Financial Resource Management Report: Sources and Planning

This report provides a comprehensive analysis of financial resource management, focusing on a medium-sized fashion store. It begins by identifying internal and external sources of finance, such as retained profits, bank loans, hire purchase, and leasing, and discusses the implications of each. The report then assesses the suitability of different financing options for the business, considering factors like cost and risk. It emphasizes the importance of financial planning, including sales and cash budgets, and explores the information needs of internal and external stakeholders. The analysis extends to the impact of various financial sources on the income statement and balance sheet. The report also includes an interpretation of financial statements, using ratio analysis to evaluate the performance of Dixon Carphone Plc, and a comparison of financial statements across different types of business organizations. Finally, the report projects cash and other budgets, analyzes them, and examines the viability of various investment appraisal tools for making sound funding decisions.

MANAGING FINANCIAL
RESOURCES
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Determination of the financial sources available to the business..........................................3
1.2 Implications of the several sources of finance that are determined.......................................4
1.3 Appropriate sources of finance for the business project........................................................5
2.1 Finding cost of different sources of finance .........................................................................5
2.2 Presenting the importance of financial planning ..................................................................5
2.3 Information need of internal and external decision makers .................................................6
2.4 Explaining the impact of sources on final accounts...............................................................6
3.1 Projection of cash and other budget and their analysis..........................................................7
3.2 Calculation of unit cost for the contract chosen and making pricing decision......................9
3.3 Viability of the varied investment appraisal tool for making sure project is funded properly
....................................................................................................................................................10
TASK 2..........................................................................................................................................12
4.1 Assessing the main financial statements which are prepared by Dixon Carphone Plc ......12
4.2 Comparing the statements of different types of business organization ..............................13
4.3 Interpreting financial statements of Dixon Carphone Plc by doing ratio analysis .............13
CONCLUSION .............................................................................................................................15
REFERENCES .............................................................................................................................16
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INTRODUCTION
The concept of financial management is regarded as appropriate source that act as an aid
in management of the funds in an effective manner. Such leads to achievement of the objectives
of the firm in particular time span. It is considered as specialized function which is associated
with high authority level (Gaunt, 2014). The business executive consider several decisions for
the sake of making sure the growth and success of the firm in an effective manner. This is the
concept that is dealing with planning, organizing, directing and control over the activities of
finance in relation to acquiring and using the funds. In the present study management of financial
resources has been discussed with respect medium size business. The report includes
determining the financial sources that present to the organization. Along with this it involves
implications of various sources of finance for the business project.
TASK 1
1.1 Determination of the financial sources available to the business
On the basis of internal sources of financial resources can be collected through operating
activities. It assist in eliminating the long term and short term need of the finance. The financial
sources existing for the firm are stated in the manner as under: Retained profit: The business can invest the amount of own saving in an effective
manner. Such is because of the reason that business needs to make repayment of money
with respect to use of amount of personal saving. This can be provided at cheaper rate. Bank loan: The fashion store can borrow funds from bank for the purpose of satisfying
the long term needs. In order to attain the loan the business is required to keep some
assets in form of security within the bank (Advantages & Disadvantages of Bank Loans,
2016.). Along with this the bank also charge certain rate of interest against the amount of
loan attained. Hire purchase: Under such the Fashion store can take the asset through payment of some
amount in form of down payment. Further after making payment of final installment the
firm is given the possession of the commodity.
 Leasing: There is existence of some equipments that are considered expensive. In case of
launch of the new outlet of fashion the business can acquire the asset on lease for some
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duration of time. In this regard rent needs to be paid to the leasing business within
specified duration of time.
1.2 Implications of the several sources of finance that are determined
There is presence of some implications associated with financial resources assessed. Such
are stated in the manner as under: Retained earning: There is lack of financial implication in relation to such. Along with
this there no legal implication associated with retained earning. Here the control lies in
the owners hand. The bankruptcy situation does not take place and also the amount
utilized is not to be repaid (Rehan and et.al., 2015). The implication related with such
source is associated with the lose of control over the funds which are kept in fulfilling the
uncertainties for future. Therefore such cannot be utilized in future course of time as
business loses control on such kind of funds. Leasing: Rent payment in relation to usage of asset is considered as the financial
obligation in this case. In situation the rent is not being paid within specific span of time
then leasing business can take legal actions against the organization (Irwin and Scott,
2010). With respect to leasing there is absence of aspect associated with diluting the
control. Within leasing situation of bankruptcy do not exist. Loan from bank: In case of bank loan interest payment is regarded as the financial
implication. In situation of delay in payment, bank can take legal actions against the
organization. Such has huge influence on the business credit rating to a greater extent.
With respect to loan there is absence of dilution of control. Moreover in situation of lack
of payment company's assets can be seized by the financial institution. In addition to this
in case the amount is not being recovered by means of assets then organization can be
considered as insolvent or bankrupt.
 Hire purchase: In the interest payment is required to be made which is regarded as the
financial obligation (Altfest, 2016). In situation the business is not paying installment
within time then assets can be taken back. Here in case of hire purchase there is lack of
dilution of control. The business needs to make payment to the vendor in case of
bankruptcy.
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1.3 Appropriate sources of finance for the business project
There is presence of several type of financial resources that business can utilize for the
sake of achieving short term and long range need for funds. The most suitable sources of finance
have been presented in manner as under: Bank loan: Such is regarded as one of the suitable source of finance that business can use
in order to attain long term requirements. The repayment of the loan can be made in
particular time span (Atrill and McLaney, 2014). Along with this payment of interest is
considered as expense that is being allowed for taxes. Therefore such provides greater
benefit to the organization with respect to taxes. On the other hand the major demerit
reflects that for the sake gaining loan certain security needs to be put with the bank. Leasing: Such is regarded as suitable financial source which can be utilized by the firm
towards attaining the financial requirements. In this business can lease the assets that are
costly (Arnold, 2014). But the major disadvantage of leasing is that in various situation
the leasing cost is more in comparison with the cost of purchasing the assets.
 Retained profit: This is regarded as one of important internal source which is being used
by the organization with cost included in such. Moreover through such generation of the
financial can done at economical rates. Under this business owner possess the full control
without including the third party.
2.1 Finding cost of different sources of finance
 Financial cost: In bank loan, Stylish fashion store is obliged to make payment of interest
on a periodical basis. Further, in leasing business entity has to pay rent to the service
provider (Caglayan and et.al., 2014). Hence, by taking into account such aspect it can be
stated that both the sources impose fixed financial obligation in front of entrepreneur.
 Opportunity cost: Personal saving source imposes opportunity cost in front of Stylish
fashion store. Moreover, in the case of personal savings business entity is not in position
to get interest on invested capital. In this way, loss of such interest amount has
opportunity cost to the firm.
2.2 Presenting the importance of financial planning
Financial planning is the process that is undertaken by the business entity to assess the
capital required for meeting the goals and coping up with high competition level. For both
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existing and new business monetary planning is significant which in turn helps them in making
proper balance between the inflow and outflow. Hence, fashion store namely ‘Stylish’ needs to
make focus on preparing highly competent plan with the motive reduce uncertain business
situation. Moreover, inadequate fund hinders the growth and survival of firm to a great extent
(Ten reasons why financial planning is important, 2017). In this way, financial plan ensures high
level of stability as well as profitability and thereby make contribution in the attainment of goals.
2.3 Information need of internal and external decision makers
Internal decision makers
 Higher management: For meeting the purpose of decision making higher authority
makes assessment of final accounts. Moreover, financial statements provide suitable view
to the manager about existing performance and position in against to the competitors.
 Employees: Personnel of firm are highly concerned with the profitability aspect of firm.
Moreover, salary growth and incentive plans are high influenced from the margin
generated by firm (Ghahremani and et.al., 2012). Hence, to meet such objective
employees of fashion store makes evaluation of income statement.
External decision makers
 Shareholders: Investors conduct ratio analysis by undertaking financial statements. By
doing investors become able to assess whether they need to invest money in the firm’s
operations or not.
 Suppliers: Assets are evaluated by the suppliers to assess the company’s ability in
relation to making payment on time.
 Financial institution: banking institution makes evaluation of the statement of financial
position to assess the extent to which company is highly capable in relation to meeting
monetary obligations (Hanna and et.al., 2011).
 Government: To determine the tax liability government authority makes evaluation of
income statement.
2.4 Explaining the impact of sources on final accounts
By considering the benefits and drawbacks of financial sources leasing, personal saving
and bank loan source has been selected which in turn has following impact on final accounts:
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Income statement: In leasing, business entity of fashion organization has to make
payment of rent on leased assets. Further, in bank loan, Stylish has to make payment of interest
on bank loan at fixed percentage rate (Ismail and Mohsin, 2013). Both rent and interest expense
is expense for the company so they are recorded in the debit side of income statement. Hence,
such cost reduces the profitability aspect of fashion store to the significant level.
Balance sheet: In the statement of financial position cash at bank and liability will
increase with the amount of bank loan. Further, in the case of leasing liabilities will be inclined
to the significant level. Further, capital and cash element of balance sheet will also increase with
the amount of personal saving.
Hence, by taking into account all the above presented aspects it can be said that all the
above selected three sources have direct impact in income statement and balance sheet of Stylish
fashion store.
3.1 Projection of cash and other budget and their analysis
Sales budget
It act as an aid in making determination of the total number of units, gross sales and net
sales which are acquired by business in long term.
The focus of sales budget is over bringing enhancement within the price of selling per
unit. The table above demonstrates that there is increase in rate of inflation by 4% each month.
The business that is stylish Fashion store provides 6% discount rates on the whole amount of
sales. By means of enhancing the sales unit and prices the net sales demonstrates upward trend
within the month of September. Such is from £153408 to £409689.6. Therefore it is reflected that
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Fashion store can achieve increase in the revenue through carrying out the function of business
within market of UK.
Cash budget
This is regarded as the statement which forecast the inflow of cash. In addition this it is
used within various business function for sake of estimating net cash flow as well as closing
balance of cash. The cash budget of stylish Fashion store has been presented in the table as
below:
This can be analyzed from the cash budget that Fashion store is attaining 80% of the net
sales in cash form and the remaining 20% in form of credit. There is one month paid period.
Such is because of reason that is increase in the sales. Cash sales has been enhanced from
£122726 to £327752. On the other hand credit sales for month of September will be gained
within October that is £81938. On the other hand new fashion store make purchase of the
material at £65 per unit. Further it pays wages at £25. Along with this manufacturing overhead is
£10 per unit. Thus the total cash which is being spend has enhanced from £136000 to £336750.
Such has acted as an aid in conversion of negative balance of cash flow to positive that is
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(£13274) to £57557. Therefore it is suggested to the business to keep track over the expenditure
through acquiring material at economical prices.
3.2 Calculation of unit cost for the contract chosen and making pricing decision
Unit cost is referred to as the cost of particular unit. This can be computed by means of
adding total fixed cost as well as variable cost. Further this is divided by produced number of
units (Serrasqueiro, Maçãs Nunes and Leitão, 2011). The technique that is cost plus pricing is
being utilized by firm for the sake of making determination of appropriate product price for
Fashion store. The major advantage associated with this is towards offering suitable return over
the amount of cost attained.
Formula of calculating unit costs: Total costs
Number of units produced
Selling price = Costs per unit + Mark-up @ 15%
For instance,
Fixed costs 30000
Variable costs 50000
Total costs 80000
Number of units produced 1000
Costs per unit 80
Add: Mark-up @15% 12
Selling price 92
By the means of above table it can be stated that when making decision on the price of
selling at £92 the business would be able to achieve the profit of £12 on each unit sold. Thus it
margin on sales will be as:
Profit margin on sales = Profit margin/sales price*100
= £12/£92*100 = 13%
3.3 Viability of the varied investment appraisal tool for making sure project is funded properly
Investment appraisal is regarded as the tool that act as an aid in evaluating whether
specific project will provide maximum return in the years to come. It includes range of tools that
is comprised of pay back period, net present value and accounting rate of return.
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Net present value: This is regarded as most suitable capital budgeting that considers time value
of money. It considers discounted cash flow value related with all inflows. Further it provides
appropriate outcomes with respect to return on the investment.
As per the above table it can be interpreted that Project A possess greater NPV as
compared with Project B. Thus such would be profitable to the organization in case it is planning
to make investment in Project A. Such is due to the reason that it will provide huge amount of
return.
Accounting rate return: This is regarded as average rate of return over initial investment. The
project which provides high return is considered suitable option for Fashion store.
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By the means of interpreting the table above it has been determined that ARR of Project
A is greater in comparison with project B. Therefore such is suitable for the organization in
selection project A as it will yield huge return to the firm.
TASK 2
For this task, Dixon Carphone Plc has been selected which is one of the leading electrical
and telecommunication service provider. Along with this, for the making external analysis
competitor from similar industry has been selected such as British Telecom. In this, task will
highlight the financial statements prepared by the concerned organization. Besides this, it will
shed light on the monetary performance of Dixon Carphone Plc in against to the competitors.
4.1 Assessing the main financial statements which are prepared by Dixon Carphone Plc
Dixon Carphone Plc is listed on London stock exchange and offers shares to the
investors. Hence, with the motive to satisfy the information need of investors and assess financial
position and performance Dixon Carphone Plc prepares and present following statements:
Income or profitability statement
Such statement includes information about sales, direct and direct expenses, gross as well
as net profit margin. Hence, higher management uses such statement to evaluate the profitability
aspect in against to the previous year (Malmi and Granlund, 2009). Hence, the main objectives
behind the preparation of financial statement are to develop suitable framework for the upcoming
time period.
Cash flow statement
This statement can be segregated into three parts such as operating, investing and
financing. The main purposes of such statement are to identify the activities from where cash
comes and used. Hence, by using cash flow statement management team of Dixon Carphone can
take suitable decision regarding the area of expense that requires high control.
Balance sheet
Statement of financial position contains information regarding the assets and liabilities.
Assets side can further be distinguished into two parts such as current (cash, stock, debtor etc)
and fixed (land, plant & machinery etc). On the other side, liabilities include shareholders equity,
long term debt and current obligations (Mangan, Hughes and Slack, 2010). Hence, by making
evaluation of balance sheet management team of Dixon Carphone Plc can evaluate profitability,
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liquidity and solvency aspect more effectually. Hence, statement of financial position is used by
the firm for setting suitable goals and objectives.
Statement of changes in equity
By preparing equity statement Dixon Carphone Plc can assess the level of reserve and
equity position in an effectual way. Hence, by considering this business entity can take suitable
decision regarding the development of suitable financial structure.
4.2 Comparing the statements of different types of business organization
Formats of financial statements and other rules undertaken by varied business units are
differing significantly in the following way:
 Meaning: Sole trader is the one who take decision about business operations and
functions without any interference of others. Unlike sole traders, public listed companies
are the one which are enrolled on recognized exchange such as FTSE 100.
 Financial statement preparation and presentation: Usually, sole traders prepare income
statement to evaluate the profitability aspect (Caglayan and et.al., 2014). In contrast to
this, Plc prepares all kind of statements such as income, cash flow and balance sheet.
Moreover, plc’s operate at large level so they lay emphasis on wide range of statements.
 Regulatory requirements: PLC has accountability to publish audited statements because
they are highly reliable. Sole traders are not bound to conduct audit of the financial
statements.
 Rules and regulations: Publicly listed organizations like Dixon Carphone Plc follows
IFRS and UK GAAP for the preparation of financial statements. On the other side, sole
traders prepare statements according to their convenience level.
4.3 Interpreting financial statements of Dixon Carphone Plc by doing ratio analysis
Ratio analysis of Dixon Carphone Plc and its competitor such as British Telecom is as follows:
Ratios Formula Dixons Carphone plc
2014 2015 2014 2015
Gross profit
(GP)
664 2185 16737 16406
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