Managing Financial Resources & Decisions: Radisson plc Report

This report analyzes the financial resource management and decision-making processes of Radisson plc, a computer software manufacturing company. It explores various sources of finance, including internal sources like retained earnings and share capital, and external sources such as bank loans, overdrafts, and leasing. The report delves into the implications and costs associated with each financing option, considering interest, documentation, dividend, and fluctuation costs. It examines how Radisson plc can leverage these financial resources to expand its business and increase its market share, particularly in light of a new long-term contract. The report also incorporates financial analysis techniques like ratio analysis, unit cost calculations, and pricing decisions to evaluate the company's financial performance and make informed financial decisions.

MANAGING FINANCIAL
RESOURCES & DECISIONS

Table of Contents
INTRODUCTION...........................................................................................................................3
LO 1.................................................................................................................................................3
1.1...........................................................................................................................................3
1.2...........................................................................................................................................4
1.3...........................................................................................................................................6
LO 2.................................................................................................................................................7
2.1...........................................................................................................................................7
2.2...........................................................................................................................................8
2.3 ..........................................................................................................................................8
2.4...........................................................................................................................................9
LO 3.................................................................................................................................................9
3.1...........................................................................................................................................9
3.2.........................................................................................................................................11
3.3.........................................................................................................................................12
LO 4...............................................................................................................................................13
4.1.........................................................................................................................................13
4.2.........................................................................................................................................13
4.3.........................................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

Illustration Index
Table 1: Financial statements.........................................................................................................11
Table 2: Projected budget for Radisson Plc..................................................................................12
Table 3: unit cost calculation.........................................................................................................14
Table 4: PBP..................................................................................................................................16
Table 5: NPV calculation...............................................................................................................16
Table 6: difference between sole traders and public firms............................................................18
Table 7: Ratio analyses of Marriott International hotel.................................................................20
Table 8: ratio analyses...................................................................................................................21
Table 9: Ratio comparisons...........................................................................................................21
Table 10: Liquidity ratio................................................................................................................22
Table 11: Profitability ratio comparison........................................................................................22

INTRODUCTION
Managing financial resources aims to develop an in-depth understanding in relation with
the techniques of accountancy to manage financial resources significantly. Considering the
nature of present market which is highly competitive and complex, in such a situation, it is the
biggest challenge for organizations to operate successfully. To survive in present competitive
market, a small entity needs to take proper decision so that it can sustain for longer period and
increase its market share (Brunzell and et. al, 2013). For the present report, Radisson plc is being
taken into account. It is a medium sized computer software manufacturing company. Currently, it
is limited to London only but now, it is planning to expand its operations around UK. Sources of
finance available to Radisson plc and cost of several sources will be discussed in this assignment.
For evaluating the financial performance of entity, ratio analysis, unit cost, pricing decision, etc.
along with various calculations will be illustrated in this report.
LO 1
1.1
Organizations have many options of raise finance, it totally depends upon the size and
nature of business. Equity, debt, debentures, retained earning etc. are various sources of finance.
Sources of finance are the most important part for expanding business or to run operations of
small sized firm significantly. It is very important to understand attached cost also because large
organization can collect money easily but for small firms it is difficult task so they should choose
such sources which help to control over its liability. So enterprises needs to opt such options in
which less prices are attached. Radisson plc is working well in the market, to increase its market
share it needs various source of finance. For expanding the business, it needs huge financial
support. Operation manager of the organization believes that there are lots of opportunities of
expansion. With the significant use of funds, corporation can accomplish its objective. Mainly
there are two types of sources of finance:
 Internal
 External
Internal sources

It is the source of capital which is generated by internally by the business. Funds can be
raised from internal sources, these are easily available funds for the company. Categorizations of
inside sources are below: Share capital: It consists of all funds which is raised by the firms in the exchange for
other shares such as preferred shares etc. The amount of share capital is shown in the
balance sheet and if owner of Radisson plc wishes to resell these in secondary then
individual can sale it easily. Difference between both prices do not impact on the share
capital of the organization.
 Retained profitability: It is the suitable source of finance, after calculating the net profit,
owner can choose the option either to reinvest the amounts or pay dividend. It is shown
into balance sheet of the organization. This retained profit can be used by the Radisson
plc for further operations.
 Sales of assets: To raise funds in the enterprise, sales of assets can be choose as internal
financial source. Radisson plc can sell its such assets which have no future value for the
company. As it is software manufacturing firm so many time machines become out-dated
and have no use then in such condition Radisson plc can sell its non useable machineries.
External sources
 Bank loan: Being a small firm, bank loan is a suitable source of raising funds in the
business unit. The company can collect a huge amount by borrowing money from banks.
Financial institution lends funds at affordable interest rates to the entrepreneur.
Repayment schedule is also easy and entity can repay the amount by monthly instalments
(Elsas and et. al, 2014).
 Bank over draft: This type of financial source can give benefit to the organization to
mange its funds. Financial institutions provide over draft facilities to business persons as
per their credit worthiness. If Radisson plc opts this option then it will has to pay
minimum interest rate on it.
 Suppliers / creditors: It is the external source of finance in which Radisson plc can raise
funds by this form. It can buy machineries and equipments on credit. Supplier called
trade creditor of the firm. After certain time period company will have to pay total
amount.

 Leasing: Radisson plc can choose this option in which it can give some items on lease
such as heavy machineries etc. Company has to pay regular amount as rent but product
belongs to the leasing firm.
Sources of finance of Radisson plc can be dived into two main parts such as Internal and external
sources (Fields, Fraser and Subrahmanyam, 2012).
◦ External sources: Banks loans, overdraft, leasing etc. options are available for the
Radisson plc . It can borrow money from the financial institutions, this is great
medium to collect huge amount of money. It can also take overdraft facility from the
banks because in this source it has to pay minimum interest rates to such institution.
In addition to this, it can opt option of leasing, as in this company needs not to invest
much amount so being a medium sized firm it can easily collect huge amount with
this source.
◦ Internal sources: Sales of assets, retained earning and share capital are some major
internal funds are available for the firm. As it is a software manufacturing firm, some
software have been out-dated so company can sell its non useable assets and can
gather huge amount. Retaining earning is another good source as because in which
company needs not to repay interest to banks or others. Share capital could be the
suitable option as company can sell its shares whenever it requires funds. In addition,
Radisson plc can also purchase addition shares to increase capital size.
Sources of finance
Internal External
Retained profit Share capital Sales of assets
Supplier/
creditor
Bank loan Leasing
Bank Over draft

1.2
Implications of different sources of Radisson plc are as maintained as below: Bank Loan: Owner has to pay interest on the borrowed amount. Apart from interest, the
company has to pay documentation fees and security amount. If firm fails to repay
amount on time then bank can cease the firm and also, institution can have control over
the machines or assets (Indounas and Avlonitis, 2005). In this case, enterprise need not to
share the ownership as it has full rights and control over the entity. Share capital: No economic implication takes place in this source. In Purchasing and
selling share, company will have make legal agreement and failure of fulfilling the
clauses may harm the organization. Ownership remain same no dilution take place. Retained profitability: Organization has to pay divided to its stakeholders so it is
economic implication. No legal implication and no dilution of ownership is attached in
this source. Sales of asset: No economical implication . No legal implication. Ownership remains
same, owner does not have to share its possession with anyone. Bank over draft: Interest has to pay by owner. A legal contract made between both and if
owner fails to pay interest then banks can cease the operations. Suppliers / creditors: No economical implications take place.
 Leasing: Radission Plc has to pay rent on leasing equipment. A legal contract formed
between both and if timely rent does not paid by the company then legally equipment will
be in the control of purchaser.
1.3
Aim of Radisson plc is to expand business and to increase its market share. For that, it is
important to choose correct source of finance so that maximum returns can be generated. As per
the given scenario, the company has recently acquired a long term contract to provide bespoke
software for various companies around UK. To utilize these opportunities effectively, it needs
huge funds which can support the firm for expansion. Bank loans can be suitable form of
financing. Owner can collect a large amount with the help of same. After getting this money,
firms need not to look further for new funds. It creates creditability in the market. In addition,
repayment is quite easy because interest rates are low. However, monthly instalment can easily

be paid by the proprietor. Radisson plc can gain tax benefit by taking loan from financial
institutions (Lin and et. al, 2015). . Sales of assets can be the suitable option for the Radisson plc.
By opting this obtion company's liability will be in control so it will have option to gain more
profit. Hence, it will be suitable source of finance.
 Retained profitability will be the best option for Radisson plc as it can reinvest its own
profit for further operations. As it has long term objective then company can choose it
because it will help to minimize the liability of the firm and also it will raise money to
great extend.
 Bank loan will be appropriate source of finance because company can fulfil its medium
term objective with the help of this form. It helps in collection of huge amount with
minimum interest rate which is easily affordable by Radisson plc. In addition to his
company has tax benefit on choosing bank loan for raising funds.
LO 2
2.1
The company has many options of raising funds. However, it is the responsibility of
finance manager to select appropriate source of finance so that organization can accomplish its
objective. Radisson Plc aims at expanding the business and wants to provide software services
to big companies. Various costs are attached to different sources, which are stated as follows: Interest and documentation cost: Radisson Plc will have to pay interest on borrowing
amount, apart from it, company will have to pay documentation, file charges at the time
of taking loan from financial institutions. Bank over draft is also come under the interest
cost, in this kind of source enterprise will have to pay amount, though it is cheaper but
mandatory to pay. Whenever entrepreneur takes loan from banks, individual is liable to
pay interest. Apart from this, it charges documentation fees from borrowers. This
includes file charge, administration, insurance etc. which also results in increasing
liability of the entity (Siano and et.al, 2010). Dividend cost: This type of cost is attached with retained earning source. Radisson Plc
has to circulate dividend to all its stakeholder, this can reduce the money which is going
to reinvested. In capital share also Radisson Plc will have to bear divided cost. Primary
expenses of share capital is too much high.Dividend cost: This type of cost is attached
with retained earning source. Radisson Plc has to circulate dividend to all its stakeholder,

this can reduce the money which is going to reinvested. In capital share also Radisson Plc
will have to bear divided cost. Primary expenses of share capital is too much high.
 Fluctuation cost:it is attached with the sales of assets, prices can get changed any time
and company will have bear loss if it gets down in future. It is also attached in leasing
cost, may be possible that in future equipment will be depreciated so this fluctuation will
give loss to Radisson Plc .
 Opportunity cost is attached with retained earning source. Apart from his it can harm the
financial position of the organization. By selling assets firm can gather huge amount but
it will reduce assets side and worthiness of the corporation and can harm the economic
condition of the business unit (Kuntchev and et. al, 2012). Leasing cost are attached with
leasing, company has to pay rental for hiring any equipment. In overdraft source, interest
cost and repayment cost of total amount is attached with it. And if owner fails to pay
interest then banks can charge heavy late payment charges on it.
Debt financing will be suitable for the Radisson Plc because in this company's
ownership does not get diluted. In addition to this, lender is liable to repay only the lending
amount only and it needs not to share its profit with anyone in near future.
2.2
Proper management of cash inflow and outflow is an essential key activity of business
units. Economic forecasting supports entities in evaluating the risks and uncertainties of the
workplace. For increasing market share by expanding business, Radisson Plc has to plan
properly so that resources and funds can get utilized effectively. It is a systematic approach
through which manager of Radisson Plc can plan to utilize the available resources effectively and
can estimate the future financial needs of the company. Importance of financial planning are
maintained below:
 Proper financial planning aids finance manager in determining the budget. Shortfalls can
easily be analysed and manager can plan to minimize the risk (Simon, 2015).
 Ratio analysis is a part of economic forecasting, through this manager can evaluate the
performance of competitors and can also judge its position in the market.

 With the help of proper financial planning, allocation of budget for each department can
be done effectively. Cash flow projections, balance sheet, income statement etc. can
assist in reducing the operational cost of the Radisson Plc.
 Financial planning assists in analysing the strengths and weaknesses of the company so
that organization can plan for utilizing strong points effectively and can decrease the
shortcomings.
 It supports in raising cash in the organization (Tarantino, 2001).
 With the help of financial planning Radisson Plc can mange its income and expenses
effectively.
 It acts as guide and assist in taking appropriate decision of investment.
 It is important to measure the financial goal and improve control over the financial
management.
 It helps to save money and these amount can be used by Radisson Plc in crucial time
period.
 Objective of financial planning is to ensure the availability of funds in the organization.
For proper planning, finance manager of Radisson Plc needs various information
regarding current position of the company and present market situation. Income statement, profit
and loss account, cash statement etc. can support business unit in extracting all the relevant
information.
2.3  Operational level: Lower employees need informations about market worth, current
position, assets, liability, satisfaction level of employees, profit margin, dividend policy
of the Radisson Plc so that they can make appropriate decisions (Valle and Gomes,
2014). These informations help them to know their carrier path in the organization and
benefits for them. (Vij, 2012)
 Tactical level: Middle group persons such as managers, HR etc. need the information
about sales of the company, competitors performance, current trends, incentive schemes,,
sales target so that they can analyse these and can formulate plan to improving its own
position.
 Strategical level: It is used by top management of Radisson Plc, they need information
about daily operations, existing and historical data about customers, political changes, tax

policies, trade regulations, etc. all detail needed by strategic level persons of Radisson
Plc.
For taking appropriate decision various stakeholders need some necessary detail. These
information assist them in taking their judgement. There are so many internal and external key
persons who are essential for the effective working of the Radisson Plc, they need varied
information. At several level company need various informations:
2.4
Table 1: Financial statements
Resource of
finance Income statement Balance sheet Cash flow statement
Issue of new share/
share capital no effect capital will increase cash flow will increase
Retained profit no effect capital will increase cash flow will reduce
Bank loan interest will reduce
profit
it will increase
liability increase cash flow
Bank overdraft no effect it will increase liability increase cash
Leasing profit will increase no effect no effect
Income statement does not get affected by share capital source, but balance sheet impacts
on it as share capital will increase capital side of his financial statement. It will increase the cash
flow in the organization.
Retained earning is internal source of finance so it will not affect the income statement on
the company but it reduces the cash inflow in the Radisson Plc because company will have to
reinvest its money and it can not hold it for longer period.
On Bank loans Radisson Plc will have to pay interest so it will increase liability of the
organization for medium term and will increase cash inflow in the firm.