Financial Resource Management and Decisions for Radisson PLC Report

This report examines the financial resource management and strategic decisions of Radisson PLC, a medium-sized computer software manufacturing company. It explores various financing options, including issuing equity shares, loan stock, long-term bank loans, and leasing, analyzing their implications on the business. The report delves into the advantages and disadvantages of each source, considering factors like legal, financial, dilution of control, and bankruptcy implications. Furthermore, it compares debt and equity financing structures, assessing their impact on the company's capital structure. The analysis provides insights into selecting appropriate financing sources for Radisson PLC's expansion plans, considering factors like business nature and project requirements. The report also includes retained earnings and sale of assets as potential financial resources. The report discusses the management's uncertainty about capital structure and the importance of analyzing the cost of funding through debt versus equity finance.

MANAGING FINANCIAL
RESOURCES AND
DECISIONS
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
A.............................................................................................................................................3
B.............................................................................................................................................6
TASK 2 ...........................................................................................................................................7
A.............................................................................................................................................7
B.............................................................................................................................................8
C.............................................................................................................................................9
TASK 3..........................................................................................................................................11
A...........................................................................................................................................11
B...........................................................................................................................................12
C...........................................................................................................................................14
TASK 4..........................................................................................................................................15
A...........................................................................................................................................15
B...........................................................................................................................................16
C...........................................................................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19
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INTRODUCTION
Sourcing money should be arranged by a variety of reasons. Business organisations
requires funds to perform activities (Hayre, 2015). Traditional areas of need may be for capital
asset acquisition for entity. The development of something innovative requires some investment
for its entire process. From ideology up to its production until it came into existence, every stage
requires some investment.
Normally, such development are financed internally, where as capital for acquisition of
any asset is an external source transaction. In this era of some stiff liquidity, many organisation
have to look for short term capital in the way of overdrafts or loans in order to provide a cash
flow cushion. Interest rates can vary from organisation to organisation and also according to its
purpose. The present report is based on Radisson PLC which is a medium sized computer
software manufacturing company operating in London.
The entity have to manage about their arrangement of financial resources and their
implication on business. The entity has recently acquired a long term contract to provide bespoke
software for various companies around UK (Chandra, 2011). The operations manager believes
that there are lots of opportunities to expand their operations and to increase their market share in
industry.
TASK 1
A
Financing plays a very prominent role in working of every lucrative enterprise. The need
of capital requirement by business endeavours their funds, which generate revenues. However,
not every entity have this opportunity to have instant access to money. The abundance of funding
options makes its easier for business owners to select the various sources of financing which
helps entity to participate in business activities as per companies' needs. As Radisson PLC
acquired a long term contract for providing software assistance, for that they have to work on
their projects and requirement of funds goes high for that (Chandra, 2011). There are several
options available for funding. Some of them are discussed as follows:
Issuing equity share:
Ordinary shares are issued by the owners of the company. They are issued on a nominal
value or face value of the list price of share. The market value of listed company bears no
relationship to their nominal value, until or unless shares are issued for cash. There are several
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forms of shares such as deferred ordinary shares, new issues, right issues, preference shares, etc.
by which Radisson Plc group is able to raise finance.
Loan Stock:
Another source of finance is loan stock is a long term debt capital financing technique
adopted by company on which they have to pay interest on a predetermined rate of interest to
lenders. Holders of loan stock are long termed creditors of company. Debenture is a form of loan
stock, legally defined as a written acknowledgement of debt incurred by company, normally
containing provisions about the payment of interest and eventual repayment of capital amount.
When a business expands their operational area its becomes challenging for enterprise to
adopt the most appropriate source of financing for the particular situation. While selecting the
source of finance, there are some implications of different source which business have to attain.
Each source have its own merits and demerits. Radisson PLC have to select the appropriate
source of financing with analysing its advantages and disadvantages (Voss, Sirdeshmukh, and
Voss, 2008). Depending upon the suitability for purpose, the adopted source should match the
terms of finance of projects. They are as follows:
Long term bank loans:
A debt financing obligation issued by bank or any financial institution for organisations
that hold legal claims to borrowers assets. The loan is considered the most important to all other
claim against borrowers, which in the event of bankruptcy, bank loan is the first to be repaid,
before any other interested parties receives any payment.
Implications:
Legal Implication: Subject to asset seizure in case of default.
Financial Implication: For instance, interest should be paid on monthly, quarterly, half
yearly, or annually basis by the Radisson group to the banks after taking debt from the bank.
Dilution of control implication:There is no dilution of control.
Bankruptcy Implication: Bank have the obligation to recover the loan form the asset used
to secure loan, if in future organisation become insolvent.
Equity Share:
Equity ownership is accompanied by providing voting rights and entitling the holder to a
share of company's success through dividends or capital appreciation. These denominations
provide a holder several rights and through this the shareholders become the owner of the
respective company (Remund, 2010). The characteristics like they have their term in company as
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long as it exists or until they withdraw themselves from company, have the privilege to buy
additional share directly from company, etc.
Implications:
Legal Implications: Equity holders have right to vote in board meeting and any other
proceedings related to them.
Financial Implication: As per the equity source of finance the PLC group has no
obligation to pay to equity holders, if they bear losses in any financial year.
Dilution of control implication: The equity holders have their diluted control in
proceedings of company as they are the owners of company.
Bankruptcy:They are last one to be paid from the residual asset of the company incase of
insolvency.
Leasing:
The acquisitions of assets particularly expensive capital requirements, leasing facility
allows a business to use asset over a fixed period of time, in returns of regular payment. As with
hire purchase, the business customer will normally be responsible for maintenance of the
equipment.
Implications:
Legal Implications: Legal agreement is required in case of leasing, here the PLC
company have to complete all the formalities in terms of documents which are legal.
Financial Implication: Tax charged on monthly lease rental and on residual value at the
end of lease. Entity can claim lease rental as a tax deduction.
Dilution of control implication: Control over company is not diluted but pull out of asset
in case of default that may hamper operations.
Bankruptcy: Suppliers have right to sue the party for first payment in case of bankruptcy.
Retained Earnings:
The amount of earnings retained within the business is termed as retained earnings. It has
a direct impact on the amount of dividends because this is the amount which is not distributed
among the shareholders. The amount which is not distributed is use in the PLC firm in order to
raise capital and expand the projects. This could be turns into great sources of financing for
sweet menu as they are continuously making profits over the years.
Implications:
Legal Implications: Have to be shown for tax purposes in financial statements.
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Financial Implication: Company have to bear lack of profitability due to its financial
implications.
Dilution of control implication: Entity may loose control over their earnings as their
Bankruptcy: The entity may face the bankruptcy as they may face negative earnings
Sale of Assets: If business entity tends to sale their any asset for obtaining some finance, this
conclude a loss in business fixed asset. Whit this the Mentioned PLC enterprise can acquire
money but may lose an asset.
Implications:
Legal Implications: Proper sale agreement need to be prepared.
Financial Implication: The sale of asset may be done on profit or on loss which
sometimes may not be suitable in context of company.
Dilution of control implication: After sale the control of asset transferred to the new
users.
Bankruptcy: Sale agreement tends to get cancelled if buyer fails to pay amount due to
bankruptcy.
B
As there several ways of raising the funds for the organisations. The source of finance
should relate with nature of business as it provides entity an appropriate opportunity of funding.
As Radisson PLC is in stage of expanding their business activities, they have several options
available to fund their financial resources for expansion plans. Large organisations are able to
use a wider variety of finance sources than are smaller ones (Meyer and et. al., 2009). Saving are
an obvious way to putting money into business but as being a large scale organisations its not
provide enough assistance for the future plans. In contrast, companies raise finance by issuing
shares. Large companies often have thousands of different shareholders. There are several
number options available for the Radisson Plc in order to raise the fund in business. From
various sources, appropriate sources for respective firm are given as below:
Equity Shares: As per the equity source the company raise fund through offering shares
in the market. These helps to the business in terms of finance to set up and expand business
activities. This is appropriate because the company is raise fund from various shareholder which
are become a part of the firm and company has to pay only dividend amount to them. There is
not any another extra costs has to pay the firm for raising fund.
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Banks: Another specific source of finance is bank loan which helps to finance capital
projects and overdrafts helps to manage the cash flow structures. As per the source the firm have
to pay only interest rate to the bank and there is no need to pay another costs of finance. Hence,
for the Radisson Plc the bank loan and equity share are appropriate.
To earn some extra finance, a business can borrow loans from banks as well as financial
institutions. A loan helps the organisation to secure a sufficient amount of funds at a time to meet
out business activities. Repayment of loan is made with interest. The lender of money needs to
know all the business opportunities and risks involved and will therefore want to see a detailed
business plan.
These are some financial resources which helps the Radisson PLC to fund their financial
resources (Daily and et. al., 2009). Depending on their scenarios of their projects they can opt
any of the option as required for long term or may be for short term.
TASK 2
A
The management of Radisson PLC is unsure about the capital structure of company and
for funding the project they have decided to analyse the cost of funding by equity versus debt
finance structures (Malmi and Brown, 2008). The decision of financing fund by debt or by equity
have some major impacts on entity. These are discussed here under:
Debt Finance
It refers to borrow money from outside source with the promise to payback the borrowed
amount along with interest on an agreed date. Some businesses feel timid from borrowing
money, but debt financing certainly have its own advantages. It can be utilised to fund any kind
or size of business. As per the finance the Radisson Plc firm is able to raise fund from the debt or
loan. For debt finance there are bank, financial institutions etc. are available.
Some businesses feel timid from borrowing money, but debt financing certainly have its
own advantages. It can be utilised to fund any kind or size of business.
Equity Finance
In the world of small business, equity financing, means raising capital by selling shares of
a business to investors. Unlike debts, the raised capital isn't paid back in instalments along with
interest. Instead, investors put money into the Radisson group and become partial owners of that
business. They are then entitled to a share of the business's profits over time. Most investors
expect a return on their investment within three to five years
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It is not for everyone, but provide a alternative to debt for several business owners. In
fact, equity financing cannot be charged with the two biggest gripes business owners level
against debt financing: the constraint it places on available cash flow and the risk associated with
personally guaranteeing a loan (Malmi and Brown, 2008).
In an appropriate market it is said to be that the finance policy which is being adopted by
a company should be Debt Equity Financial Structure having a ratio in Debt and Equity is of
0.5:1 and it is considered as the best policy being opted by the company for financing its funds
and financial resources. The policy adopted by Radisson PLC should be compiler of Debt and
Equity as its helps the organisation to manages its funds and also perform in the interest of
stakeholders as well as organisation.
B
Framing the structure of financial plan is a considerable step for the entity to decide about
its future planning and to evaluate about the working of entity. The financial plan, or budget as it
is also known, helps company to manages its day to day decision making policies (Siano,
Kitchen and Giovanna Confetto, 2010). Comparing forecast numbers to actual results yields
important information about the overall financial health and efficiency of business. Even one
person company also needs a financial plan to carry out their activity. The Radisson PLC is
going to expand their business so they have to frame a proper plan relating to their needs and
requirements of funds and their utilisation. Some of them are discussed here under:
Cash Management:
Every business have a monthly or seasonal variation in texture of revenue, which depicts
the time period when entity have plenty of cash and a scenario where they have shortage. In
framing a financial plan, entity have to take these cycles into account to keep a tight rein on
expenditures during forecast low revenue periods. Poor cash management can result in negative
consequences such as not being able to make payroll. The cash cushion allows the business to
take advantage of opportunities that arise, such as the chance to purchase inventory from a
supplier at temporarily reduced prices.
Spotting Trends:
An entity have obligation of taking various decision in a course of month that it can be
difficult to analyse that which decision have what kind of effect business activities. Preparing a
financial plan, involves settings some quantifiable targets which helps to compare with the actual
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results during a financial year (Voss, Sirdeshmukh and Voss, 2008). Trends in the sales of
individual products help the entity make decisions about how to allocate marketing dollars.
Financial planning plays an integral role in each and every organisation to run the firm
very smoothly and earn profit. Assessment of financial plan in context of various terms of the
enterprise are given as below: Identification of shortages and surpluses: Financial plan is very helpful to identify
situation of financial resources in the business. When company is going to make the
financial plan for upcoming years then it able to derive that, there is a shortage or surplus
of finance. It helps to prepare of formulate strategies which lead to increase profitability
and performance of the firm in the industry. Budgeting: The process where the firm is able to identify incomes and expenditures for
next financial years, known as a budgeting process. It is one type of financial plan where
it forecast and prepare budget, it will give informations that for next year how much
financial resources will be require. It helps to management in order to make effective
products and services and enhance performance level in the industry as well. Implications of failure finance adequately: It is very necessary for every enterprise that
it has adequate finance in order to run the business very smoothly. If finance is not
adequate in anyone functions or departments of the firm then overall production or
business process will hamper which lead to affects the firm in negative manner. With
help of financial plan the management is able to overcome or reduce this type of
obstacles and problems.
 Over trading: A situation where firm is produce goods and services in more numbers
compare to availability of resources and requirements, known as an over trading. When
this type of situation occurs in the management then it can overcome by proper financial
plan. From effective budget preparation also firm can reduce over trading, because
budget gives informations related to cash inflows and outflows for upcoming year and
estimate production level as well.
C
The finance department of a company is section which generates a variety of information
for the entity and its higher authorities for making decisions required by the company. The
financial system of Radisson PLC provide some realistic objective picture of actual business
position in company (Chandra, 2011). Financial system depicts the information of past
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performance of organisation. These statements can be compared with the results achieved by
similar companies or in previous periods to identify area for improvement.
Profit and Loss accounts providing details of whether the business is making efficient use of
financial resources.
 Balance Sheet information providing details of a businesses assets and liabilities, as well
as the liquidity of the business.
 Sales and purchases information setting out particular types of trading and accounts with
particular customers and suppliers.
 Information about the purchase of assets and liabilities.
 Information about the wages paid out by a business.
 Information about costs (Remund, 2010).
By providing a steady and up-to-date flow of information, a business is able to make appropriate
decisions about:
 How to reduce costs
 How to increase sales
 How to raise profitability
 When to purchase new capital assets
 The best sources of finance, and duration, etc.
In the present case to raise fund there is two options are selected such as bank loan and
equity shares which are impact to the financial statements of Radisson PLC group. Impact on
financial statements form both sources of finance are gives as below:
 Bank Loan: When company raise finance in business through loan then in balance sheet
of PLC group liabilities will be increase and treated as a long term debt in liability side.
Apart from this in profit and loss expenses will increase and net profit will decrease due
to paying interest amount to the bank. In income statement it will be treated as an interest
amount in expense side.
 Equity Shares: Another source is equity share which have cost is dividend amount. In the
income statements profit will be decrease and it will be treated as a dividend amount in
expense side. After that in balance sheet liabilities side it will be treated as a capital.
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Hence, financial statements are affects after raising fund from different sources of
finance.
TASK 3
A
Budget is an estimation of the revenue and expenses over a specified future period and is
compiled and re-evaluated on a periodic basis. Budget takes important place in every business.
With help of budget the Radisson Plc is able to compare budgeted data with actual data. By this
the management can know that expected data are variate from actual data or not, if not then able
to take corrective actions. Budget variation is helps to derive performance of the business by
various methods. The management able to know with help of variance analysis that firm is able
to meet with budgeted sales and profit or not. Importance of budget are following below:
1. First of all, the budget necessitates the establishment of a program and regulates and
emphasizes performance within that program. Company cannot prepare a budget without
first establishing a complete program, after which changes in the program will reflect as
variances in the budget.
2. It encourages participation and promotes understanding by club officers and other club
employees such as the club manager and the professional.
3. It requires that all expenditures be specifically labelled, whereby they immediately gain
identity.
4. The budget identifies immediate needs for the coming year. Budget variances point out
areas of concern, such as too much labour being used in one area, possibly suggesting the
purchase of a new piece of maintenance equipment.
5. It provides continuity of operations, especially helpful when super intended or club
officers change.
6. It provides the superintendent with a vehicle to evaluate his maintenance program.
7. Budgets regulate inventories. It restricts the purchase and storing of unneeded supplies.
Table 1: Cash and Sales Budget
Cash Budget
Particular June July August September October November
Opening balance 10000 20500 62500 109790 151004 198119.4
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Sales 25000 58700 66300 62500 70100 68200
Total cash available 35000 79200 128800 172290 221104 266319.4
Uses of cash
Material purchase 6000 6600 7260 7986 8784.6 9663.06
Labour cost 5000 6000 7000 8000 8300 7000
Overhead 1500 2000 2500 3000 3500 4000
Sales and office
expenses 2000 2100 2250 2300 2400 2530
Total uses of cash 14500 16700 19010 21286 22984.6 23193.06
Net cash position 20500 62500 109790 151004 198119.4 243126.34
Sales Budget
Particular June July August September October November
Forecasted sales units 2700 3100 3500 3300 3700 3600
Price per unit 20 20 20 20 20 20
Total gross sales 54000 62000 70000 66000 74000 72000
Less: Sales discount &
allowances 2900 3300 3700 3500 3900 3800
Total net sales 51100 58700 66300 62500 70100 68200
Interpretation: Interpretation of the cash budget and sales budget as follows:
Cash Budget: Cash budget is a financial budget prepared to calculate the budgeted cash
inflows and outflows during a period and the budgeted cash balance at the end of the period. In
this case the cash budget is continuously increasing, which indicates that the sales expenses are
increasing in the production. Here the company should control over the cost of the production as
well as control over the other expenses.
Sales Budget: A sales budget is a financial plan depicting how resources should best be
allocated to achieve the forecasted sales. In this case the sales budget is continuously increasing.
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