Financial Resources Management: Analysis and Evaluation Report

This report provides a comprehensive analysis of managing financial resources, specifically focusing on the context of the Foreign and Commonwealth Office. The report begins by identifying and evaluating various sources of finance, including internal sources like retained earnings and sale of assets, and external sources such as issuing shares, lease financing, and bank loans. It assesses the implications, costs, and suitability of each source for a business project, like a water testing and monitoring initiative. The report further delves into the analysis of costs associated with different financing options, emphasizing the importance of financial planning for project success and long-term sustainability. It explores the information needs of different decision-makers, differentiating between visionary and guardian approaches. The impact of finance on financial statements is also examined, covering the main financial statements, format comparisons, and the interpretation of financial statements using ratios for assessing profitability, solvency, and liquidity. The report concludes with an analysis of budgets, unit cost calculations, pricing decisions, and investment appraisal techniques to evaluate project viability.

Managing Financial Resources

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Identify appropriate source of finance..................................................................................1
1.2 Assess the implications of different sources of finance........................................................2
1.3 Evaluate appropriate sources of finance for business project...............................................3
2.1 Analyse cost of various sources of finance...........................................................................3
2.2 Explain the importance of financial planning.......................................................................4
2.3 Assess the information needs of different decision makers..................................................5
2.4 Explain the impact of finance on financial statement...........................................................5
3.1 Analysation of budget and appropriate decisions.................................................................6
3.2 Calculation of unit cost and pricing decisions using relevant information...........................7
3.3 Viability of proposal using investment appraisal techniques................................................7
TASK 3............................................................................................................................................8
4.1 Main financial statements.....................................................................................................8
4.2 Comparison of appropriate formats of financial statements for different type of business. .8
4.3 Interpretation of financial statements by using ratio and comparison internally and
externally.....................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance is an essential need for every organisation in order to operate their business
operations in smoothly manner to achieve growth and success in competitive business world.
There are various sources through which the business can raise funds in the time of need such as
internal sources and external sources (Financial planning meaning and definition, 2017). This
assignment report covers the different sources of finance suitable for foreign and common wealth
office along with its implications. The project also summarised the analysis of cash budget which
will be helpful in formulating an effective decision. Along with this different financial statements
are also mentioned which show true financial position of company. In addition to this various
ratio are also used to identify the company's accurate financial position in terms of profitability,
solvency and liquidity.
TASK 1
1.1 Identify appropriate source of finance
There are different sources of finance through which the company can raise its capital.
Some of the sources are given as below:
Internal sources of Finance
Retained earnings: It is certain percentage of profit which is retained by company for the
purpose of meeting future contingencies (Integrated reporting, quality of management, and
financial performance, 2012). It is considered as most effective sources of finance which help in
company in raising its capital.
Sale of fixed assets: By this method, the company can raise its capital through selling its
old and obsolescent assets which are of no use to the company.
Angel Investors: By using this type of source the company can raise funds from their
relatives and friends for different period of time at reasonable rate of interest which help them in
meeting the financial needs.
External sources:
Issue of Shares: This is the easiest method through which foreign and common wealth
office can raise its finance. Through this method, the company invites general public and
investors to purchase their equity shares.
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Lease financing: Through this source, the business can allow other party to use their
specific properties, machineries etc. for a certain period of time. In return other party has to pay
decide amount as per the terms of agreement.
Bank Loans: It is another way of source through which foreign and common wealth
office can meet its financial needs and requirements (Epstein and Buhovac, 2014). Through this,
the company can borrow funds from different banks by paying high rate of interest, through this
borrowing the company can avail various tax benefits if they choose this source of raising
finance.
1.2 Assess the implications of different sources of finance
Sources Cost Suitability
Retained earning If foreign and common wealth
office prefer to raise funds
through retained earning then
they will not be in strong
position to face contingencies
if happen in future.
It helps company in reducing
the interference of
shareholders in their business
decision making process.
Sale of fixed assets The company cannot receive
the full market value for their
item through which the
company may face losses.
Storing cost will be saved after
selling fixed asset which is no
use for company.
Angel investors Raise funds at reasonable rate
of interest as compared to bank
loans etc.
The business need to pay
interest to them on timely
basis.
Issue of shares It is required to pay dividend
to their shareholders out of
profit which reduces the profit
margin of company.
It help company in meeting
long term requirement of
capital such as expanding its
business for longer term etc.
Lease financing Any damage occurs to the
rented assets then the loss
The business can receive fixed
amount of rent from lessee on
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would be beard by the
company itself.
regular basis for using
company's assets.
Bank loans If the company fails to make
payment of the loan then the
banks have rights to cease the
assets of company.
Borrowing funds from banks
the company will avail tax
benefits which help them in
meeting their financial needs.
1.3 Evaluate appropriate sources of finance for business project
Every business project need several amount of fund which facilitate and support in order to
execute each and every activity properly (Brigham, 2014). Thus, by utilising source of finance
properly chances of implementing successful business project get enhance in frame. Diverse
sources of fund are appropriate for every organisation so that chances of better and suitable gain
could be enhance. Thus, management of Foreign and Commonwealth office wants to implement
a project of water testing and monitoring the quality of water so that mineral water gets deliver to
each and every individual. thus, major sources of finance for an association which utilise by
management to arrange sufficient money stated as follow: Share capital: One of a major source of finance is share capital in which business
managers could issue their shares at market place for arranging money. Thus, for
arranging money, Foreign and Commonwealth office can issue their shares at market
world so that number of individual lead to buy such shares and appropriate finance get
arrange.
 Loan: Another major section for arranging and managing finance is loan. This section
could be used at such situation when money not get arrange from any source. Thus, at
such point of course business organisation could utilise this source of finance for
arranging sufficient amount of money.
2.1 Analyse cost of various sources of finance
Cost is signifying as a value which incur on a signified factor or an element which need to
understand and interpret by managers so that suitable and appropriate source of finance also get
arrange (Smith, 2014). In such consideration, business association have to evaluate the cost of
overall project so that appropriate and sufficient amount of money could be arranging. Moreover,
with such project value is not a limited thing but managers need to evaluate value of each source
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of finance as well so that better and effective working could be supported. Although, in such
aspect, Foreign and Commonwealth Office have to analyse and underpin overall cost of a project
which is £12,000. Thus, managers need to evaluate and underpin overall cost for each source of
finance properly and effectively which define as below: Share Capital: One of a major source of finance is share capital in which business need
to pay dividend to each and every shareholder of a company at the time of profit
generation. The cost of source of finance is usually high because sometimes company
policies stated that whether or not profit get generated organisation have to pay dividend.
Thus, cost of finance in issuing share is more because control or ownership also get
diluted in frame.
 Loan and Overdraft: Another source of finance is loan which need to understand by
business managers properly. Loan is an only source of finance in which interest rate
charges usually high as compared to other consent. A major advantage of using this
consent is that ownership not get diluted in a frame.
Out of these two sources, one of a major and beneficial source with less cost and risk is loan.
Only risk associated with business consider as insolvency of a company at the time of loss. Thus,
management of reference company could utilise such source of finance in order to execute
operations for related project.
2.2 Explain the importance of financial planning
Every project or business need suitable and appropriate plan so that better and effective
working could be promoted (Purce, 2014). Whenever an association wants to implement a big or
vast project in nature they need to prepare a suitable plan so that all essential targets get fulfil and
completed in an appropriate and suitable frame. By following all plan properly, organisation
become able to accomplish all their associated goals and targets properly.
Financial planning is a process in which business authority create several targets for their
financial year on the basis of allocated budget with suitable investment and expenses. It enables
and support in order to perform each and every work properly so that all goals and targets get
accomplish in a suitable frame and enhance sustainability of business as well. Following are
importance of financial planning which need to understand by Foreign and Commonwealth
Office management in order to implement and prepare suitable plan for their further future
project:
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 Initial step is to arrange sufficient fund so that chances of better and smooth
working could be promoted for gaining appropriate outcome (Financial Planning -
Definition, Objectives and Importance).
 Financial planning is helpful in order to maintain and manage stability in project by
ensuring a balance between inflow and outflow of a company.
 It enables and support long term sustainability of business by investing in each and
every project properly and effectively.
2.3 Assess the information needs of different decision makers
Important and appropriate decisions are beneficial for a company so that long term
sustainability could be promoted. Decision making is not an easy thing but it clearly describe
some critical aspects like looking upon on resources, preparing strategies, gain competitive
advantage etc. All these considerations need keen and appropriate focus so that better and
suitable working could be promoted. They need appropriate and suitable information as well as
data of a company so that chances of better and effective gain could be promoted. There are
various decision making styles get evaluated which assess and need various data so that better
and appropriate judgement lead to be carried down: Visionary: One of a kind of decision maker is visionary which like to modify and later
working and provide appropriate change. They relatively gather information which is
narrow in context and sometimes engage in wrong decisions which not define appropriate
and suitable working. They only assess such information which enables and support them
to implement change but nothing else.
 Guardian: These decision makers use fair model so that health, balance and values could
of an organisation could be manage (Petty and et. al., 2014). These individuals have
sound decision making and based on facts and choices properly for implementing plan
successfully. They use safe steps as well as gather and disseminate each and every
variable widely. Such decision makers assessed data is relatively more as compared to
visionary so that better and appropriate judgement lead to carried down.
2.4 Explain the impact of finance on financial statement
Finance is an essential consideration for every business whether they lead to start a small
or big project (McKinney, 2015). it is important to include each and every relevant information
to supported books so that chances of better and effective gains could be promoted. In this
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consideration, all financial information lead to get included in financial statement of a company
so that whenever stakeholders or shareholders want to evaluate books of accounts they can and
provide appropriate fund or borrowings to an association. In this aspect, appropriate financial
statement lead to get included. Impact of finance on financial statement signifies as follow for
better and effective gain:
 Finance need to be borrowed in an appropriate and suitable frame
 Amount of loan need to get manage properly and effective so that chances of negative
influences could be control
 Retain earning made positive influence on business as it signifies appropriate working of
a company to target shareholders and stakeholders
3.1 Analysation of budget and appropriate decisions
There are various type of budgets prepared by the organisation such as
Cash budget of foreign and common wealth office
Particulars April May June July August September
Opening balance 20000 21180 13730 2480 -11230 6420
Cash Inflow
Credit sales 18000 15000 5600 15680 44000 45000
Cash sales 5000 8000 4800 14820 22000 28000
Total Inflows 43000 44180 24130 32980 54770 79420
Cash outflow
Credit purchase 12000 11500 8500 22500 9800 54000
Cash Purchase 5000 9800 3600 11460 4500 3600
Wages 3000 5400 4500 3900 22500 890
Capital
expenditure 1500 3600 1450 5200 9800 1500
Allowances 320 150 3600 1150 1750 12500
Total Outflows 21820 30450 21650 44210 48350 72490
Surplus/Deficit 21180 13730 2480 -11230 6420 6930
Cash budget: These are the budgets prepared to analyse the cash requirement for
upcoming months and duration. As per the above cash budget analysis it is seen that the total
cash flow for the month April was 43000 and outflow was calculated as 21820 same as per
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inflow 44180 for May, for June 24130, 32980 for July, 54470 for august and 79420 for
September. In the month of July surplus or deficit was recorded as -11230 due to increased
amount of credit purchase and capital expenditure.
Sales budget: there is a sales budget prepared for the month for three months. Sales units
for the month of April, May and June recorded.
Particulars April May June
Sales units 20000 22000 38000
Selling price per unit. 10.11 10.11 10.11
Total sales value ($) 202200 222420 384180
3.2 Calculation of unit cost and pricing decisions using relevant information
Unit cost: this is one of the method which is found by the organisation to ascertain the
cost per unit and decide the profit margin. It contains all the fixed cost, variable cost and
overheads cost such as direct material, labour and overheads while calculating the cost per unit.
Calculation of unit cost for the month of September 2017 (Figures in £)
Particulars Amount
Unit produced for the year is 15000
Direct material cost 75000
Direct labour cost 23000
Fixed cost 25000
Profit margin 15.00%
Unit cost = total cost/ no. of units
Unit cost = ( Direct material cost + Direct labour cost + fixed cost ) / unit
produced
Unit cost = 8.2
Profit margin = £8.2 + 15%
Sale price of unit = £8.2 + £1.23
Sale prices of unit = £9.43
3.3 Viability of proposal using investment appraisal techniques
There are various type of investment valuation methods used by the organisation.
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Net present value method: this is the method which define the difference between the
present cash inflow and cash outflow for a specific time duration (Finkelman, 2015.). It defines
the present value of the cash flow of an investment and profitability and sustainability of project.
Year Project
PV at discount rate
(12%) Present value
1 55000 0.893 49107.143
2 65000 0.797 51817.602
3 50000 0.712 35589.012
4 80000 0.636 50841.446
5 45000 0.567 25534.209
212889.41
Payback period method: This method indicates towards return on investment incurred
for a specific time duration. There is a time duration defined in respect of subsiding years.
Year
Initial investment 150000
1 65000 65000
2 85000 150000
3 100000 250000
4 67000 317000
5 45000 362000
TASK 3
4.1 Main financial statements
Financial statements are analysed to know the financial strength and performance of
organisation. Financial statements helps to explain the financial position of organisation. There
are basically four type of financial statements prepared by the organisation such as Cash flow statements: it indicates towards the inflow and out flow of cash from investing
activities, operating activities and financing activity (Lusardi and Mitchell, 2014). These
statements summarised all the information and data related to inflow and out flow for a
particular period.
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 Income and expenditure: This statement shows all the expenditure and income for the
specific period. Income and expenditure statements help to understand the profitability of
organisation. Balance sheer or financial position statement: these statements are useful to analyse the
share capital strength of organisation. This statements keep the records of all the assets
and liabilities.
 Statement of changes in equity: these statements indicate towards the change in equities
such as share capital, reserve and surplus and retain earnings (Finkler and et. al., 2016). It
produce the information related to issue and redemption of share capital, repayment of
loan, increase and decrease in security premium.
4.2 Comparison of appropriate formats of financial statements for different type of business
Various type of financial statements are prepared as per the nature and type of
organisation. Such as Partnership firms: this is one of the organisation type in which two or more parties get
together and agree to work for attain organisational goals (Johnson, 2014). There is a
separate accounting method is used for partnership firms. Partner's capital account,
appropriation of profit and loss among partners and balance sheets are the main financial
accounts prepared in partnership firms and organisations. Sole proprietorship firm: Ownership and control remain in the hand of one person in
this type of organisational types. Owners of the firms operate the business activities by
their own. Profit and loss statement are the main statements prepared by the sole traders. Limited organisation firm: these type of organisations are called as small and medium
size organisations. All the type of financial statements are prepared in limited
organisation firm.
 Big Firm: these are the organisation which remain big in size and contains huge finance
and investment requirement (Heizer, 2016). Cash flow statements and balance sheet are
the main financial statements prepared by the accountants and managers.
4.3 Interpretation of financial statements by using ratio and comparison internally and externally
Ratio analysis of the financial statement of an organisation.
Ratios Formula 2015 2016
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1.Profitability ratio
Operating profit
ratio
(Operating profit / Net sales)*100 0.64% 3.40%
Net profit ratio (Net profit / Net sales)*100 -0.80% 6.00%
2. Liquidity ratio
Current ratio (Current assets / Current liabilities) 0.55 0.66
Quick ratio (Quick assets-stock / Current
liabilities )
0.6 0.30
3. Total assets
turnover ratio
(Net sales / Average total assets) 1.55 1.67
4. Inventory
turnover ratio
(Cost of goods sold / Average
inventory)
35.3 25.44
NOTE: above information related to ratio analysis are based on assumptions.
CONCLUSION
Management of financial resources the crucial task for management and authority of an
organisation. This report defines the importance of financial management subject to managing
the financial resources with in the organisation. Various type of sources of finance available to a
business are defined in this context. How the sources are implemented with in the organisation
also illustrated. Implications of finance as a resources with in an organisation also try to
understand subject to practical based scenarios. Financial make decisions and informations are
also illustrated subject to financial statements. Analysation of financial performance by
interpretation of financial statements illustrated in this report.
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REFERENCES
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organizations. CQ Press.
Heizer, J., 2016. Operations Management, 11/e. Pearson Education India.
Johnson, P. F., 2014. Purchasing and supply management. McGraw-Hill Higher Education.
Koropp, C. and et. al., 2014. Financial decision making in family firms: An adaptation of the
theory of planned behavior. Family Business Review. 27(4). pp.307-327.
Lusardi, A. and Mitchell, O. S., 2014. The economic importance of financial literacy: Theory
and evidence. Journal of Economic Literature. 52(1). pp.5-44.
McKinney, J. B., 2015. Effective financial management in public and nonprofit agencies. ABC-
CLIO.
Petty, J. W. and et. al., 2015. Financial management: Principles and applications. Pearson
Higher Education AU.
Purce, J., 2014. The impact of corporate strategy on human resource management. New
Perspectives on Human Resource Management (Routledge Revivals). 67.
Smith, W. K., 2014. Dynamic decision making: A model of senior leaders managing strategic
paradoxes. Academy of Management Journal. 57(6). pp.1592-1623.
Brigham, E. F., 2014. Financial management theory and practice. Atlantic Publishers &
Distri.Churet, C. and Eccles, R. G., 2014.
Integrated reporting, quality of management, and financial performance, 2012. Journal of
Applied Corporate Finance. 26(1). pp.56-64.
Epstein, M. J. and Buhovac, A. R., 2014. Making sustainability work: Best practices in
managing and measuring corporate social, environmental, and economic impacts.
Berrett-Koehler Publishers.
Online
Financial planning meaning and definition, 2017. [Online]. Available through:
<https://www.managementstudyguide.com/financial-planning.htm>.
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