Financial Analysis and Business Structure for Victoria Babies Company

This report analyzes the financial resource management strategies for Victoria Babies, focusing on the selection of an appropriate business structure to facilitate expansion. The report explores three business structures: general partnership, limited liability partnership, and private limited liability partnership, recommending the limited liability partnership for its flexibility and tax benefits. It differentiates between management and financial accounting, detailing their uses and differences, and provides illustrations of key financial statements such as the cash flow statement and income statement. Furthermore, the report identifies and explains the financial information needs of various stakeholders. The analysis supports the recommendation for Victoria Babies to adopt a limited liability partnership for its expansion, considering jurisdictional advantages and the ability to raise capital efficiently.

MANAGING FINANCIAL
RESOURCES

TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................2
Question One...................................................................................................................................2
Explaining three business structures, differences and legal needs.........................................2
Suggesting Victoria Babies about the best structure..............................................................4
Question Two...................................................................................................................................4
Explaining management as well as financial accounting along with their differences..........4
Question Three.................................................................................................................................6
Explaining financial statements illustrations of them............................................................6
Question Four...................................................................................................................................8
Identifying five potential stakeholders and financial information used by them...................8
ANALYSIS ...................................................................................................................................10
RECOMMENDATIONS...............................................................................................................10
REFERENCES..............................................................................................................................11

EXECUTIVE SUMMARY
Financials are key asset for every enterprise which work as a blood for it while
establishing and operating in particular market. The current assignment is based on Victoria
Babies company which is going to do partnership in order to expand the business. Further, it
shows about three business structures which are like general, limited liability and private limited
liability partnership. Apart from this, financial and management accounting, different financial
statements as well as potential stakeholders of cited company are analysed. It can be said from
the analysis that, Victoria Babies firm should go for limited liability partnership in order to
expand business at another place.
1

INTRODUCTION
Financial resources are one kind of backbone of each enterprise because it helps to exist
as well as operate in the particular industry. Along with this, management of such resources is
also highly needed in proper way due to supporting to utilise financial resources and raise
business performance. The present case is on the basis of Victoria Babies which is going to do
partnership in order to expand the business. Under this, it has three structures among them one is
suggested to this firm in the present study. In second part of the current project, financial as well
as management accounting these two terms are explained along with making differences. Third
part of the assignment consists with financial statements which are described with the
illustrations. Further, explanation about the potential stakeholders of Victoria Babies is given in
the last part. At the end, findings are presented and suggestions are given to the selected firm for
choosing a particular business structure.
Question One
Explaining three business structures, differences and legal needs
Base of explanation General or ordinary
partnership
Limited liability
partnership
Private limited
liability partnership
Business structures The business in which
two or more partners
clubbed and started
company in the industry.
Apart from this, if the
firm suffered from loss
or gains then shared
among all the partners. It
can be included under
the individuals or trusts
or corporations (General
Partnership, 2017).
A business type in
which all the partners
of an entity are
depended on the
jurisdictions where it
is mandatory to follow
all the legal laws and
regulations is known
as limited liability
partnership. Further, it
any kind of problem
incurs due to one
partner then another is
not liable for this
According to this, it is
necessary to use
personal liability of
each and every partner
whether he or she
associated with the
firm directly or
indirectly. Apart from
this, it is not
mandatory that profits
and losses are shared
with all the partners.
Therefore, sometimes
one can be in the
2

(What is a Limited
Liability Partnership
(LLP)?, 2016).
beneficial situation and
another can be under
the loss.
Differences It is very easy to
establish or exist a
general partnership
company where any
complexities are not
involved.
Under this, incomes are
losses are required to
bear all the partners.
The limited liability
partnership company
abide by several legal
rules and regulations.
Along with this,
judgements taken by
jurisdictions are only
applied at the
workplace.
As per this, liability to
bear loss or gain is
depended on the
partner who makes
mistake.
Under this, certain
rules are applied where
the partners sometimes
able to make their own
decisions. However, if
any critical conditions
occurred then legal
formalities are
required to complete.
Under this, gains and
losses are shared as per
the efficiency of the
partners (Brown and
Osborne, 2012).
Legal requirements Not any rules are
imposed on this kind of
the firm.
Under this, it is
necessary to prepare
all the financial
statements using legal
laws, accounting
theories, standards,
principles etc.
Legally required to
prepare certain
financial statements
like cash flows, I/S
and P&L.
Features In this business
structure, risks and
rewards as well as
profits and losses are
shared among partners
In this type of
business, unlimited
number of partners can
open a company.
The company must
follow all the legal
rules and laws as per
the jurisdictions.
3

equally.
Advantages Key benefit of this
structure is that, partners
not have to pay any kind
of income tax.
This structure provides
protection to each
partner against to
negligence of all the
other partners of the
company. Further, not
has to pay federal tax
amount.
Key benefit of this is
that, it provides tax
benefits to the partners
which leads to decline
financial burden and
enhance profitability
position.
Disadvantages Basic limitation of this
structure is that, if any
debt incurred by any one
partner then all the liable
for this.
Limitation of this is
that, doctors and
lawyers cannot take
part in this type of
business structure as
per the legal rules and
regulations.
Due to change in laws
on the basis of states
and regions wide range
of confusions can be
created in this kind of
business.
Suggesting Victoria Babies about the best structure
After considering the above analysis it can be advised to Victoria Babies that it should
select limited liability partnership (LLP) for expanding existed business. The reason is that, all
the decisions are based on the jurisdictions where issue of dispute among partners will be
resolved easily. Apart from this, it allows unlimited number of partners for opening a business
where required level of capital can be raised easily. Along with this, federal taxation amount is
not required to pay under the suggested business structure.
Question Two
Explaining management as well as financial accounting along with their differences
An area of study in which financial plans are prepared, implemented, monitored and
analysed in effective manner is known as management accounting. It is majorly used to make an
internal business decisions to the Victoria Babies company. Company uses this to track internal
4

aspects and availability of cash position at the working environment. On the basis of this,
decisions related to investment, fund raising etc. are taken in profitable manner (Broadbent and
Cullen, 2012). Apart from this, a method in which reports as well as accounts prepared through
which firm able to determine accurate and timely financial information is considered as
management accounting. Further, any kind of internal business decisions like day-to-day and
short terms judgements are made by managers from management accounting.
A branch of study where financial transactions are recorded and final accounts are made
like income statement, balance sheet, cash flows etc. is identified as financial accounting. A
branch of accounting in which money or amount treated in terms of measuring and analysing
economic performance of the company rather than element of production is referred as financial
accounting. In order to assess business performance of Victoria Babies company in relevant
industry this is used. Further, it ignores to the internal aspects and helps to make external
decisions towards the enterprise. For every company, it is mandatory to use the financial
accounting and its several aspects.
Management accounting Financial accounting
This aspect used by the companies to make an
effective analysis of the internal aspects only
and take decisions in accordance to this.
It is taken into consideration by the firms to
analyses external elements along with financial
performance of enterprise in the sector.
Under this, it is not necessary to prepare all the
reports. Further, firms make reports in this
aspect for tracking only internal information
(Snell, Morris and Bohlander, 2015).
On the another side, it is mandatory to prepare
all the statements included under financial
accounting using legal rules and laws.
Key users of management accounting are only
internal stakeholders. These include managers,
owners and employees. People or group of
members who are included with the business
are referred as stakeholders.
Basic users who use and analyse reports of
financial accounting are external stakeholders.
Further, these involve customers, suppliers,
creditors, government, shareholders etc.
Further, employees also consider the reports of
financial accounting. Through this they able to
determine profitability and liquidity position in
5

proper way.
Under this some small reports are prepared as
per the transactions like cost, incomes,
expenses, revenue, operating budget etc.
On the other side, it includes income statement,
balance sheet, cash flows statement and
statement of changes in equity and gains
(Arnold, 2013).
While using the management accounting
system, there is no requirement to use auditing
and publishing process of accounts.
Under the financial accounting, it is necessary
to use all the procedures like auditing,
publishing etc. using legally.
Question Three
Explaining financial statements illustrations of them
Under the financials basically three kinds of the statements or accounts are prepared
which help to analyse overall business performance. Moreover, to track profitability as well as
the liquidity position also such statement are considered. Further, explanation of the financial
statements along with illustration is stated below:
Cash flows statement along with illustration
A statement which shows difference between two values which are like cash inflows and
cash outflows is known as cash flow statement. A statement which reflects that fluctuations in
balance sheet amount as well as income create impact upon cash and cash equivalents is
considered as cash flow (Arrondel, Debbich and Savignac, 2013). On the basis of this, company
able to determine that whether it is under the condition of cash deficit or surplus. Apart from this,
it considers cash of generally three business activities which include financing, operating and
investing.
Cash flow statement
Particulars Year 1
Opening balance 80000
Cash sales 110000
6

Total cash inflows 190000
Cash outflows
Salary to staff 48520
Administration expenses 5000
Marketing costs 5200
Maintenance charges 2360
Selling and distribution 10270
Rent on property 10250
Insurance premium 15780
Utility expenses 12620
Interest expenses 20000
Tax expenses 20000
Total cash outflows 150000
Surplus/Deficit 40000
Closing balance 120000
Income statement along with illustration
This account reflects the incomes and expenses which shows the net profit or net gain
incurred during the end of financial year. It tracks firm's expenses and gains so that resources
does not lead to wastage for it. It is a summary of revenues, costs and expenses (Brigham and
Ehrhardt, 2013).
Particulars Amount (in GBP)
Sales 142000
Cost of goods sold 28400
7

Gross profit 113600
Less: Operating expenses
Salary to staff 29520
Administration expenses 8990
Marketing costs 2200
Maintenance charges 2360
Selling and distribution 3280
Rent on property 6250
Insurance premium 3780
Utility expenses 5620
Total operating expenses 62000
Earning before interest and
taxes (Operating profit) 51600
Less: interest expenses @
1.5% 20000
Profit before taxes 31600
Less: tax expenses 20000
Net profit 11600
Statement of financial position with illustration
It is a financial document which is summary of financial balances on a particular date. It
discloses company's assets and liabilities and shareholders equity at a particular point if time.
This information is used by the different agencies to make an assessment regarding credibility of
the concern organisation (Vassolo, De Castro and Gomez-Mejia, 2011).
Balance sheet
8

Assets Liabilities
Current assets Current liabilities
Cash 285200 Accounts payable 33970
Accounts receivables 185000
Prepaid rent 26000 Total current liabilities 33970
Inventory 120000 Long term liabilities 72000
Total current assets 616200 Total liabilities 105970
Long-term assets Owner's equity
Plant 178000 Owner's equity 703850
Machinery 55620 Retained earnings 40000
Total long-term assets 233620
Total owner's equity 743850
Total assets 849820
Total liabilities and
owner's equity 849820
Question Four
Identifying five potential stakeholders and financial information used by them
Person or group of people who associated with an organisation whether in direct way or
in indirect manner, identified as stakeholder of the firm. People who are involved with an
enterprise with some concerns and intentions are referred as stakeholders of business. Further,
with each and every enterprise several stakeholders included which are like internal as well as
external. Those people who are involved with the internal and external environment of the
company are considered as internal and external stakeholders. These all use financial statements
and information of different types due to taking fair and profitable decisions towards the entity.
In the current study, when Victoria Babies company is going to become a limited company by
9

doing partnership at the time of expansion then various potential stakeholders will be there.
Moreover, these are stated below with reference to Victoria Babies enterprise:
 Employees: These are key asset for every entity because help to the firm in order to
produce products like bowl and complete various business processes in smooth manner.
Employees are highly concerned for fair wages, attractive allowances, bonuses etc. which
is based on the profitability situation of the firm (Hayre, 2015). Hence, workers use profit
condition of the Victoria Babies firm where profit and loss account is undertaken by
them.
 Managers: Another stakeholders are managers who concerned for taking an effective
and fruitful business decisions at the working environment of Victoria Babies firm. These
use profit as well as cash availability position of the company in order to decide for
making investment and raising fund from external market. Hence, P&L account and cash
flow statement are used by them.
 Suppliers: Those people who provide raw materials to the firm i.e. Victoria Babies in
order to produce finished products like Toddler Bowls are called as suppliers. These
kinds of the stakeholders use income statement through which they can decide that
whether firm is at the profitable condition or not (Broadbent and Cullen, 2012). On the
basis of this, make decisions to assess capability of firm in order to purchase raw
materials in cash.
 Shareholders: People who invests money in the firm by purchasing shares of it and
generates return are known as shareholders. When these are higher, then Victoria Babies
able to enhance equity share capital at the workplace. They use P&L account where
dividend and profit amount is mentioned. If the firm generates huge income then become
capable to provide more divided amount.
 Customers: At the last and fifth potential stakeholder of Victoria Babies will be
consumers. This type of stakeholders are highly concerned towards the quality as well as
pricing aspects of the products which are produced by chosen company. These people use
profit element under the financials because higher the income leads to provide better
10

standard of the toddler bowls (Shapiro, 2008). Along with this, it will become capable to
allows customers for offering goods at the lowest prices.
ANALYSIS
It can be found from the above analysis that, when company manages it various financial
resources then easily able to become financially sound in the industry where it operates. By
considering various business structures, limited liability partnership is one of the beneficial for
Victoria Babies when it goes for business expansion. Apart from this, management accounting is
used to make internal business decisions whereas financial accounting is undertaken for taking
external judgements. Further, there are basically three financial statements are prepared like I/S,
cash flows and B/S which reflects profitability, cash availability and liquidity situation of
Victoria Babies entity. It can be concluded from the end of report that, five potential stakeholders
of the firm will be employees, managers, customers, suppliers and shareholders who use
financial information to take profitable decisions towards it.
RECOMMENDATIONS
From the above analysis it can be suggested to Victoria Babies that, it should chosen
limited liability partnership business at the time of expanding. The reason is that, all the
judgements will be taken by jurisdictions where problems of conflict among partners will be
solved legally. At the workplace of limited liability partnership, when any kind of problem or
dispute takes place then government or authorised party intervene and supports to make better
decisions. The reason is that all the jurisdictions and laws are applied in this kind of business
structure legally.
11