 2014 and 2015 which shows that it is able
to enhance its level of liabilities. Quick ratio not includes prepaid expenses and closing stock due
to not having nature of cash convertible.
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Profitability ratios:
The ratio is the one which management is able to know how much the company is able to
earn profit in an accounting period. It is one of the best measures to know level of profitability as
well as helps to make comparison between two or more years and companies. From the above
table it can be seen that gross profit ratio is decreasing from 10.34% to 14.18% in the financial
year 2016. It indicates that management is not able to manage COGS (cost of goods sold)
properly. Further, as per the operating and net yield ratio the Clariton is generating more profit in
comparison to previous year that is 2015. Operating and net profit ratio of Clariton in the year
2016 is such as 4.54% and 2.63% respectively. It shows that it has effective business and
marketing strategies which helps to attract more number of customers. Moreover, Clariton is able
to reduce operating cost and indirect expenses in order to sell its antique items.
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Efficiency ratios:
Apart from above mentioned ratios another is efficiency by which management can
determine that it is how much efficient to generate sales and revenue in an accounting year.
Various efficiency ratios are such as inventory, total assets, fixed assets turnover ratio etc. by
which Clariton able to know its financial performance (Persaud, Woodhouse-Jackson and
Scriven, 2016). In the financial year 2015, the company is highly able to utilize its stock as well
as assets compare than year 2014. Stock turnover ratio of Clariton is increases from 22.72 to
23.41 in the year 2015 by which it can be said that it uses its stock in proper way. On the other
side total and fixed assets turnover is 1.59 and 1.84 times respectively. As per the respective ratio
it can be interpreted that Clariton is more efficient for generating revenue with help of fixed and
total assets.
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Solvency ratio:
From the above presented table it can be visualised that Clariton has higher equity capital
and low amount of debt in the year 2015. Further, equity and debt both are increasing but with
high and low growth rate respectively. In the financial year 2014 and 2015 debt to equity ratio of
Clariton is 0.51 and 0.47 respectively. It shows that firm fulfils its old debt which lead to reduce
respective ratio.
Further, overall financial performance of the Clariton is good in comparison to previous
year.
CONCLUSION
It can be articulated from above mentioned report that business such as Clariton needs to
take effective and appropriate business decisions in order to enhance profit level. Further, it is
necessary to manage financial resources as well as allocate properly to every organisational
functions. It can be concluded that Clariton using bank loan as well as venture capital firm We
Finance Limited in order raise fund for purpose of business expansion. Further, according to the
capital budgeting it can be analysed that project one gives higher net present value of potential
investment. Hence, it can be suggested to the management that it should make investment in the
project one which gives higher return to the company after completion of the project. It can be
summarized from financial ratio analysis that Clariton is performing well in the next year
because management is more able to utilize its financial resources. Moreover, it is able to control
over the cost and expenditures due to generating higher profit in comparison to previous year.
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