Financial Management Report: Clariton Antique Ltd's Finance Strategy

This report examines the financial management of Clariton Antique Ltd, a partnership aiming to expand its antique business. It identifies various funding sources available to the company, including sales of assets, leasing, personal savings, hire purchase, share issues, bank loans, venture capitalists, and factoring. The report assesses the implications of each source, such as collateral requirements for bank loans and the potential for dilution with share issues. It evaluates the most appropriate financing options for the business, recommending a combination of bonds, debentures, and bank loans. The analysis further explores the costs associated with share issuance and bank loans, emphasizing the importance of financial planning in achieving business goals. Finally, it identifies the information needs of different decision-makers, including partners and venture capitalists, to facilitate informed financial decisions. The report underscores the significance of financial planning for effective resource allocation and achieving desired outcomes.

MFRD

INTRODUCTION
Financial management plays a very significant role for any business organization in this
competitive market for long run of the business. Moreover, firms unit can attain success only when
it has enough amount of fund for the implementation of plan. Thus, it is highly required for the
manager to develop highly competent framework which in turn facilitates optimum use of the
financial resources. The rationales behind this, company can get competitive edger over others only
when it introduces the products and services within the suitable time frame.
The below mention survey of Clariton Antique Ltd who proposes highly distinctive or
antique things to their consumers.. Such firm is established by four friends of London whose basic
aim is to earn profit by opening another franchise with more profit. In the present assignment
discussion based on different sources which is used by partnership firm. Besides this, it will also
develop understanding about the significance of capital budgeting tools and financial planning in
the decision making aspects.
TASK 1
1.1 Identifying the sources of financed which is available to business
Mention cited report presents that clariton limited needs 600000 million euros for business
expansion and growth or also for the functions. In this regard, different methods of finance for all
the corporations whether it is unincorporated business discussed below :
Unincorporated business Sales of assets: Sole traders and entrepreneurs can raise fund by dealing of their valuables
which is not using by them in the effective manner (Caglayan and Demir, 2014). Every
business organization has some assets which have no further use for them. In this regard, by
selling such assets on their scrap value business unit can generate fund to the large extent.
For instance: By selling unused land or plant at disposable value Clariton Ltd can generate
fund. Leasing: Unincorporated business took the valuables on rent for starting up their ventures.
Furthermore, leasing offers give relief to the entities by using the valuables by paying the
lease amount to the owners . Moreover, the firms are liable to pay that amount to the
proprietor of assets in return of making use. For instance: Company can establish store buy
taking land on lease. Personal savings: Business entity can also start business by taking making use of personal

savings. Moreover, in this, entrepreneur is highly free from the periodical financial burden
in terms of interest etc. Hence, by using such source sole traders can execute their plan
effectually. Hire purchase: In order to fulfil the financial needs and requirement sole traders can also
take resort of the hire purchase source. Moreover, in this, at initial level by making down
payment business unit can take possession of asset (Dalal-Clayton and Sadler, 2014).
Further payment is made by the business entity in the form of periodical instalments. It this
way, such source facilitate smooth functioning of the business operations and functions. For
instance: Clariton Ltd can fulfil its financial need by purchasing equipments on the basis of
hire purchase.
Incorporated business Issue of shares: Clariton Ltd can generate fund by issuing shares to the general public at
large. It is one of the cheaper sources of finance which require high investment only at the
time of launching an IPO. Thereafter, it is highly easy for the firm to invite investors to
invest in the shares of firm. Bank loan: Further, Cl;aiton Ltd can also raise fund by approaching to the financial
institution. In such source, by fulfilling the legal and documentary formalities business unit
can generate enough amount of fund (Fraser, Bhaumik, and Wright, 2015). In this, business
unit is liable to pay that money of the lease later the span of time. For instance: Business
organization can obtain fund by presenting suitable financial plan or framework to the
customers. Venture capitalist: Business entity can also raise fund by approaching to the venture
capitalist. Moreover, they are the one who like to entrust their money on those organisations
who are greatly spreading. Hence, by taking assistance from capitalist business entity can
implement his idea. For example: There are several venture capitalists such as We Finance
Ltd etc that helps company in getting fund to the large extent.
 Factoring: Clariton Ltd can also generate fund by discounting the bills from financial
institution. For this facility, banking institution charges some cost in the form of discount.
1.2 Assessing the implication of varied sources
Identified sources of finance have following implications on the business entity are as follows:
Sales of assets: Clariton Antique Ltd needs to prepare a sale contract to transfer the

ownership of assets. Production might be decline if business sell unwanted or disposable assets. It
may be possible that Clariton Antique Ltd has to stop delivery of a particular product or service.
Disposal of long-term asset may results in massive reduction in manufacturing rate and may result
in declined yield (Götze, Northcott and Schuster, 2015). It is an internal business resource
henceforth, will not bring any change in business control. None of the information needs to disclose
to the outsiders.
Bank loan: Collateral security is another implication that business needs to secure lending.
Adhering to the debt covenants is also necessary. Interest either fixed or variable is the financial
burden of loan. Repayment is spreaded across a given duration of loan. Being a borrower, Clariton
Antique Ltd needs to meet out the terms and conditions of the loan and in case of default, there is
always bankruptcy cost exists (Hubbard and et.al., 2014). It does not lead to bring any change in the
ownership as lenders or debt holders may not put their restriction over business activities.
Leasing: In terms of legal aspects contract will be made. Leasing charges includes some interest
as cost of finance and also provide tax benefits.
Hire purchase: Legal contract between vendor and business to agree upon the terms and
conditions is required. Sometimes, it may be possible that Clariton Antique Ltd needs to pay higher
value that the original cash cost (Kirkos, Spathis and Manolopoulos, 2007). Repayment in small
instalment helps to manage cash resources. Interest on instalment provides tax advantage. Vendors
have to right to take back the assets till the finalized payments.
Factoring: Legal documents need to be prepared for selling debtors to be factoring agent. A
little discounting charge will be charged as financial cost. After repayment to debt holders, factoring
agent will be paid.
1.3 Evaluating the most appropriate sources of finance for business
It is advised to the joint ventures by issuing bonds and debentures for raising the capital
more effectively and efficiently. The rationale behind this, company does not have to make high
level of expenses for the issuance of shares. Besides this, usually investors are ready for entrusting
their capital on those venture who are more spreading day by day. In this way, by declaring bonds

firms can arrange revenue to the significant level. Further, in this, the entities are not obliged to
share their profit with dividend holders in each year (Higham, Fortune and Boothman, 2016). On
the basis of this aspect, Clariton needs to give dividend only when they have enough of profit
margin. However, on the critical note, it can be said that company has pressure to offer dividend
with the increasing rate for building and maintaining the faith of investors.
Along with this, Clariton Ltd needs to take support of bank loan for raising finance to the
large extent. It is the most effectual sources which in turn helps in attaining the targets. Likewise
financial institutes are always open to offer collateral securities to the ventures. In this regard,
business organization can generate fund to the significant level by applying in the banks. Such
source offers high level of convenience to the company in relation to making repayment of loan
(Iatridis, 2016). In addition to this, it is also helps company in attaining tax benefits to the great
extent. Hence, by using both the sources company can implements its plan more effectively and
efficiently.
TASK 2
2.1 Analyzing the cost of two different sources of finance
Way for adequate fund impose cost in front of the business organization in terms of both
monetary and non-monetary. Hence, shares and bank loan source is selected by Clariton for meeting
the financial needs or requirements are as follows:
Issue of shares: This source has both financial and non-financial cost which in turn
influences business unit to the large extent. Moreover, in shares, Clariton is obliged to pay
dividend to the shareholders whenever it earns profit. However, if due to the generation of
lower profit if Clariton fails to generate enough profit then it would not become able to offer
dividend to the shareholders (Jiao, Yan and Pang, 2016). This in turn negatively affects the
brand image and investment decision of both existing and potential shareholders.
Bank loan: If business unit takes loan from the financial institution then it is obliged to pay
interest to the financial institution. In this situation these sources have a money impact on
the organisation. However, this is one of the most effectual which offer high level of tax
benefits to the business enterprise (Pearson, 2016). In this way, by issuing shares company
gets benefit in terms of tax brackets to the large extent.

2.2 Explaining the importance of financial planning
Financial planning can defined as a framework which have a deep impact on business firms
related to the capital which is needed for meeting the level of competition. Clariton antique Ltd
places more emphasis on developing highly competent plan which in turn helps it in fulfilling the
goals and objectives (Budgeting, 2016). Hence, business unit makes more focus on framing highly
realistic budget for providing information to the group in which the have to capitalise their money.
This in turn reduces overspending and facilitates optimum use of the financial resources. Along
with this, through the means of budgeting Clariton can also make evaluation of the efficiency aspect
of the personnel as well as departments.
Along with this, financial plan also helps in making effective allocation of the financial
resources. Moreover, financial plan clearly entails the activities which business unit needs to
perform during the year (Reynolds, 2016). On the basis of this aspect, by allocating enough fund to
each activity Clariton antique Ltd can overcome the situation of monetary crisis. Moreover,
financial inadequacy has high level of impact on the productivity and profitability of firm. In this
way, financial planning is highly significant which helps in getting the desired level of outcome or
success.
2.3 Identifying the information need of different decision makers
On the basis of cited case situation, Clariton Ltd will make evaluation of the following
aspects before taking decision about financing takeover: Partners: In the business organization, each partner must have information regarding the
alternative options which are available to them. Hence, by evaluating the several options
partners can take suitable investment decision. Along with this, partners can also decide
about the gain which they will enjoy by investing fund for expansion. In addition to this,
before taking takeover decision partners will make assessment of current profitability aspect.
In addition to this, partners will also make estimation of income and expense level.
 Venture capitalist: Clariton Antique Ltd will make assessment of the dividend which it
needs to pay to the venture capitalist in against to the financial offering. The rationale
behind this, venture capitalists are considered as shareholders of the firm and thereby they
have right to take part in the decision making aspect (Vyas and et.al., 2016). Hence, by
taking into consideration the monetary and non-monetary aspects business entity would
become able to take decision about financing. Hence, to get monetary information venture
capitalist firm will make evaluation of income and cash flow statement as well as balance

sheet. For the purpose of decision making venture capitalists firm will conduct ownership
ratio and analyze other financial commitments. Hence, by doing this, venture capitalists firm
such as We Finance Ltd can take investment decision.
 Finance broker: Clariton Ltd will make evaluation of the price charged by the broker for
preparing suitable framework for presenting in the financial institution. Moreover,
commissions are also high for the organisation. Further, bank will charge 2% interest rate on
the amount of loan. Hence, by considering such aspect it can be said that all the four
partners need to make analysis of cost before taking decision about the services of broker.
Besides this, finance brokers require financial information to evaluate the current debt
commitment and credit status of the business. Further, broker will also make assessment of
asset level which in turn helps in identifying that whether Clariton Ltd has enough assets for
meeting the obligation or not.
2.4 Explaining the impact of selected source on the financial statement of firm
If business organization takes services from venture capitalist and finance broker then it will place
following impact on the financial statements in the following way:
Income statement \
Particulars Amount Particulars Amount
To Dividend to the
venture capitalist a/c
xxx
To Brokerage charges xxx
To interest on bank
loan
xxx
Balance sheet
Assets Amount Liabilities Amount
Bank loan xxx Cash [ (Venture
capitalist + bank loan) -
(interest +brokerage
charges)]
xxx
Equity share capital Xxx

Venture capitalists: The mentioned survey presents that for all the assistance from firms are
obliged to give dividend to the investors. Hence, it is the cost for the firm so it is mentioned on debit
side. However, dividend amount is highly dependent on the profitability earned during the period.
By considering this, it can be stated that fund raised through venture capitalists source do not have
high level of impact on income statement. Further, amount of liabilities and cash at bank will
increase significantly from the fund provided.
Bank loan: Besides this, brokerage now become the one of the main expenses which highly
reduces the profit margin of firm. Further, interest which is paid by the firm on bank loan also
recognized as an expense (Wedemeyer, Samuel Bederman and Steward, 2016). Thus, by taking into
consideration all such aspects it can be said that expenses have high level of impact on the profit
margin. In addition to this, when company takes loan then liabilities side of the firm increased
significantly. Along with this, cash aspect of Clarition Ltd increases in the case of bank loan with
the amount provided by financial institution. In addition to this, assets sides will also be affected
because business entity has to deposit some amount to banking institution in the form of collateral.
TASK 3
3.1 Preparing a cash budget for Clariton Antiques
Monetary allocation is now be termed as financial plan which renders tells about the income
or expenses. It is the evaluation of the inflow of the organisation for a specified time frame over
expenses (Caglayan and Demir, 2014). Thus, by performing the activities in accordance to such
aspect Clariton antique ltd would become able to make effectual use of the financial resources.
Cash budget of Clariton from January to June are as follows:
Particulars January February March April May June
Opening cash 110000 -382250 290500 860750 738500 1051250
Sale 300000 450000 600000 300000 300000 75000
Receivables 15000 360000 90000 15000 240000 11250
Total cash inflow 425000 427750 980500 1175750 1278500 1137500
Payment 807250 137250 119750 437250 227250 219750
Total outflow 807250 137250 119750 437250 227250 219750
Closing balance -382250 290500 860750 738500 1051250 917750

From the above mentioned cash flow statement it has been analyzed that during the period
of April and May sales revenue of the firm reduced significantly. Hence, business unit needs to
place emphasis on social media marketing which in turn raises awareness among the customers
about antique items offered to the large extent. Along with the sales, expenses also show fluctuating
trend. Hence, Clariton Ltd needs to make focus on raising sales and exerting control over the
expenses. Through this, business unit would become able to attain financial goals and objectives
more effectively and efficiently.
3.2 Assessing unit cost and making pricing decision
As per the given scenario, manufacturing industries compute total cost of production by
taking into account both the fixed and variable expenditures and divide it with the total number of
units to know cost each unit. However, Clariton Antiques Ltd does not produce any goods,
henceforth, it will use distinguish costing method to determine their cost. Operating costing method
is considered highly suitable and appropriate method for determining cost in such business (Dalal-
Clayton and Sadler, 2014). It is mainly used by the companies to measure their cost of services that
they had rendered to their client base. Clarinton Antiques Ltd can determine their antique cost as
follows:
Purchase cost = 15000
Staff salaries = 5000
Utility = 3000
Other expenses = 2000
Number of units sold = 500
Total cost = (15000+5000+3000+2000)/500 = 50 GBP
Pricing decision: In cost-oriented style prices are decided by including a mark-up
percentage into the cost of an item. It assure some return in the business and helps to generate
favourable return by gathering excess revenues over product cost.
Price = Cost per unit + Mark-up % age
= 50 + (50*20%)
= 50 + 10
= 60
Profit percentage on sales = 10 / 60*100
= 16.67%
The result founded that at 20% mark-up, Clariton Ltd can earn 20% return on cost and

16.67% on cost.
3.3 Evaluating the viability of proposed by using investment appraisal techniques
Financing appraisal technique include several tools such as payback period, NPV and ARR
which comforts in evaluating the variation of the offered financing (Fraser, Bhaumik and Wright,
2015). For instance: Clariton Ltd has two projects in which business entity can invest are as
follows:
Standard criteria for the project selection
Particulars Criteria
Payback period 3.5 years
Average rate of return (ARR) 35.00%
Net present value (NPV) £2m
Computation of payback period
Particulars
Project A
(in £ m)
Cumulativ
e cash
inflow
Project B
(in £ m)
Cumulativ
e cash
inflow
Initial
investment 8.6 4.4
1 1.6 1.6 0.8 0.800
2 2.8 4.4 1.4 2.200
3 3.4 7.8 2 4.200
4 3.6 11.4 2.4 6.600
5 4 15.4 2.3 8.900
6 4.2 19.6 2.6 11.500
Payback period
Project 1: 3 + (8.6 – 7.8) / 3.6
= 3.2 years

Project 2: 3 + (4.4 – 4.2) / 2.4
= 3.01 or approximately 3 years
Calculation of NPV
Particulars
Cash
inflow (in
£ m)
Project A
PV factor
@14% Present value
Project B
(in £ m) PV @14%
Present
value
Initial
investment 8.6 4.4
1 1.6 0.877 1 0.8 0.877 1
2 2.8 0.769 2 1.4 0.769 1
3 3.4 0.675 2 2 0.675 1
4 3.6 0.592 2 2.4 0.592 1
5 4 0.519 2 2.3 0.519 1
6 4.2 0.456 2 2.6 0.456 1
Total 12 7
NPV 3 3
ARR 56.98% 43.56%
From the above investment appraisal analysis it has been assessed that Clariton Plc needs to
invest money in both the projects which prove to be beneficial for it. Moreover, outcome of
investment appraisal highly satisfies the criteria of Peter's investment. Moreover, NPV of both the
proposals are £3 m. Besides this, ARR of project A and B is 56.98% & 43.56% which is higher than
the standard aspect. Along with this, pay back period of both the projects is lesser than the standard
criteria. Hence, according to this aspects Clariton Ltd will have to select such offers which helps
them in achieving success. However, if business unit wants to select one proposal then it should go
with project B. Moreover, it meets all the criteria and project B requires less initial investment in
comparison to other alternative.

TASK 4
4.1 Discussing the key components of financial statements Income statement: This description has two columns one of the them is income or inflow
and the other one is outflow or expenses which gives the proper detail related to the
profitability manual of the organisation. Main elements of profitability statement include
sales, cost of goods sold, gross profit, indirect expenses and net margin. Hence, by
subtracting COGS from sales amount of gross margin can be assessed. Further, net profit
margin can be obtained by deducting indirect expenses from gross profit. Income side
include GP, interest and dividend recovering by the firm during the year. On the other side,
expenses include advertisement, electricity and other miscellaneous expenditure. Hence, by
making assessment of all such aspects Clariton Antique Ltd can assess the profitability
generated by them during the year. Cash flow statement: It renders information about the cash inflows and outflows in the three
segments such as operating, investing and financing activities.
Operating cash flows include all type of expenses and changes take place in the amount of
assets as well as liabilities.
Besides this, investing activities contain information regarding the sales and purchase of
fixed assets such as land, machinery, fixtures etc.
Further, financing side reflects the information about the issuance of shares and redemption
of debentures (Götze, Northcott and Schuster, 2015). Hence, by evaluating such aspect business
unit can assess the area which requires high cash control.
 Statement of changes in equity: The company makes the description in which all the
information of assets,reserves etc are written. Statement of financial position: Annual report is one of the main income statements which
furnishes information regarding the liquidity and solvency position of the firm. Balance
sheet has two sides such as assets and liabilities which assists Clariton in making effectual
decisions.
Assets side includes both fixed (land, machinery etc.) and current (Cash, debtors etc.).
Further, liabilities side include shareholders equity, long term debt and current obligations
which include overdraft, creditors etc.
 Supporting notes: Clariton Ltd also adds supporting notes at the end of financial statements
in relation to accounting concepts or policies followed by it. Along with this, business entity