Managing Financial Resources and Decisions for Clairton Company

This report provides a comprehensive analysis of Clairton Company's financial resources and decision-making processes. It begins by identifying and evaluating various sources of finance, both internal and external, including retained profits, bank loans, equity capital, and financial institutions. The report assesses the implications of each source, considering financial and legal aspects, as well as the dilution of control. It then delves into the costs associated with venture capital and bank loans, including dividends, interest, and taxes. A key component is the examination of Clairton's cash budget and the methods used to determine the cost and price of a unit, followed by the application of financial tools for investment decisions. The report concludes with a detailed discussion of financial statements, comparing Clairton's format to that of a sole trader, and determining financial performance through the use of various financial ratios. Overall, the report offers valuable insights into the financial health and strategic choices of Clairton Company.

MANAGING FINANCIAL RESOURCES AND DECISIONS

TABLE OF CONTENTS
Introduction................................................................................................................................3
TASK 1 ......................................................................................................................................3
1.1 Identify the sources of finance..........................................................................................3
1.2 Assess the implication of internal and external sources of finance..................................4
1.3 Evaluate the sources of finance for Clairton company.....................................................6
TASK 2.......................................................................................................................................7
2.1 Cost of venture capital and bank loan...............................................................................7
2.2 Significance of planning of financial for Clairton business entity...................................8
2.3 Information which are needed for taking financial decisions...........................................9
2.4 Impacts of different sources of finance on Clairton’s financial statements....................10
TASK 3.....................................................................................................................................11
3.1 Cash budget of Clairton and its interpretation................................................................11
3.2 Method for determining cost and price of one unit........................................................13
3.3 Financial tools to take investment decisions..................................................................14
TASK 4.....................................................................................................................................16
4.1 Discuss the key component of financial statement.........................................................16
4.2 Comparison between format of Clairton company’s financial statement with sole trader
..............................................................................................................................................18
4.3 Determining financial performance of Clairton with different financial ratio...............18
Conclusion................................................................................................................................21
References................................................................................................................................23

Introduction
Finance plays an integral role in every organisation whether it operates in any sector.
Without the financial resources the firm is unable to come into consideration in the industry
and not able to survive as well. It is a big concern for every business to raise fund from
external market to business expansion. The present case is based on Clairton company which
is operating in Antique products and has two stores in London. Now it going to open a store
in Birmingham where it raises fund from bank and venture capital. The report throws light on
several internal and external sources of finance which helps to organisation to provide fund.
The sources are charges cost of finance in different form. Further, it shows various
investment appraisal methods for assessing a project from two or more mutually exclusive
investments. It describes financial ratios of Clairton in order to assess that company is up to
which extent financially sound.
TASK 1
1.1 Identify the sources of finance
According to the given scenario, Carlton Antiques Ltd company started its business
for a year ago. It started as an Unincorporated business which is grown up slowly and
steadily (Upton and et.al., 2015). It sells antique items in London and wants to open a new
branch in London for this it needs to raise 0.5 million. For this purpose, there is different
source of finance available for business which is discussed below;
This incorporated
a.) Unincorporated business: Unincorporated business that does not have separate legal
identity from its owner and not legally registered. For example company take loan from bank
then it need to pay the interest of 2%. There are some sources of finance through which
unincorporated business can raise fund are as follows:
 Sale of assets: It is a way for raising the fund by a Carleton company. the company
can sell its assets which are not used by the firm for finance. After selling assets
company used that money for expanding it business (Crosby and Henneberry, 2016).
It is the best source of finance because of company sale it machine and equipment

which are not used by the company and it also not charges any opportunity cost. Its
advatags is that company no need to pay any interest. On the other hand it company
want large amount of fund then it cannot arrange money by selling its assests.
 Retained profit: Retained profit is that profit which kept by company after paying
dividend to its stakeholder. This profit Clairton company can have used for expanding
its business through investing in new project. On the other hand it is not neecasry that
company have enough moeny for expanding its busienss.
b) Incorporated business: Incorporated business is a business which offer benefits to sole
proprietor or partnership which include liability protection and additional tax deduction.
Are those company which are listed in government and continue its business legally
(Locatelli, Invernizzi and Mancini, 2016). This incorporated company follow all legal
formalities which are made by government. It can raise fund through various sources which
are as follows
 Bank loan: Clairton company can take loan from a bank by fulfilling some legal
formalities. further company can take loan for long and short period. There is fixed
rate of interest is charge by a company at the time of taking loan by bank which
company need to pay every month. It adavntage is that interest rate is fixed in bank
loans which make easire for the firms to prepare budget. While its disadvange is that
there are some legal procedures which may cause suffering from company in long
term.
 Equity capital: company can raise fund by issuing share from public. there are many
shareholders who like to invest money in a company which is gaining success. Its
advantge is that there is no need of paying back shareholde their intial amount. On the
other hand its disadvantge is that company need to pay fixed rate of dividend to
shareholder.
 Financial institutions: There are different financial institute from where company can
take fund (Throsby, 2016). Further, there are many formalities which need to fulfil at
the time of taking loan from financial institute, so it consumes lots of time. Its
advantage is that company need to pay fixed rate of interest. On the other hand it need
to keep security over an assets or property of bussienss.
1.2 Assess the implication of internal and external sources of finance

Table 1.2
Sources of
finance
Financial
implication
Legal
implication
Dilution of
control
Impact on firm
Retained profit
(Unincorporate
d business)
There is no
financial
implication
retained profit
on company.
It is a company
profit and
internal source
of fund, so there
is no legal
implication on
Clairton
company.
No effect If company
invest all its
profit on new
business, then it
is not necessary
that firm earn
high in new
business.
Sale of assets
(Unincorporate
d business)
Sale of asset
has some
implication on
business that is
it impact on
balance sheet
on assets side
(Baranov,
2015). But it
helps in
expanding
business and
increase its
profit
There is no
legal
implication
because
company sale
its own assets,
so Clairton
company
doesn’t require
to expand it
business.
There is low
dilution of
control.
If business run
on small scale
then company
can easily sale its
old assets which
are not in use it
is benefit for
firm.
Bank loan
(Incorporated
business)
There is
financial
application
because bank
imposes cost in
term of finance.
Further there is
fixed rate of
There are some
legal formalities
which company
need to fulfil for
taking a loan
(Eckerd, 2015).
No dilution of
control on
company and
bank hand
Its impact on
firm is that
company need to
pay interest per
month

interest charge
by company
which affects
company
profitability.
Equity share
(Incorporated
business)
Company raise
fund from its
shareholder. But
at time of
company need
to pay interest
or profit in term
of dividend to
its shareholder.
for raising fund
from
shareholder
company need
to listed in stock
market.
There is little
dilution of
control in
shareholder and
stock market.
Its impact on
business is that
company need to
pay from its
profit a part of
dividend to
shareholder
Financial
institution
(Incorporated
business)
Taking loan
from financial
institution, then
company need
to pay interest.
It can affect
company
profitability
(Misund, 2016).
There are many
legal formalities
which company
need to fulfil.
Company need
to pay high
interest every
month for taking
loan from
financial
institution
1.3 Evaluate the sources of finance for Clairton company.
There are some sources of finance which are appropriate for the Clairton Antiques ltd. which

are as follows
First, retained profit is best source of finance for the Clairton company because there
is no opportunity cost charged and company also not need to fulfil any legal formalities. so,
company can use it profits for expanding business. Along with this, it helps company in
expanding it business and in earning lot of profit. On the other hand, bank loan is also
effective source of finance for the company because company can take loan easily form bank
by fulfilling little formalities (Geng, Bose and Chen, 2015). further, before taking loan
company need to keep some security in bank, so that if company unable to pay loan then
bank can repay it through security. There is little impact on company profit but company can
take loan for long as well as for short period. On the other hand equity share, can raise fund
form its share holder and in return it pay in term of dividend. Company need to pay some
amount of interest to its shareholders in term of dividends. Hence, this all sources of finance
which are appropriate for Clairton company.
Comapny can take loan from bank where it need to pay 1% interest on the loan
mapunt taken from bank. It is best sources of finance becuase company no ned to pay tax on
loan amount.
TASK 2
2.1 Cost of venture capital and bank loan
Every source of finance charges costs in different form that is dividend, tax, interest
etc. In the present case, there is the Clairton firm which raise fund for business expansion
from venture capital and bank (Greenbaum, Thakor and Boot, 2015). Costs of used source of
finance are such as follows:
A) Dividends: The venture capital is mostly used source by the companies for increase
capital and expands the organisation at national as well as international level. It takes charges
in terms of stake of the firm where some percentage are set out. After taking stake from
enterprise venture capitalist that is We Finance Limited turns into shareholder. Further,
Clairton has to provide dividend on shares which is one type of cost of finance for the firm.
In the present case cost of We finance limited is 20% stake of overall business entity. The
dividend effects on the company in order to reduce level of profit of the overall organisation
such as Clariton. Apart from this due to this lower the profit lead to reduce attraction of
shareholder by whioch company unable to get higher capital.

B) Interest: Apart from the venture capital the company is raising fund from the bank
worth 0.5m GBP. Cost of finance for bank is different from above mentioned financial source
(Yellen, 2016). The bank imposes charges on Clairton in terms of interest rate where it takes
2% annual rate over the period of 10 years. Apart from this there is a person plays a role as an
intermediary between bank and Clairton known as a finance broker. He is also taking a
charge that is 1% of 0.5mGBP. When the Clariton takes loan from bank then for 10 years
total financing cost will be £100000.
C) Tax: Further, when the business takes loan from bank then it gives tax relaxation to
the organisation which is beneficial for the enterprise. In the present case Clariton raising
fund in order to expanding business in another country form the bank which allows to not pay
the taxation amount. Hence, bank is not taking any type of taxation amount by which firm’s
profitability is affects in terms of positive manner. When the Clariton raise fund using bank
loan then it takes interest amount in terms of financing cost. On the other side due to taking
debt from bank it allows tax relaxation to the firm which is beneficial for the company.
2.2 Significance of planning of financial for Clairton business entity
Planning is an important factor for each business entity which helps to management
for increase profit level. Financial planning is helps to enhance profitability as well as
financial wealth of firm, which is stated below:
a) Budgeting: It is a method where enterprise is able to forecast financial position of
the firm for the upcoming financial certain period of time. From this it can make effective
financial plan in order to make more profitable to the firm. With help of the financial plan
Clairton can make effective budget for next or current financial plan (Matheson and et.al.,
2016). Budget provides all the informations such as cash inflows as well as expenditures in
the upcoming financial years. Further, with helps to this the management of Clariton is easily
abole to formulate effective business strategies in order to become more profitable in the
respective industry.
b) Implications of failure to finance adequately: To allocate adequate financial
resources for run business in effective manner financial planning plays a significant role.
Adequate finance is helps to management for run the firm smoothly hence it is very
beneficial for the company. If it is unable to have adequate finance, then overall business
affects in negative manner. Apart from this when the business is unable to provide better and
adequate financial resources to every organisational functions then it hampers overall smooth

functioning of the Clariton. To run the company effectively and make more profitable it is
necessary to provide adequate finance which is done through proper financial planning.
c) Over trading: When the firm produce more products and services in comparison to
available resources then it known as an overtrading. It is necessary for enterprises to manage
production with help of utilizing effective resources. It can be possible when financial plan is
better and effective otherwise unable to manage (Akhtar and Kröner-Herwig, 2015). Hence,
financial planning is very important to reduce over trading in the organisation. Apart form
this more prodcution in comparison to availability of resources lead to hinder overall business
as well as production process. Further, by over trading stock increases as well as supply in the
market also enhance which lead to reduce prices of goods and services. When management
use proper paln of finance then able to aviod over trading and enhance level of profitability.
In order to reduce overtrading various methods are such as formulate effective trading plan,
set out limit of profit as well as loss per day, prepare marketing strategies to attract more
customers and generate higher sales, reduce the cash balance, enhance receivables etc.
2.3 Information which are needed for taking financial decisions
The company is always takes fund from external as well as internal sources of
finance. For this Clairton have to collect various information about the sources, which are
given as below:
a) Partners: To take finance with help of partners it requires information such as
proportion of capital as well cost of finance. In the partnership business, it is necessary that
all the partners know rules and regulations of company. If owner is unable to know the
information then it can hamper overall organisation in negative manner (Hodler, Luechinger
and Stutzer, 2015). In the present case Clariton company is a partnership business where all
the partners plays an important role in order to take each and every business decisions. For
example: in the fim if there is profit or loss occurs then all the partners will contribute equlaly
in the loss as well as profit. This type of financing decisions can be apply in the those types of
firms which are incorporated or partnership companies. Soler trader can use the sources when
they add another new partner in the firm and turns into partnership firm.
b) Venture capitalist (We Finance Limited): Another source is venture capital where
the respective firm is taking fund from We finance limited. Here the company needs to take
information regarding cost of finance as well as various terms and conditions. Venture capital
needs to take information related to return on investment and its overall financial position in

the industry. Main reason behind ROI is that We Finance is allow for finance to the firm when
it has 50% ROI. Apart from this when the company takes all the informations then easily able
to make effective financing decisions for enhance level of capital as well as expand the
company. On the other side, We Finance Limited must take various informations related to
the financial position as well as business performace in the industry where it operates.
c) Finance Broker: Moreover, to use financial institute such as bank for enhancing the
capital there are various rules and regulations which are necessary to know by firm. For using
finance broker Clairton requires to know brokerage charges as well as other terms and
conditions relating to time period of payment (Piorunowska-Kokoszko, 2015). Further, bank
allow to the company in order to raise fund when it has value as per the required loan
amount. Bank concerned with valuation of the Clariton and then provide finance in order to
expand business. Another typical information which are finance broker needs to knbow is
that company's profitability position because higher the profit lead to provide high brokerage
amouint to the finance broker.
2.4 Impacts of different sources of finance on Clairton’s financial statements
Different financial sources are affects to the various financial statements in terms of
positive as well as negative manner. Here the firm raising fund from We finance limited as
well as bank loan. Impacts of these sources are enumerated below:
a) Venture capitalist (We Finance Limited): It takes cost of finance in terms of stake
where firm has to pay dividend amount to the stakeholders. The amount is one type of
expense which impact to the income statement of Clairton in negative manner. Further, fund
or capital is increases which affect liabilities side of balance sheet in positive term. According
to respective source expenses increase by which profit of income statements affects in
negative way. Apart from this due to increasing capital liabilities affects in positicve way in
the statement of financial position.
b) Finance broker: Cost of broker is an expense of the Clairton Antiques Limited
which is given by firm from its profit level. It goes to loss side of profit and loss statement
hence profit get decreases (Cohen, 2016). On the other side in balance sheet its treatment is in
liabilities side where total liabilities are increases and impacts on financial statement in
favour of the firm. Impact on statement of financial position will be positive because capital
increases which lead to generate higher income. Further, due to payingt loan and brokerage
amount expenses increase which lead to reduce net profit. Hence, income statements will

affects in the negative manner in financial statements of Clariton Limited.
Income Statement
Expenses Amount (in £) Profits Amount (in £)
To Dividend on
shareholders a/c
1000000
To Interest on bank
loan a/c
100000
To brokerage on
finance broker a/c
50000
Balance sheet
Liabilities Amount (in £) Assets Amount (in £)
Bank loan 0.25m Cash
(Venture capital +
bank loan)
0.5m
Venture capital 0.25m
TASK 3
3.1 Cash budget of Clairton and its interpretation
Budget is very important factor for the organisations where it able to estimate
financial health for next financial year. There are different types of budgets by which the
enterprise get various financial information and able to take appropriate business decisions.
In the present case cash budget is to be prepared which shows receipts and expenditures for
upcoming year (Catteau, 2015). If the firm is generating less profit or loss then able to take
effective strategies to overcome losses. The cash budget for Clairton is stated below:
Table 3.1 Cash budget for Clairton

Particulars January February March April May June
Amount
in (£)
Amount
in (£)
Amount
in (£)
Amount
in (£)
Amount
in (£)
Amount
in (£)
(A)Opening
cash balance 110000 -539750 -392000 -76750 48500 166250
Cash collection
(B) Collection
in same month
5% of
same
month
sales 15000 22500 30000 15000 15000 3750
(C) Collection
in next month
80% of
previous
month
sales 120000 240000 360000 480000 240000 240000
(D) Collection
in second month
15% of
last
second
month
sales 22500 22500 45000 67500 90000 45000
Total Cash
inflows (E)
A+B+C+
D 267500 -254750 43000 485750 393500 455000
Cash outflows
Total payments 807250 137250 119750 437250 227250 219750
Total cash
outflow(F) 807250 137250 119750 437250 227250 219750

Net cash
balance or
closing cash
balance
(E – F)
(Total
Inflow –
Total
Outflow) -539750 -392000 -76750 48500 166250 235250
From the above-mentioned cash budget, it can be assessed that Clairton is generating
the highest cash flow in the month of May whereas the lowest cash flow is in the month of
January. Lower cash flow is in negative i.e. -£539,750.00 which shows that it has high
expenses compare to incomes. Apart from this after January organization can generate cash
flow which is fluctuate in every month. Higher cash flow is worth of £235,250.00 in June
where Clairton is able to manage its expenditures which lead to enhance level of profit. Total
receipts are continuously increases from January to June but due to fluctuation in payments or
expenses closing cash balance is affecting. To overcome from negative cash flows the
enterprise needs to take corrective actions and formulate appropriate strategies. It requires to
use economies of scale, it is a situation where production level is increases and cost of
production decreases. When Clairton use the scale then able to sell more number of products
and decrease total expenses which lead to increase cash balance. Further it can be suggested
in order to improve cash flow is that, it should make strategies for attract more number of
consumers towards purchasing its services and products.
3.2 Method for determining cost and price of one unit
Technique in which cost or expenses of one unit from overall production level is
derive, known as cost of a unit. Apart from this for taking pricing decisions there are various
methods such as cost plus, market led, profit led, value added, skimmed etc (Ko and Lee,
2015). Clariton is a service based industry due to which there are various pricing methods are
used. There are numerous pricing for services industry are such as competitive, cost plus,
luxury pricing, rate and project based, value based etc. With using hypothetical example cost
and selling price per unit is determine which is shown below
Table 3.2 Computation of cost per and price per unit

Cost of one unit
Particulars Amount (in £’000)
Rent of real estate 5,000.00
Administrative expenses 7,500.00
Depreciation 3800
Total fixed expenses £16,300.00
Unprocessed material 6300
Labour wages 4900
Fuel cost 3500
Total variable expenses £14,700.00
Total expense or cost of production £31,000,00
Total production volume 155 units
Cost of one unit £200,00
Profit margin 25%
Selling price of one unit £250,00
It can be assessed from above mentioned table of cost per unit is that, it can be derive
with help of various costs and expenses incurred for producing goods and services. Two basic
terms are such as total production level or total number of production units as well as total
cost of production by which per unit cost is to be determine. In the present case output level
is 155 units and total cost is £31,000.00, hence cost of units as per the formula will be
£31,000.00 \ 155 units that is £200.00 In the above example cost plus pricing method is using
where profit margin is to be added in cost per unit. For example, 200 + 50% = £250.00 per
unit and on this price the firm will be sell its products and services. Very biggest problem
with cost plus pricing method is that it not consider prices of rivalry firms as well as their

impact on prices of products and services offered by Clariton. Further, it does not include
opportunity cost as well as ignore demand of goods and service which lead to hamper prices
as well as profit level of the firm.
3.3 Financial tools to take investment decisions
The Clairton is expanding its business in Birmingham where it has two projects which
have different initial investment. Further, both projects have years for investment is same that
is 6 years (Belingher and Moroianu, 2015). To know which project will be better for
investment there is various financial tools using by the Clairton. The tools are such as NPV,
ARR, profitability index, payback period, IR etc. In the present case NPV, ARR and payback
method is used which is given below:
Table 1.3 Computation of NPV
Project 1 PV @ 14%
Present
value Project 2 PV @ 14%
Amount in £m
Amount in
£m Amount in £m
Initial
investment 8.6 4.4
1 1.6 0.877 1.40 0.8 0.877
2 2.8 0.769 2.15 1.4 0.769
3 3.4 0.675 2.30 2 0.675
4 3.6 0.592 2.13 2.4 0.592
5 4 0.519 2.08 2.3 0.519
6 4.2 0.456 1.92 2.6 0.456
Total 11.97 6.93
Less:
Required
-8.6 -4.4

beginning
investment
NPV 3.37 2.53
NPV calculation = Total discounted cash inflows - Required beginning investment
Table 3.3 (a) Computation of ARR
Formula: (Average profitability of a project/Initial investment *100)
Project 1 (in £m) Project 2 (in £m)
Years
Initial investment £8.6 £4.4
1 1.6 0.8
2 2.8 1.4
3 3.4 2
4 3.6 2.4
5 4 2.3
6 4.2 2.6
Total 19.6 11.5
Average 19.6/6 years = 3.27 11.5/6 years = 1.92
ARR (3.27/8.6)*100 = 37.98% (1.92/4.4)*100 = 43.56%
Table 3.2 (b) Calculation of Payback period
Project 1 (in £m)
Cumulative cash
flow (Project 1)
Project 2 (in
£)
Cumulative cash
(Project 2)
Years
Initial investment £8.6 £4.4

1 1.6 1.6 0.8 0.8
2 2.8 4.4 1.4 2.2
3 3.4 7.8 2 4.2
4 3.6 11.4 2.4 6.6
5 4 15.4 2.3 8.9
6 4.2 19.6 2.6 11.5
Payback years 3.2 years 3 years
Formula: A+B / C
Whereas: A= Cumulative cash flow of last year
B= remaining cash flow at the end of period A
C= Total cash flow within period after A
From the above stated investment appraisal methods, it can be interpreted that both
the projects have better future value, return as well as time of cover potential investment. If
the projects compare, then investment two is better due to having high return and payback
period as well. In order to Peter’s criteria project one and two both are meet with the
benchmarks. Criteria for payback, ARR and NPV are 3.5 years, 35% and £2m respectively
which is fulfil by both the investments. Hence, it can be suggested to management of
Clairtonthat, it should make investment in both the projects where one will give lower and
two will give higher return. As per the NPV project one gives higher return that is £3.37m
while project two gives NPV is £2.53m. Further, criteria is £2m which shows that both the
projects are able to earn sufficient return. Hence, the business needs to make investement in
the project one. Apart from this as per the ARR and Payback project two is higher beneficial
because the values are 43.56% and 3 years respectively. NPV considers time factor as well as
discounting factor, so the Clariton should make investement in the project one.

TASK 4
4.1 Discuss the key component of financial statement
There are some key component of financial statement which are discussed below
 Income statement: Income statement is prepared by company at the end of year for
making and for knowing the profit and loss of company. Company uses this financial
statement so that it came to know how much company earn profit and loss it helps in
determining company gross profit and net profit (Fallon, 2014). There are some basci
componenet of income statements that is revenues, profit and expnese. Company face
loss if expenses exceed the looses. Apart from this the number of itemsin the income
statements show the size and complexity of the firm.
 Statement of cashflow: Cashflow statement is a statement which show company
inflow and outflow. This statement show that from where company is generating
revenue and where it expending a lot. The outflow of company show total expenditure
of company while on the other hand inflow show the income of total income of
Clairton company. Higher inflow and lower outflow of company show the business is
going well. Items included in cash inflow are collected reeviables, investment, fee
income and cash sales. On the other hand, caash outflow includes interest rate,
inventory purchase, salaries and line of credit balance payment.
 Statement of changes in equity and gains: company uses this financial statement to
see total equity of company and stock market (Emerson, 2015). There are some key
component of this statement that are retained earnings and total equity amount of
shareholder. Clairton company can come to know it's profit when it deducts amount of
dividend which it paid to shareholders. Apart from this, the net profit or loss duiring
the accounting period show in this statment and dividend payment to shareholder.
 Balance sheet: it shows company financial position and it prepare in every end
financial year. Company owner and investor mainly use this. Owner used to see
company financial position while investor need use this financial statement so that it
can take session whether it want to invest in their business or not. Apart from this,
there are various components of balance sheet that is liabilites, owners equity and
assests. In assests side it include the fixed assests, cash and inventory. On the other
hand liabilties side includes long and short term liabilties.

 Notes to the financial statement: it is a last statement which is not consider in a legal
framework but it is necessary for Clairton company to prepare. There are different
notes prepare and distributed for accounting treatment so that distributer can easily
understand it and use it in appropriate manner (Lan, 2016). This statement help in
understanding wash and every aspect of financial statement which is need to be used
by analyst. Along wiith this the method of deprication used by company is written in
the notes of financil statements. All the method used by the frim for calculating the
prodit and loss is also wirtten down in this statements.
4.2 Comparison between format of Clairton company’s financial statement with sole
trader
There are different type of financial statement which is prepare by different firm that
are sole trader. Public limited company and private limited company.
In this different type of company for different purpose financial statement prepare. In
a sole trader company, there is only balance sheet prepare for the owner of company. So, that
owner came to know the financial position of company. There is no profit and loss statement
prepared in this company. While on the other hand in a partnership firm it is necessary to
prepare profit and loss statement in this separate account of partner profit prepared. It is so
that company can easily know each partner profit. Further there is also a balance sheet and
cash flow statement prepared so that company came to know it's financial position (Baranov,
2015). On the other hand, in a public limited company there are different type of financial
statement prepared by company for different people for shareholders, investor and other. At
Clairton company, there is need to prepare profit and loss statement so that company came to
know from where it generates profit and loss.
Sole trader Partnerhsip account
There is no need to prepare profit and loss
statement
Profit and loss statment is prepared
Balance sheet it prepared so that financila
position of company can idenitified.
Balance sheet and cash flow statements is
neceassry to prepare
Cash flow is prepared by sole propertorship
where the cash came from and where it went
during the period.
Partnership agreement is a written statements
which explain how busienss operates.

4.3 Determining financial performance of Clairton with different financial ratio
In order to assessing that the company is financially sound or not in the industry there
are various techniques used by management (Upton and et.al., 2015). One of them is ratio
analyses which are derived from different financial statements of the Clairton firm. The ratios
are of different types such as profitability, gearing, efficiency, liquidity etc. Financial ratios of
respective company are stated below:
Table 4.3 Computation of liquidity ratios
Liquidity ratios Calculations
2015 2014
Current assets 105 71
Current liabilities 317 309
Current ratio
(Current assets/current liabilities) (105/317)
= 0.33:1
71/309
= 0.23:1
Current assets 105 71
Closing stock 47 46
Prepaid expenses 0 0
Current liabilities 317 309
Quick ratio
(Current assets-stock-prepaid
expense)/Current liabilities)
(105-47-0)/309
0.19:1
(71-46-0)/309
0.08:1
The ratios which shows that company is how much sound in order to fulfil its short-

term obligations or debts with various assets and liabilities. To meet with short term loan the
company use those assets and liabilities which are easily convertible into cash (Baranov,
2015). From the above mentioned table, it can be assessed that current ratio of Clairton is
0.33 and 0.23 in the year 2015 and 2014 respectively. On the other side acid test ratio of the
firm are increases from 0.08 to 0.19 in the financial year 2015. It indicates that the company
is more able to meet with its short-term obligations in comparison to previous year.
Table 4.3 (a) Computation of profitability ratios
Profitability ratios Calculations
2015 2016
Sales 1220 1255
gross profit 175 178
net profit 23 33
Gross margin ratio
(Gross profit/Sales)*100 (175/1220)*100
= 14.34%
(178/1255*100)
= 14.18%
Net margin ratio
(Net profitability/Sales)*100 (23/1220)*100
= 1.89%
(33/1255)*100
2.63%
Another financial ratio is profitability which shows that the business is how much
able to generate sales and profit in an accounting year. It includes various ratios such as gross,
operating, net profit ratios etc. In order to determine the all profitability ratios there is same
base is to be taken that is sales or revenue (Misund, 2016). In the financial year 2015 Clariton
is unable to manage its cost of goods sold as well as not generating more gross profit from the
last year. Apart from this net margin is increases from year 2015 to 2016 that is 1.89%
to .63% It shows that management is effectively utilizes its operating costs and there is lesser
indirect expenses in 2016 compare to financial year 2015.

Table 4.3(b) Computation of gearing ratio
Calculations 2015 2014
Long-term Debt 142 140
Equity 301 276
Debt to equity
ratio
(Long-term borrowings/shareholders
equity capital)
(142/301)
= 0.47:1
(140/276)
= 0.51:1
In the accounting year 2014 debt to equity of Clairton antiques limited was 0.51 and
Decreases in the year 2015 and reaches upto 0.47. It shows that company not raise fund or
taking long term loan for business expansion. As compare to standard benchmark 0.5:1, the
business is performing is well.
Table 4.3(c) Computation of efficiency ratios
Efficiency ratios
2015 2014
Cost of goods sold
(COGS) 1077 1045
Inventory 47 46
Inventory turnover ratio
(COGS/inventory) (1077/47)
= 23.41 times
(1045/46)
= 22.72 times
Net sales 1255 1220
Total assets 785 785
Asset turnover ratio
(Turnover/total assets) (1255/785)
= 1.59 times
(1220/785)
= 1.55 times

Net sales 1255 1220
Fixed assets 680 675
Fixed asset turnover
ratio
(Turnover/fixed assets) (1255/680) =
1.84 times
(1220/675)
= 1.81 times
The ratios which help to management for determine efficiency of the Clairton in terms
of generating revenue or sales by using various elements, is known as efficiency ratio. For the
present ratio, there is not any benchmark or standard ratio set out, because higher the ratios
are better for the firm (Throsby, 2016). In the present case, the Clairton is effectively utilizing
its stock in order to generate sales and revenue. Further total assets turnover ratio is increases
from 1.55 to 1.59 in the financial year 2015. Apart from this total fixed asset turnover ratio of
the firm is 1.81 and 1.84 in the year 2014 and 2015 respectively. It shows that the firm is
financially sound in terms of efficiency ratios. Further it using its total assets in effective
manner for generates revenue or sales.
Conclusion
From the above report, it can be conclude that, there are different type of sources of
finance which are available for business for its expansion. There are various sources of
finance have different financial implication on company. further it can be concluded that,
different type of financial statement prepared by a company so that it came to know how
much profit they are generating and where the expenditure is high. different type of company
have different type of financial statement which is made for different purpose. Such as
financial statements are prepared so that company financial position can be identified. If
financial position is high then investor are ready to invest in that particular company. Further
there are different way which help in understanding which project need to invest that are net
present value method and internal rate method. This all method help in identifying from
which project company can earn high profit.

References
Books and Journals
Akhtar, M. and Kröner-Herwig, B., 2015. Acculturative stress among international students in
context of socio-demographic variables and coping styles. Current psychology. 34(4).
pp. 803-815.
Baranov, P. A., 2015. Using risk-oriented approaches to solve information security
problems. Automatic Control and Computer Sciences. 49(8). pp. 643-647.
Belingher, D. and Moroianu, N., 2015. Empirical evidence on the Ricardian equivalence in
Romania. Theoretical and Applied Economics. 22(2). pp. 603.
Catteau, D., 2015. Droit budgétaire: comptabilité publique. Hachette supérieur.
Cohen, J. N., 2016. The myth of America's “culture of consumerism”: Policy may help drive
American household's fraying finances. Journal of Consumer Culture. 16(2). pp. 531-
554.
Crosby, N. and Henneberry, J., 2016. Financialisation, the valuation of investment property
and the urban built environment in the UK. Urban Studies. 53(7). pp. 1424-1441.
Eckerd, A., 2015. Two approaches to nonprofit financial ratios and the implications for
managerial incentives. Nonprofit and Voluntary Sector Quarterly. 44(3). pp. 437-456.
Geng, R., Bose, I. and Chen, X., 2015. Prediction of financial distress: An empirical study of
listed Chinese companies using data mining. European Journal of Operational
Research. 241(1). pp. 236-247.
Greenbaum, S. I., Thakor, A. V. and Boot, A. eds., 2015. Contemporary financial
intermediation. Academic Press.
Hodler, R., Luechinger, S. and Stutzer, A., 2015. The effects of voting costs on the
democratic process and public finances. American Economic Journal: Economic
Policy. 7(1). pp. 141-171.
Ko, M. C. and Lee, S., 2015. Corporate Debt Dynamics, Capital Accumulation, and
Macroeconomic Instability: A Post-Keynesian Analysis. The Korean Economic
Review. 31(1). pp. 177-197.
Locatelli, G., Invernizzi, D. C. and Mancini, M., 2016. Investment and risk appraisal in