Report on Managing Financial Resources: Sources, Costs, and Planning

This report comprehensively analyzes the management of financial resources for a business. It begins by identifying and evaluating various sources of finance, including internal sources like retained earnings and sales of assets, and external sources such as bank loans and venture capital. The report discusses the implications, advantages, and disadvantages of each source, and analyzes the costs associated with different financing options like equity, debentures, and bank loans. It emphasizes the importance of financial planning, including forecasting cash requirements and controlling expenses. Furthermore, the report examines the effects of suggested finance on financial statements, including the impact of internal and external sources on the income statement and balance sheet. It also explores the analysis of budgets, particularly cash budgets, and the application of investment appraisal techniques. Finally, the report discusses the main financial statements, compares appropriate formats for different business types, and interprets financial statements using ratios, providing a complete overview of financial resource management.

MANAGING FINANCIAL
RESOURCES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1Identify the sources of finance...............................................................................................1
1.2 Implications of the different sources.....................................................................................2
1.3 Evaluate the appropriate sources of finance..........................................................................3
2.1 Analyse the cost of different source of finance for a business..............................................3
2.2 Explain the importance of financial planning.......................................................................4
2.3 Explain the effects of suggested finance on financial statements.........................................4
3.1 Analyse budgets and make appropriate decisions.................................................................4
3.2 Explain the calculation of unit cost and make pricing decisions..........................................6
3.3 Investment appraisal techniques...........................................................................................6
TASK 2............................................................................................................................................8
4.1 Discuss the main financial statements...................................................................................8
4.2 Compare appropriate formats of financial formats of financial statements for different
types of business.......................................................................................................................11
4.3 Interpret financial statements using an appropriate ratios...................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial resources are the most important assets for a company that assist the
organisation to expand their business and run their day to day business operations. There are
sources available are internal and external sources such as bank loan, venture capital, equity
finance, home loan, sales of an assets etc. It create a cost to a firm, provide tax benefits and its
has a financial, legal implication as well as dilution of control. In the present research project
there is a mainly discussion on various source of funds and their implications. Thus, it also study
on the internal and external sources in which there is a benefits and disadvantages. In regard to
this, there is an also discussion on the implication to the company.
TASK 1
1.1Identify the sources of finance
There are various type of source of finance that are used by the R.L. Maynard. These are
as describe as follows-
Internal sources- It is that type of sources through which company generating the income from
the internal sources. These are mentioned below- Sales of an asset- The firm can generate the income or finance by sale of an assets such
as machinery, furniture and any kind of fixed assets etc. Retained earning- It that type of internal sources through which company can able to
generate income is a retained earning. It is a part of net profit that are remained after
distributing the dividends to the shareholder. Thus, it can be used by the organisation for
the purpose of reinvesting into the business to generate a revenue.
External sources-
 Bank loan- It is a secured loan that are borrowed by the company from the financial and
banking institution. It is used by the company for the purpose of generating the long-term
finance from external sources. It can be taken by the company at the rate of interest on
bank loan.
 Venture capital- The Company can generate the finance from external sources from
borrow the equity capital participants. It supports consultancy services and also financial
assistance to those who are in need.
1.2 Implications of the different sources
Internal sources
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Sales of an assets
 Legal implications- There is no legal implication of sales of an assets as it is a property of
a company that are sales to another party. For this reason, there is no need of legal
formalities of sell of an assets to other person for the purpose of generating income.
 Financial implication –The company can able to raise short-term funds and the
organisation needs to minimize prices of stock for the purpose of clear off the inventory.
 Dilution of control- The sale of an assets does not have an implication of dilution of
control as it does not involve any external parties.
Retained earnings
 Legal implications- There is no legal implication of retained earning as these sources are
used by the company from internally.
 Financial implication- There is no financial implication of a company as it is a part of a
company.
 Dilution of control- There is no dilution of control.
External sources
Bank loan
 Legal implications- There is a legal implication of bank loan that requires a legal
formalities and documentation process that are needed to fulfil the terms and agreements
of bank loan.
 Financial implication- There is a financial implication in which they have to repay at a
fixed rate of interest on bank loan.
 Dilution of control- The dilution of control is low for the bank loan.
Venture capital
 Legal implications- There is a needed of the legal formalities of venture capital when one
party is borrow equity capitalist from the venture capitalist.
 Financial implication- The financial implication of a venture capital is that they have to
pay dividend to the shareholder that incur cost of finance.
 Dilution of control- There is a dilution of control of this external sources is higher.
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1.3 Evaluate the appropriate sources of finance
R.L Maynard needs to select the appropriate sources of finance. For this, there is needs to
understand the advantages and disadvantages of sources of funds. These are as describe as
follows-
Bank loan
Advantages
 The advantages of bank loan is that it is most effective sources that are used by the
company that is secured loan. It is available at both rate flexible and fixed rate of interest.
 The borrower can gain the tax benefits against loan.
Disadvantages
 The disadvantages of bank loan is that it is not appropriate source of funds for smaller
firms.
 The bank charges high rate of interest again bank loan and they charge high rate of
interest again bank loan.
Retained earning
Pros
 The advantages of retained earning is that the company can to expand their business
activity and marketing operations.
 It does not require any financial burden on party
Cons
 Company is sacrifice its money such as opportunity cost for the purpose of re-investing in
the firm which create opportunity cost.
The most benefited source of finance is a bank loan for the R.L Maynard company as it is
a secured loan.
2.1 Analyse the cost of different source of finance for a business
Equity- There are various of equity sources such as retained profits, equity shares
and preference shares. Thus, the cost implication of equity for a company is that the company
have to pay dividend on equity shares to the equity holder and shareholder of a company. It is in
the form of earning that are pay to the shareholder on annual basis. Thus, it also another
implication is a tax for an equity.
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Debentures- The forms of debentures sources of funds are commercial borrowings from
the financial association. There are various type of debenture include in it are commercial
borrowings, issues of bonds and debentures and banks loans. Therefore, the cost arise form the
bank loan is that rate of interest against bank loan.
Bank loan-It is important source of external finance in which fund will be borrowed by
an individual from financial institution. An individual will borrow money according to its
requirements at a specific rate of interest charged on the amount borrowed by them. Cost
associated in this source is interest charged on the loan amount which in turn will help an entity
in order to reduce its overall tax burden as interest paid on loan is generally taxed deductible.
The most suitable source of funds for the company is a the debentures that is most
suitable for the firm. The main advantages of these source of funds is that it minimizing the risk
and the firm gain tax advantages.
2.2 Explain the importance of financial planning
There are various importance of financial planning which are as describe as follows-
 Helps in forecasting cash requirement for future as it facilitating the information regards
to cash inflow and outflow for the future period in periodical.
 Controlling cash expenses is that with the usage of optimum financial resource which
able the company to determining the effective funds.
 It reduces the cost of a firm with the usage of financial planning in terms of expenditure
and cost.
 There another main advantages of financial planning is that the company can able to
forecasting their future cash.
The financial planning is regarded as the important approach used by an entity owner in
order to enhance their business quality as it emphasises on increasing the efficiency of all kinds
of financial resources included in an entity.
 In relation to income of an entity, financial resources are properly managed in order to
reduced the tax charged on the current income of an entity. Monthly expenditures are
regulated in order to promote higher sales and the revenue. For example, sales will be
increases in order to compensate higher expenditure.
 Family security is another issue hat is resolved with appropriate financial planning
principles used by an individual in which present financial resources are analysed in
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order to secure higher finance for future in order to fulfil all needs. For example, FD,
pension for retirement.
2.3 Explain the effects of suggested finance on financial statements
R.L. Maynard have to adopt the finance sources that helps them in expanding a business
from the debentures option which are borrowed by the company from banking institution. It will
directly affecting on the company's financial statements. It will reduce the Company net profits
as it increase cost of interest that is a part of company's net profits. There are various needs of
information needs of various users that are required to be explained in order to guide an entity
owner to focus on the needs and expectations of all the users are given as below:
 Owner- Business owner will focus on the personal needs of their business such as
increasing sales and the revenue of an entity. Setting higher target for an entity will
enhance the overall quality of all the services offered by them.
 Employees- Existing financial performance of an entity are required to be analysed y al
the employees working in the business as they are highly interested in ensuring their
survival in the business for long span of time. Salary and incentives will be given to all
the employees by an employer shows the higher performance of an entity.
 Government- Tax charged by taxation authority by evaluating he income of an entity are
highly concerned wit the business performance which needs to be accurate enough.
2.4 Impact of finance on financial statements
 Internal source of finance- The impact of use of different internal sources of finance
includes sale of assets and retained earning has explained in relation to the income
statements and balance sheet prepared in the business. Sale of assets will be shown in the
balance sheet as fixed asset as it increases the income of an entity and reduces the asset
shown in the balance sheet. Retained earning used as source of finance used as capital in
the business reduces the overall profit of a business as this will be shown as capital
instead of retained earning in balance sheet.
 External source of business- Bank loan show as bank loan in the long term deb in the
balance sheet at the same time it reduces the overall profitability of an entity as interest
paid every month reduces the existing profit. Venture capital generates financial capital
shown as capital in the balance sheet but at the same it reduces the profitability of an
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entity by giving management interest to the angel investor who provides money to an
entrepreneur.
3.1 Analyse budgets and make appropriate decisions
The Budget is needs to prepare by a company for purpose of forecasting their business
financial condition that help to understand the future operations of a Company. There are various
type of budgets that are adopts by the organisation that are mainly includes such as cash budget,
marketing budget, purchase budget and sales budget. Therefore, R.L Maynard adopts the cash
budget for the purpose of maintaining financial statements which are as describe as follow-
 Help in forecasting the future cash requirement- Cash budget is more advantageous
for the R.L Maynard that assist them in analysing and forecasting the monetary in the
future time period. It helps the management of an organisation is that they can effectively
made the decisions in terms of which source of finance is better for a company that able
to give higher rates of returns.
 Control cash expenditure- The cash budget assist the organisation to controlling the
cost or expenses that assist the department of finance manager to make gives instructions
on their subordinates. Therefore, they use optimum financial resources which influenced
to exceeding the target limits.
 Performance evaluation- Cash budget are adopted by the Company which is used as a
standard tool that helps them in analysing their performance.
 Co-ordination- The cash budget is more advantageous for the R.L. Maynard to make
coordination among the all the function which are sales, production and marketing.
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From the above cash budget of R.L. Maynard in the financial position of a company for
the next 6 months. Thus, at the starting stage the Net cash flow of firm is positive from January
that is £ 1600 but after that there is a decrease in the NCF. The reason behind this is that the
company spend a lot of money on buying an assets and there is an increment in the cost such as
selling and distribution expenses and advertisement cost etc. Furthermore, for the next three
months there the next cash flow of company is increase that is £ 1000, £ 2670 and £ 5250
respectively. Whereas, there is a decrease in the net cash flow that is February and march
respectively.
Decisions to mitigate from the shortfalls
 Optimum utilization of resources
 Offering trade discount to enhance the sales
3.2 Explain the calculation of unit cost and make pricing decisions
From the above table and figure in which there is a price unit cost in that there is data for
the R.L. Maynard. The company incur fixed expenses which are regards to salary that is £ 20000
and the machinery that is £35000. The fixed expenses can be stated as it is that in which the cost
can be vary over a period of time. Whereas, the variable expenses can be define as that there is a
variation in the expenses over a period of time. Therefore, the R.L. Maynard incur a variable
expenses that includes overhead expenses that is £ 10000 & £15000 and there is a labor expenses
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that s a total £25000. The company produce total cost which is £80000 and the total sales volume
that is £ 900 units. Thus, it has been analysed that the company have a cost per unit that is £90
CPU that means that the firm earn a higher amount of profits in the future time. The profit
margin is taken by the company that is 24.00 % for the purpose of earning profit. Thus, with the
usage of pricing decisions making the cost per unit of is needs to be determined. They earned net
profit only when the company sells net profit at the pricing per unit that is £111.6.
3.3 Investment appraisal techniques.
There are several techniques are used by the company for the purpose of determining the
return on a project. It assist the company to make investment decisions regard to investing in a
project which give more profits or not. The methods that are used for this are the internal rate of
return, pay back period. Average rate of return and net present value. The R.L. Maynard wants to
make investment in the project A, B and C. In regard to this, the investment appraisal techniques
used by the company which are as describe as follows-
Net present value
The data that are mentioned in the table helps the R.L. Maynard for the make analysis
regard to investment. They adopts the Net present value in which it evaluating the first project
that is A the investment made by the company at the initial stage that is 60,000 and the revenue
that are generating by them that is 125646. Therefore, the NPV of a company that is 109.41%
and they also decide to invest in the project B for this the initial investment that is 60,000 so, the
NPV that is 150.66%. It is indicate that the company wants to invest in the B project that is
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higher Net present value than the project A. it is clearly understand that the firm have to invest in
the project B that give higher rate of return.
Average rate of return
There is another investment appraisal technique adopt by the R.L. Maynard for the
purpose of ascertaining the company's profits. Thus, the investment made by the company at the
initial stage for this they generate the cash revenue and the total cash inflow is a 198000 and
ARR is a 79.20%. Thus, for the project an average rate of return of a company is a 39600. in
regard to this, it has been analysed that the company have to investing in the project A. Therefore
, the project B does not gives a higher rate of returns of profits.
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TASK 2
4.1 Discuss the main financial statements
Each and every Company needs to prepare their financial accounts for the purpose of
strengthen their financial positions. In regard to this, it is necessary for the firm to maintain
financial reports and statements. Therefore, the Marriott hotel prepare the financial statements
for the purpose of enhancing their financial strengths. These are discuss as below-
 Income statements- It is a that statements that helps the company to prepare reports
regard to financial in the accounting period. Therefore, financial performance is
evaluated through summarize the firm expenses and revenues that are occur among the
both non-operating and operating activities. Thus, it indicate the company's net profit or
loss that are occur during a particular time period or accounting year. The income
statement is categorised into balance sheet, profit and loss account etc.
 Cash Flow statements- Cash flow are categorise into majorly into three components
such as financing, investing and core operating activities etc. Thus, it includes all the
transaction that are related to cash whether it is outflow or inflow of cash. The cash flow
statement are used by the Company for the purpose of providing the data on company's
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