Comprehensive Finance Report: Clariton Antique Ltd Financial Analysis

This report provides a comprehensive analysis of financial resources and decisions, using Clariton Antique Ltd as a case study. It begins by identifying and evaluating various sources of finance, including internal and external options like retained earnings, owner’s capital, debt financing, and equity financing, assessing their implications and costs. The report then delves into financial planning, emphasizing the importance of budgeting and assessing the information needs of different stakeholders such as partners, venture capitalists, and finance brokers. A key component is the preparation and analysis of a cash budget, alongside calculations for per-unit costs and pricing decisions. Furthermore, the report assesses the viability of projects and explores different financial statement formats, comparing them in relation to organizational structure, and interpreting relevant financial ratios to assess the financial health and performance of the company. The analysis includes the impact of finance on financial statements and concludes with recommendations based on the findings.

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 implications of sources of finance....................................................................................3
1.3 Evaluate the sources of finance..........................................................................................................4
TASK 2..........................................................................................................................................................4
2.1Analyse the cost of sources of finance................................................................................................4
2.2 Explain the importance of financial planning....................................................................................5
2.3 Assess the information needs of users of finance...............................................................................5
2.4 Impact of finance on financial statements..........................................................................................6
TASK 3..........................................................................................................................................................7
3.1 Prepare cash budget and analyze......................................................................................................7
3.2 Calculation per unit and pricing decision...........................................................................................9
3.3 Assess the viability of projects........................................................................................................10
TASK 4........................................................................................................................................................13
4.1 Explain different financial statements format..................................................................................13
4.2 Compare different formats of financial statements with different organization structure................14
4.3 Interpretations of ratios....................................................................................................................16
CONCLUSION.............................................................................................................................................19
REFERENCES..............................................................................................................................................19

INTRODUCTION
Role of finance has increases which act as a fortune teller who identifies financial crisis
incurred in the future to rectify the deficiency of the business. Clariton Antique Ltd has been
selected in this report in explaining the importance of finance. This focuses on selecting finance
and assessed on various parameters. The cost of finance are assessed which further help in
selection of the best suitable sources of finance. Capital budgeting tools and ratio analysis are
applied by an entity in assessing viability of the business proposals.
TASK 1
1.1 Identify the sources of finance
Unincorporated users- The players of the business who have no legal identity in the eyes of law
as are not registered under the law (Kaplan and Atkinson, 2015). The companies who have not
registered in the companies act are not abiding by their rules and regulations.
Retained earnings-The commonly use internal source of finance which is personal property of
an individual. This amount generated after giving dividends out of the total profit earned by an
individual. This is often represents as secret profit kept by the owner as savings in form of
reserves to meet uncertainty. The current reserve will help in improving the efficiency of the
existing business.
Owner’s capital- Savings of an individual are used in meeting the funding requirement of the
business. The capital infused by the owner in their current business will generate minimum
return for all the business players. The efficiency of enterprises will get increases when the
investment has increases by applying their own resources in their business.
Incorporated business- The business which has registered in the companies act and other
federal and state laws has legal recognition in the outside business environment. The registration
of the business enterprise will provide further recognition form of public or private companies.
Debt financing- Cheapest sources of finance in the business and their capital structure are debt
finance. It is that kind of external sources of finance which is based on asset in which assets are
given on collateral security in order to get finance.
Equity cash flow- Applications are invited by sending offer to take up the shares of the business
enterprise. The shares are issues in order to accomplish the business requirements in order to
strengthen the existing resources.
1.2 Assess the implications of sources of finance
Internal sources of finance

Retained earnings-It helps in boosting the performance of an entity as this utilizes the secret
profit in own business. This improves the economic growth of an enterprise in which existing
resources are utilized by an entity in accomplishing their goals and the objectives. This further
generated after paying taxes and dividends which remains with less amount.
Owner’s capital-The possession of the money are held with an entity in order to invest the
money in their business. The money can be invested by an entity according to their business
nature and requirements.
External sources of finance
Debt financing- The initial benefit of the enjoyed by the business by using these sources of
finance is that it can be taken in any quantity (Epstein and Buhovac, 2014). The obligation
involved in taking these sources of finance involves interest paid on the loan by depositing
collateral security with the bank or any kinds of financial institutions. This source of finance is
regarded as cheapest sources of finance as it doesn’t carry long term debt obligations.
Equity financing- This is another important sources of finance which helps in building
appropriate capital structure of the business concern. The cash flow increases by an entity as the
amount taken from all the shareholders to be kept by the owner for long term till the wound of
the business. This source of finance involves payment of dividend and all other legal and
agreement fees to be incurred in issuing equity shares. The maintenance of the issued shares is
essential in order to maintain the existing position.
1.3 Evaluate the sources of finance
Internal sources of finance- The internal sources of finance will includes retained earnings and
owner’s capital held by an enterprise for log term in their business. The internal capability of an
individual will be improved with the passage of time as it enhances the capability of the
organization.
External sources- The higher obligations covered while using these kinds of financial resources
which involve debt and equity financing as one of the commonly used techniques. The cost of
dividend and paying interest on the amount taken will involve additionally.
It can be recommended to the business to choose retained earnings as one of the
important sources of finance for an enterprise.
TASK 2
2.1Analyse the cost of sources of finance
Basis Venture capitalist Finance broker
Dividends The amount given to all the
shareholders for applying their
money in the business of clariton
The term dividend will not affect
the business in terms of using
these particular sources of

Ltd are appreciated by giving
dividend in return. The amount
invested by the capitalist in the
business of clariton Ltd is
awarded with 20% stake in an
entity.
finance. The dividend is not
given by the business to the
finance broker.
Interest There is no provision of interest
by the venture capitalist. Specific
percentage of 20% stake enjoyed
by the capitalist in the
management of clariton antiques
Ltd.
Bank loan taken by the business
entity by approaching broker.
The bank will charged interest of
2% annually for loan taken over
1 year. The interest charged by
bank will reduce their overall
earned profit in an enterprise.
Tax The burden of taxation will be
borne by the vendor company
who will acquire the business of
the clariton Ltd. The business
expertise offered by the business
will help in reducing the burden
of taxation and improving the
existing business of clariton
Antiques Ltd.
The basic benefit enjoyed by the
clariton Antique Ltd is of
taxation. The interest paid on
the loan taken by this entity
from the external financial
institution is tax deductible. The
brokerage paid will further
decrease the imposition of
taxation on the business
enterprise.
2.2 Explain the importance of financial planning
Budgeting- The current facts and figures are assessed in order to predict the future business
performance of an entity. The income and expenses are predicted which helps in improving the
performance of the entity.
Inadequate finance- The finance will be arranged by an individual by analyzing the present
situations as this will help in boosting the performance of an entity in case of financial crisis.
Overtrading- The goal sheet will be prepared by an enterprise by using activity monitoring
tracking system in which business activities will be divided into three categories such as short
term, medium and long term goals.
2.3 Assess the information needs of users of finance
The business is a collection of different users who exist in the same entity in order to
make different decisions in the favor of the organization (Chong, 2014). There is various
information included in the business which fulfills the needs of different individuals which is
given as below:
Partnerships- The partners who want to invest in the business of clariton Ltd are required to
identify the current performance off an entity. The higher market returns will restore the interest
of the partners in order to invest in the business entity of clariton Ltd. The partners are highly

cared about the investments brought by clariton in form of capital as this will determines the
ratio. This determination of ratio is important as all further decision related to the distribution of
the profit is based on this particular ratio.
Venture capitalist- The investment in form of capital is granted by the capitalist to the business
which includes business expertise as complimentary. The current financial performance of an
entity will be determines by these individual as the interest will be gained by the capitalist in the
near future from these business concern. The higher trend of profitability is important which will
be helpful for an entity in as the profit will be reduces when interest paid by the clariton to we
finance Ltd.
Finance broker- The bank loan is provided by the brokers the business owner of the clariton Ltd
by applying their tactics. The fees charged by the brokers in form of brokerage will reduce the
overall profit of an enterprise. The interest charged on the bank loan will be determined by
including in the specific register along with rate of interest.
2.4 Impact of finance on financial statements
Particulars Amount
Capital XXX
+ Venture capital XXX
Particulars Amount
Profit XXX
- Interest (XXX)
Venture capitalist- The amount provided by the venture capital to the clariton ltd in order to
improve their existing business will affect both profit and loss account and the balance sheet. The
interest charged by the venture capitalist for the amount borrowed for their business will
decreases the overall profit. The amount of venture capital will show under the head capital of
the balance sheet.
Particulars Amount
Equity
Capital XXX
+ Bank loan XXX

Non Current Liabilities
Bank loan XXX
Particulars Amount
Profit XXX
- Interest@2% (XXX)
-Brokerage@1% (XXX)
Finance broker- The brokers are external party appointed by an entity in order to accomplish
their work without any kind of legal complexities. The legal complications will be decreases by
appointing brokers who will charge fees for providing loan to the business. The brokerage fee
will reduce the profit of the business entity. The interest charged on the loan is 2% payable over
10 years for taking amount of 0.5 million amount. The current amount borrowed by an entity by
approaching the finance broker will increases the capital in the business. At the same time, bank
loan will also incorporated by an entity under the head long term debt in the liabilities section in
the balance sheet.
TASK 3
3.1 Prepare cash budget and analyze
Cash budget is regarded as important document prepared by an entity which determines
the movement of cash inflow and outflow in an enterprise. It is statement which shows the
expected cash expense and gains incurred in the business in a particular year. This document
ascertains the ability of the business concern in relation to the external competition.
Particulars January February March April May June
Receipts
Received in same
month(W.N.1)
15000 22500 30000 15000 15000 3750
Received in one
month(W.N.1)
120000 240000 360000 480000 240000 240000
Received in two
month(W.N.1)
22500 22500 45000 67500 90000 45000
Total receipts 157500 285000 435000 562500 345000 288750
Payments

Payment to
suppliers
807250 137250 119750 437250 227250 219750
Shortage/Surplus -649750 147750 315250 125250 117750 69000
Opening cash
balance
110000 -539750 -392000 -76750 48500 166250
Closing cash
balance
-539750 -392000 -76750 48500 166250 235250
Months November December
Janu
ary February March April May June July
Sales 150000 150000
3000
00 450000 600000 300000 300000 75000
15000
0
Received in
same month
1500
0 22500 30000 15000 15000 3750
Received in
one month
1200
00 240000 360000 480000 240000 240000
Received in
two months
2250
0 22500 45000 67500 90000 45000
Interpretation
Cash budget mention above is reflecting the true performance of an enterprise which
presented both positive and negative cash flows. The above budget is showing negative figures
in the first three months starting from January to March (Post and Byron, 2015). The amount of
cash flow generated in the current cash budget is decreasing as their cash inflow is less as
compared to their overall outflow. The initial cash inflows and the opining cash balance are not
enough in order to meet the burden of the overall cash outflows in form of payment to al the
suppliers. The amount of these negative cash flows is decreasing over the month due to inclusion
of cash inflows and decreasing amount of payment to the suppliers.
In the next trio month beginning from April to June states that closing balance has
increases from one month to another which shows the ability of an enterprise. The increasing

cash flow is good sign of enhancing condition of an entity. There are various ways in which an
entity can control their higher amount of cash inflow which is give as below:
 The higher cash flows can be invested in the same entity and in another business
 The amount invested today will generate higher returns in the near future.
3.2 Calculation per unit and pricing decision
Operating and running cost Total cost Units Per unit
Depreciation(Charge on machines) 5000 4000 1.25
Fuel and lubricant oil 2500 4000 0.625
Supervisor wages 500 4000 0.125
Repairs and Maintenance
Repairs 800 4000 0.2
Overhead 1000 4000 0.25
Petty expenses 250 4000 0.0625
Total variable cost 5050 4000 1.2625
Standing charges
Salary of manager 3500 4000
Insurance 2200 4000
Rent of premises 2800 4000
Motor vehicle 6000 4000
General expenses 4500 4000
Interest 1500 4000
Total standing cost 18500 4000 4.625
Total Cost per unit 5.8875
Service Tax @20% 1.1775
Add profit@20% 1.7662
Selling price 8.83
The above determination of selling price is essential as in the current situation Clariton
Antique Ltd is operating in a service sector where services are offered to its clients. The service
and operating costing system has adopted by an individual in which all variable and fixed
charges are taken into consideration by an enterprise (Chong, 2014). The current selling price of

the business are included the amount of taxation and specific percentage of profit element in the
price of products. Service tax has especially include in this particular pricing as the service are
provided by the seller are required to charge this tax. This is indirect tax whose burden will be
imposed on the buyer.
Value based pricing- This kind of pricing is suitable in case of services provided by the seller to
their variety of customers. The prices are changed for the actual value of the product to different
individuals by using the products.
Target return- the targets are determined by an individual in which minimum amount of profit
margin are charged by the owner by selling their products or services to its variety of customers.
3.3 Assess the viability of projects
Years Project A Cumulative cash flows
0 8.6 -8.6
1 1.6 -7
2 2.8 -4.2
3 3.4 -0.8
4 3.6 2.8
5 4 6.8
6 4.2 11
Calculation of payback period
= 3+0.8/3.6
=3+0.22
=3.22 years
Table 1: Payback of Project B
Years Project B Cumulative cash flows
0 4.4 -4.4
1 0.8 -3.6

2 1.4 -2.2
3 2 -0.2
4 2.4 2.2
5 2.3 4.5
6 2.6 7.1
Calculation of payback period
3+0.2/2.4
=3.08 years
Interpretation
Traditional method of capital budgeting is to determine the time in which returns will be
generated by the business proposals. The projects are accepted or rejected on their existing
performance for the betterment of their enterprise. In the current business scenario, both the
proposals are under the selection criteria set by the business owner. The best suitable project to
be selected by an entity is Project B as it has lower period of generating returns.
Years Project A Pv@14% Present value
0 8.6
1 1.6 0.8771929825 1.4035087719
2 2.8 0.7694675285 2.1545090797
3 3.4 0.6749715162 2.2949031551
4 3.6 0.5920802774 2.1314889985
5 4 0.5193686644 2.0774746574
6 4.2 0.4555865477 1.9134635003
Total 11.975348163
NPV 3.375348163
Years Project B Pv@14% Present value

0 4.4
1 0.8 0.8771929825 0.701754386
2 1.4 0.7694675285 1.0772545399
3 2 0.6749715162 1.3499430324
4 2.4 0.5920802774 1.4209926657
5 2.3 0.5193686644 1.194547928
6 2.6 0.4555865477 1.184525024
Total 6.9290175759
NPV 2.5290175759
Interpretation
Net present value method is important technique of capital budgeting which is modern
version technique emphasizes on the profitability of the organization. The future profitability of
the business needs to be enhanced in order to take up best suitable project taken into
consideration. The time value of concept uses in which present cash flows are assessed by
applying appropriate discounting factor rate. The standard criteria set by an enterprise are 2
million which has met by both the projects. According to this technique project A will be
selected by the employer.
ARR million
Year Project A Project B
0 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 3.67 1.67
ARR 37.98% 43.56%
Interpretation
Average rate of return is that technique of capital budgeting tool which helps in assessing
the profits generated by two of the business proposals. His technique will majorly focuses on the
profit generated by business proposals. This rate will be higher than the internal cost will be
selected by the business enterprise. Project B will be selected by an entity owner as this rate of
return is highest among the two proposals.
Evaluation criteria Project A Project B
Payback 2 1
NPV 1 2
ARR 2 1
Ranking has given to both the projects on the basis of higher results generated from
different techniques of capital budgeting like payback, NPV and ARR. 1st rank is allotted to the
project generating results and 2nd is for less amount if results. The selection of the best suitable
project is based on the above ranking given to two different business proposals. It can be
recommended to the clariton that project B will be selected by the owner in order to consider
each and every project for the future purpose.
TASK 4
4.1 Explain different financial statements format
There are various financial statements formats help in assessing the financial business
performance of an enterprise which is given as below:
Income statement- The basic motive of this particular statement is to determine the profitability
after conducting different activities in the business (Joshi, Grebner, Munn and Grala, 2015).
Sales and the revenue earned by an individual is test on the measure of all the expenses to be
incurred in the business.
Balance sheet- This is regarded as the position statement as this determines the financial
position of an entity in the external business environment. Assets and liabilities are the two
important components used in determine the financial position of an enterprise. This can be
prepared by the owner in specific time interval according t their requirement.

Cash flow statement- This statement has assesses the movement of cash inflow and cash
outflow in order to determine the position of the business enterprise. The current statement has
three major activities such as operating, investing and financing activities.
Changes of equity- The opening and closing values of the equity share capital held by the
clariton ltd are assessed in order to determine any changes take places in the business.
Notes to financial statements- The detail mention in the statements will help all the users in
order to make important decisions. It is mandatory to attach these statements along with the
financial statements in order to improve the performance of an entity.
4.2 Compare different formats of financial statements with different organization structure
Trading a/c
Particulars Amount Particulars Amount
Purchase XXX Sales XXX
Wages XXX Closing stock XXX
Gross profit XXX
Total XXX Total XXX
Profit and loss account
Particulars Amount Particulars Amount
Depreciation XXX Gross Profit XXX
PBD XXX Interest received XXX
Taxation XXX
Net profit
Total XXX Total XXX
Sole trader- The activities of the business conducted by sole trader are recorded in the trading ad
profit and loss accounts in order to determine the profit of the business enterprise. The profit will
be generated after excluding all kinds of expenses from the main figure of sales and the revenue.
Liabilities Amount Assets Amount
Capital XXX Trade receivables XXX
Trade payable XXX Cash XXX
Bank loan XXX Inventory XXX
Total XXX Total XXX

Balance sheet- The format of the balance sheet will depends upon the business entity such as
both horizontal and vertical format of the balance sheet. The asset and liabilities of the sole
trader will be rerecorded in these statements in order to determine the capability of an enterprise.
Profit and loss appropriation account
Particulars Amount Particulars Amount
Net profit/loss as per
profit and loss
account
XXX Interest on drawing
Interest on capital A XX
A XX B XX XXX
B XX XXX Share of profit XXX
Partner's salary XXX A XX
Partner's commission XXX B XX
Total XXX Total XXX
Income statement- The distribution of the profit among all the partners after considering all the
expenses such as interest charged on the drawings will be deducted from the available profit of
the business entity.
Balance sheets of AB partnership firm
Particular
s
A B Particular
s
A B
Drawing XX XX Capital XX XX
Closing
balance
XX XX Share of
profit
XX XX
Salary XX XX
Commissi
on
XX XX
Total XXX XXX Total XXX XXX
Balance sheet- The capital brought by all the partners in their business in order to fund their
business requirements. This statement has prepared for the whole firm and not for separate
partners but the closing balance of all the partners will be easily determined by this statement.

4.3 Interpretations of ratios
Particulars Formula 2015 2016 Industry
average
Profitability ratios
Revenue 1220 1255
GP 175 178
GP ratio Gross profit/Net sales*100 14.34% 14.18% 14.4%
NP 33 23
NP ratio Net profit/Net sales*100 2.70% 1.83% 2.85%
Liquidity ratios
Current assets 71 105
Current liabilities 161 167
Inventory 46 47
Quick asset Current assets-inventory 25 58
Current ratio Current assets/Current
liabilities
0.44 0.62 2:1
Quick ratio Quick asset/Current
liabilities
0.15 0.34 1:1
2015 2014
14.10%
14.15%
14.20%
14.25%
14.30%
14.35%
14.40%
14.34%
14.18%
GP Ratio
GP Ratio
Interpretations

Gross profit is regarded as raw amount of profit which is generated by an individual after
meeting cost of sales from the main figure of sales. This ratio is increasing from 2014 to 2015 to
14.34% due to lesser imposition of cost of sales. This ratio has further compared with the
industry average which is around 14.4%. The ratio in the 2015 is higher than the overall average
of the whole industry which shows the ability of an enterprise.
2015 2014
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00% 2.70%
1.83%
Net profit
Net profit
Interpretation
The final and complete profit which determines the current financial position of an
enterprise in the external world is net profit (Popescu, 2014). All kinds of expenses deducted
from the income of an entity in a particular year ascertain this value. This amount will be
generated by an enterprise after excluding all the expenses from the gross profit of the business
concern. This amount will shows the imposition of taxation amount on the profit of an enterprise.
This particular ratio has increases from one period to another which shows the significance of an
entity. The higher efficiency of the organization is due to lesser imposition of taxation on the
concern.

2015
2014
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.44
0.620000000000
001
Current ratio
Current ratio
Interpretations
The liquidity is regarded as one of the important ratios which are essential for an
organization. This liquidity shows the capability of the business in order to repay its short term
market obligations. The current ratio assesses the ability of the current assets held in an entity in
relation to the current liabilities. The trade receivables are used in accordance. The current ratio
has decreases from one period to another which shows the deficiency of the business enterprise.
In this ratio the position of an entity is declining from top to the bottom level.
2015 2014
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.15
0.34
Quick ratio
Quick ratio
Exponential (Quick ratio)
Interpretations
Quick ratios assess the capability of the business enterprise in relation to the current
liabilities held in the business enterprise (Sui and Baum, 2014). In calculation of this ratio,