Financial Management: Resources, Decisions, and Business Growth Report

This report delves into the intricacies of financial resource management within the context of a small UK business, specifically referencing J Sainsbury PLC. It meticulously examines various sources of finance available to businesses, evaluating their implications and associated costs, including internal and external options like shares, loans, and leasing. The report emphasizes the importance of financial planning, covering investment management, cash flow control, risk mitigation, and tax strategies. It analyzes the information crucial for decision-makers, considering stakeholders, suppliers, and government regulations. Furthermore, the report explores the impact of finance on financial statements, including balance sheets and income statements, and discusses investment appraisal techniques to assess project viability. The analysis includes a comparison of financial statements, interpretation through ratio analysis, and a detailed examination of budgeting and unit cost calculations. The report provides a comprehensive overview of financial decision-making processes.

MANAGING FINANCIAL
RESOURCES
AND
DECISIONS

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Sources of Finance to the business........................................................................................3
1.2 Assessment of implication of the various sources of finance..............................................4
1.3 Evaluation of the different sources of finance......................................................................5
2.1 Analysed the cost of different source of finance...................................................................5
2.2 Importance of financial planning..........................................................................................6
2.3 Assessing the information available to the Decision maker.................................................7
2.4 Impact of finance on the financial statements.......................................................................7
3.1Analyse the budget and make necessary decision..................................................................8
3.2 unit cost calculation...............................................................................................................9
3.3 Assessing the viability of the project through investment appraisal tool............................10
TASK 2..........................................................................................................................................12
4.1 Main financial statements...................................................................................................12
4.2 Compare the financial statements of different businesses..................................................13
4.3 Interpretation of the financial statement using ratios.........................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
This project is about the small business that how they are managing their financial
resources and to make the decision regarding the growth of the businesses. This report contain
one of the company of the UK J sainsbury plc, that shows that how they are managing their
finance for their business. The various source of finance available for the company and its
implication are the major highlight of the business. The cost of financing the source are
evaluated properly and decision are made on the basis of the financial statements. It also contain
the various budget for the six month and the interpretation is done accordingly. The proper
explanation about the various statement prepared by the company J sainsbury plc with their
utilisation in their business. The formats of the main financial statement for the different types of
the businesses are included under this project.
The information collected under this based on the proper assumption taken by the
company in their managing their financial business of the company.
TASK 1
1.1 Sources of Finance to the business
Finance : It is the amount required to carry out the business activity like sales,
compensation etc. (Brigham and Ehrhardt 2013). to perform the function of the business we
need resource which are derived from the money. In simple words it the management of the
amount of cash which are use in the daily course of the business. The every business involves the
amount of cash directly or indirectly.
As a entrepreneur the amount available to him was minimum for the business and the rest
he has to borrows from the different sources like :
1. Internal sources
Retained profit
sale of existing assets
Cut down Stock level
2. External sources
A. Long term B. Medium Term C. Short term

 Shares Leasing Bank
 Debentures Hire Purchase Overdraft
 Long term bank loan Medium term loan Bank loan
 Grants creditors
According to the situation of the exist in front of the entrepreneur of the shortage of the
fund he had the option of above mentioned sources (Brigham and Houston 2012). As from my
point of view he can go with the external sources which he have variates of the option available
to them in the form of long term ,medium and short term . He can raise the finance through using
the short term finance as bank loan and the credit amount of the short period of time. In the min
while he can take the Grants of the government and the issuing shares if available with him.
Leasing facilities are also available with the person if he has any kind of property which can be
taken on lease for certain time then the option is available to start the project .
1.2 Assessment of implication of the various sources of finance.
The project of the business are mainly depend on the type of finance and the various
sources from were they can use it in their operation(Chandra 2011). In the above explain
different sources the major part of the finance is generated from the external part because they
have the variate of option available in the form of long term short term.
The main source are Banks ,private investors , credit unions and the other are income
from share and the rented assets.
Every part of the financial sources have their own implications:
 If the fund is borrowed from the Bank , then the amount they need to be paid in the form
of interest on the principle value , the penalty is being charged if the late payment is made
 In the case of the credit union the procedure is almost the same as explain under the
Banking system but the amount of interest to be pay is much less as compare to the
banks(DRURY 2013).
 For the private investors the legal agreement is signed between the buyers and the seller
in the form of verbal contract sometimes.
 In the rent of the property and the share are in the form of practical and profitable. These
seams to be various ups and down under this type of agreement.

 If the person is using the equity portion as source of finance to get maximum risk ans
maximum return also but the price fluctuation in the market can make them hold back
from the amount his has invested.
1.3 Evaluation of the different sources of finance
As the various things must be consider while evaluating the different sources of finances
used to start the project(Epstein and Buhovac 2014). The evaluation can be done in the following
ways :
1. Seeking advice from experience business associate : The best way in the evaluation of
the sources of the finance is by asking from the expert person who is already running the
business from the long time. You will came to know that what amount to be borrow and
what to avoid for our business.
2. Risk associated with it : Another important issues is the type of risk involved with the
different sources which can save you to make huge mistake. First of all make the list of
the source of finance you are using and mark the minimum risk involved in which
sources(Greene, Brush and Brown 2015).
3. Accessibility : There are various source available in the market in the form of credit,
loan, stock, debt, and Mortgage. Select one which is easily access for the business. These
are the important for the business because the availability of these are always there in the
market in the form of cash and the credit.
4. Flexibility : It depend on the every sources of the finance which can be altered or
changed with the proper requirement or the condition of the market situation. If it is not
changed from the time then you need to keep searching evaluating the things and the
sources.
The evaluation is the major part of any business before implementing the new projects in the
market . It help to control the impact of risk of the project.
2.1 Analysed the cost of different source of finance
The various cost associated with the different sources of the finance are :
1. Cost of Equity : It said to the part of the capital structure which help to measure the
demand by the market investors who is going to bear most of the risk as owner. It is
based on the annual percentage of the equity(Ioannou and Serafeim 2010).

2. Cost of Debt : it is the cost which includes the average rate of an business organisation
use to pay entire all its debts. It is consist of mainly Bank loan and the Bond of the
company and the government.
3. Cost of borrowing : It refers to the total amount which has to be pay to secure the loan of
the business and make use the fund in their businesses. It also includes the maintenance
of accounts,beginning of the loan, expenses related with the loan and the cost of
financing the business operation(La Rocca, La Rocca and Cariola 2011).
4. Cost of Retained profits: it depends on the opportunity cost of the business. It basically
not for the start of the business and not for those company which is making continuous
losses in their business operations.
5. Overdraft : the cost of overdraft contains the extra fee as they are more expensive then
the long term sources of fund and the more then the fixed charges have to pay by the
people on the grant of the overdraft facility of the finance.
6. Personal savings: The money of the owner is not always collateral to his business. There
is no need to make payment to the owners.
2.2 Importance of financial planning
Financial planning : It refers as the planning the activities of the business in such a
systematic ways so that they can control the uses of the fund in their business operation and
make the proper use of the financial resource to achieve the goals and objectives of the business.
It helps to identify the current and future status of the finance available to the business in the
form of cash flows and the withdrawal plan(Lusardi and Mitchell 2011).
Importance of financial planning in the small business
1. For the investment management : Investment is the major concern for the any business to
manage the investment plan in the business has to the major target of the company.
2. Cash flow management : another important part of the financial planning is to control the
inflow and the outflow of the cash in their business operation in the systematic manner.
so that maximum wastage of the resource is controlled.
3. Risk Management : The major issues for the company that the type of risk associated
with the business which impact the business has to manage properly .

4. Tax planning : The Financial planning has to be done with the planning to control the
taxes paid by the company to the government . This is the prime concern for the planner
to overcome the tax strategies in the benefit of the business.
5. Retirement planning : The employees of the company are retire or the company is to split
up its operation in the another form has to planned to manage the finance in the growth of
the company(McDonald-Madden and et. al., 2010).
2.3 Assessing the information available to the Decision maker
As we know that to make the important decision regarding the financial source the
manager have to look the different kind of information are available form the other sources. To
make the financial decision , the manager need to assess the following types of decision making :
1. Government : As we know that they are not the part of the company but still they need to
know the operation of the business and the location of their business region. The major
information which the government wants to know is related with the taxation policy , the
impact on the environment and the value creating for the people.
2. Suppliers : The another person is the supplier who may need to know the different areas
on the sources of various raw material and the product required to the company for the
development of the business.
3. Stakeholders : They are the owners on the company. Who are responsible for the decision
making regarding the financial prospective about the information available from the
company.
4. Creditors of the company : They are associated with the loan provided to the company on
the basis of the capabilities of the firm in terms of growth.
5. Employees : They are the part of the business working under this want to know each and
every information related with the company and individual basis.
All these points has to be consider by the related person and the body to make financial decision
regarding the future of the company . It help to make coordination among the partner of the
company.
2.4 Impact of finance on the financial statements
Financial statements: It is the process of recording the financial activity and the status of
the company ,individual or any other entity. It is formal techniques of the record keeping which
includes the balance sheet , income statement and the cash flow statement of the company.

The Balance sheet of the company is mostly the major part to take the decision for the
business but is impact through the amount debt contain by the company. The risk profile of the
business is also based on the balance sheet of the company which is used by the banks, investors
and the analyst. The more the debt it will make the company into the downfall . The company J
sainsbury plc use to raise his fund as a equity , then record the positive cash flow from the
financing activities by maximising the position of stocks in the Income statement.
If the company J sainsbury plc raised the funds by the debt financing there is positive products in
the section of the cash flow statement and the liabilities of the company will also increased on
the balance sheet. So this will make the change in the both income statement and the cash flow
statement of the company at the same time.
This shows that the impact of the finance can affect the financial statement and also to
disturbance the productivity and the financial position of the company. The risk portfolio of the
company is also determine through the various decision made by the concern parties in the
business to control the company in going in the losses.
3.1Analyse the budget and make necessary decision
Cash budget : A budget which is made for the expected cash receive and outflow during
the period(Zhu and et. al., 2010). The inflow and outflow of the cash includes collected revenue,
payment of expenses and loan received.
The budget is used to make sure that the company is able to meet the estimated cash requirement
for the various activity of the company. If we go through we the cash budget of the J sainsbury
plc.
Table 1: Cash Budget for J Siansbury PLC for six months
Particular January February March April May June
Opening balance 100000 88800 54800 -42000 -146000 -59000
Cash Inflow
Credit Sales 45000 60000 56200 80000 120000 60000
Cash Sales 15000 25000 20000 15000 22000 24000
Total 160000 173800 131000 53000 -4000 25000
Cash outflow
Credit Purchase 20000 30000 100000 120000 60000 50000

Cash Purchase 30000 40000 30000 20000 10000 5000
Loan repay 0 7500 7500 7500 7500 7500
Interest 0 300 300 300 300 300
OD interest 200 200 200 200 200 200
wages 20000 20000 30000 30000 30000 30000
Capital Expenditure 20000 20000
Bill 4000
Allowance 1000 1000 1000 1000 1000 1000
Total 71200 119000 173000 199000 55000 94000
Surplus/ deficit 88800 54800 -42000 -146000 -59000 -69000
3.2 unit cost calculation
Unit Cost : it is the cost of the total expenditure incurred by a business organisation like
J sainsbury plc to produce ,sale and store one unit of a particular goods and the services. It
includes the fixed cost, overhead cost and the variable cost cost of the direct material and labour
those are involve the production part of the company.
Formula for the calculation
Unit cost = variable cost+fixed cost / Total unit cost
To calculate the unit cost of J sainsbury plc for the month of the September by using the
available information during the period of time.
As per :
Unit Produce =8000
Direct Raw material cost =12000
Direct Labour cost =16000
Fixed Cost =12000
Profit Margin =10%
To evaluate this equation, we are going to use the formula
unit cost = Total cost / Number of units.
UC =(12000+12000+16000)/8000
= 40000/8000
= 5 U

Assuming that the unit produces is 8000, direct material cost is 12000 and direct labour cost is
16000(Shim and et. al., 2010). it has carrying the fixed cost of 12000. on the final calculation
the results generated was 5u and the profit margin is 10%. however if the it is added to the unit
cost the selling cost of the products are provide these results :
Profit =5*10%= 0.5
selling price = unit cost+ profitability
SP = 5 + 0.5
= 5.05
Thus, the selling price of the products is 5.05 and on the basis of this outcome J. sainsbury plc is
getting 0.5 profit. The result are very much in the control of the company.
3.3 Assessing the viability of the project through investment appraisal tool.
The variability of the project can be identify by the different appraisal techniques during
the investment procedure(Swayne, Duncan and Ginter 2012). It is comprises of the net preset
value and the pay back period method.
Like for examples :
Year Project A
(£)
Project B
(£)
1
2
3
4
5
Salvage value
Initial Investment
50000
40000
30000
20000
10000
15000
100000
20000
25000
40000
50000
60000
20000
50000
Net Present Value:
Table 1: NPV of Project A
Year Project A (£) PV at discount
factor rate of
Present Value (£)

10%
1 50000 0.91 45500
2 40000 0.83 33200
3 30000 0.75 22500
4 20000 0.68 13600
5 10000 0.62 6200
Resalable value 15000 0.62 9300
Total Present Value 130300
Initial Investment 100000
NPV 30300
Table 2: NPV of Project B
Year Project B (£)
PV at discount
factor rate of
10% Present Value (£)
1 20000 0.91 18200
2 20000 0.83 16600
3 35000 0.75 26250
4 30000 0.68 20400
5 40000 0.62 24800
Resalable value 20000 0.62 12400
Total Present Value 106250
Initial Investment 50000
NPV 56250
The NPV of the these two methods are help to evaluate the practicality of the projects which are
derived from the two different time and the project which is having high NPV is to selected
(Scholes and et. al., 2014). The NPV of Project A is 30300 and the Project B is having Maximum
value as 56250.
Payback Period:
Table 1: Payback period of Project A

Years Cumulative cash flow
Initial investment 100000
1 50000 50000
2 40000 90000
3 30000 120000
4 20000 140000
5 10000 150000
Payback period for project
A= 3+20000/30000 = 3.67 years
Table 2: Payback period of Project B
Years Cumulative cash flow
Initial investment 50000
1 20000 20000
2 20000 40000
3 35000 75000
4 30000 105000
5 40000 145000
Payback period for project
B=4+5000/30000
= 4.16 years
Pay back period includes the nominal time and in this project we can be refund the
money back in a small time frame(Purce 2014). From the above calculation it has been analysed
that project A is give the amount back in 3.67 years whereas Project B is more profitable it can
be back in 4.16 years.

TASK 2
4.1 Main financial statements
As above we have clearly explain about the financial statement they are the overall
combination of the various activities of the business operation performed by the company in one
accounting year. There are various element of the financial statements which are stated below :
1. Income statement : It also said to be the profit and loss statement of the company. it
records the data in the form of Net profit or loss over the financial year. It can be
obtained by the eliminating the expenses from the income generated from the company.
2. Balance Sheet : It is the combination of the assets and liabilities of the of the business
transactions. It help to highlight the financial position of the company on the date
specified.
3. Cash Flow statements : It comprises of the various activities of the business which
includes the operating activity,financing activity and the investing activity of the
company(Petty and et. al., 2015). It provide information about the net cash comes in the
business and net cash outflow from the business .
4. Owners equity statement : At the financial period the owner report is prepared for the
partners and the changes in the owners equity . The various key points are opening
balance of the equity, addition and deduction in that period and the closing balance at the
end of the report. It also contain the dividend payment,gain and losses of the businesses.
The effects of changes in the polices of the accounting transaction of the business.
All these financial statements are responsible for the budgeting of the financial stability of the
company.
4.2 Compare the financial statements of different businesses
For the preparation of the statements various format are used . The result from the all the
statements will be same from all the format(Moynihan and Pandey 2010). It was seen that
different business uses other format like for examples.
 Sole traders prepare a common and easy format of profit and loss statement as compare
to the public company they have to prepare the statements on the basis of the
GAAP( Generally Acceptance Accounting Principles). The standard financial are not
prepared then it will create problems for the organisation.

 In the balance sheet some of them match the assets and liabilities. In this condition the
equity is considers as the amount invested as investment in addition to the borrowing the
fund from the creditors.
 In the case of income statement some are using single process format in which all the
expenses are categorised as function and all are deducted from the net income . And the
other is the multi process format in which cost of sale deducted from the gross profit and
all other income expenses(Moser and Ekstrom 2010).
Format of Income statements:
Particulars Amount
A. Revenues
sales
interest Revenues
Gain on sale of assets-stock
Total Revenues
B. Expenses
cost of Good sold
commission
offices equipments
Total Expenses
Net Income (A-B)
0000
0000
0000
xxxx
0000
0000
0000
xxxx
00000
Format of Balance Sheet
Assets Amount Liabilities Amount
Current Assets
cash
short term investments
Account receivable
stocks
others
long term investments
Current Liabilities
account payable
salaries payable
Accrued interest
long term liabilities

stock investment
cash value of insurance
Fixed Assets
Land
Building
Less : depreciation
Intangible assets
Total Assets
Note payable
Mortgage
Total liabilities
4.3 Interpretation of the financial statement using ratios
Ratios Formula 2014 2015 2016
1.Profitability ratio
Gross profit ratio (Gross profit / Net
sales)*100
5.79% 5.08% 6.19%
Operating profit ratio (Operating profit / Net
sales)*100
4.21% 0.34% 3.01%
Net profit ratio (Net profit / Net
sales)*100
2.99% -0.70% 2.00%
2. Liquidity ratio
Current ratio (Current assets / Current
liabilities)
0.64 0.64 0.66
Quick ratio (Quick assets-stock /
Current liabilities )
0.49 0.48 0.50
3. Total assets turnover
ratio
(Net sales / Average total
assets)
1.64 1.44 1.40

4. Inventory turnover
ratio
(Cost of goods sold /
Average inventory)
22.65 22.54 22.44
The financial statement helps to evaluate the performance of the J. sainsbury plc . In the 2014
Gross Profit Ratio was 5.8% but increase to 6.2 %(Minichilli, Corbetta and MacMillan 2010).
the liquidity position of the company is also under the control which is means that they are able
to pay all the debt on the time.
CONCLUSION
The overall project conclude that the how the small business can managing their
financial resources and to make the decision on the basis of the outcome. The one of the
company is used under this project called J sainsbury plc of UK . All the financial information
are included on the basis of the company detail of the financial year.
REFERENCES
Books and Journal
Brigham, E.F and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage
Learning.