Financial Resource Management Report: Clariton Antiques Ltd.

This report provides a detailed analysis of the financial resources and decisions of Clariton Antiques Ltd. It begins by identifying various sources of finance available to the company, differentiating between unincorporated and incorporated business models. The report assesses the implications of using different financial sources, evaluating the most appropriate options for Clariton Antiques Ltd. Task 2 delves into cost analysis, including dividends, interest, and tax implications. It emphasizes the importance of financial planning for budgeting and mitigating the risks of inadequate financing and over-trading. Furthermore, the report assesses the information needed for takeover decisions. Task 3 focuses on preparing a cash budget, pricing decisions, and evaluating project viability using investment appraisal techniques. Finally, Task 4 examines the key components of financial statements and compares the format used by Clariton Antiques Ltd. with that of sole traders, concluding with an overview of financial management and its impact on the company's operations and future growth.

Managing Financial
Resources & Decisions

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Identify the sources of finance available to:..........................................................................1
1.2 Assess the implications for using: .........................................................................................3
1.3 Evaluate the most appropriate sources of finance for Clariton Antiques Ltd........................4
TASK 2............................................................................................................................................5
2.1 Analysis of cost of sources....................................................................................................5
2.2 Importance of financial planning...........................................................................................6
2.3 Assessment of information for takeover decision .................................................................6
2.4 Impact of choosing finance broker and venture capitalist.....................................................7
TASK 3............................................................................................................................................8
3.1 Preparation of cash budget.....................................................................................................8
3.2 Pricing decision......................................................................................................................9
3.3 Viability of the projects using investment appraisal techniques.........................................10
TASK 4..........................................................................................................................................11
4.1 Key components of financial statements.............................................................................11
4.2 Comparison of format used by Clariton Antiques Ltd. And sole traders............................12
Clariton Antiques Ltd................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Finance is the study that figures out how individuals and businesses make use of money.
Financial resource includes cash, liquid securities and credit lines available to business
organisations. A good financial management is key to achieve organisational goals and
objectives. Clariton Antique is founded by four partners four years back that deals in antique
items. It has four two branches in London and working for toward expansion of business.
Managing finances helps Clariton Antique to make various business decisions and to avoid
compromise in business decisions due to shortage in funds. Financial planning helps in decision
making as it provides basis to budget and also various business opportunities are grabbed with
availability of funds. This project report consists of details regarding sources of availability of
funds and its implications and analysis of income statement. Importance of cash budget and
viability of investment decision (Drechsler and Natter, 2012). Together with this details
regarding financial statements and its interpretation is included in this report.
TASK 1
1.1 Identify the sources of finance available to:
For every business, finance is required to purchase assets, labours, materials and regular
cost. Finance is known as money management which considers some activities such as
borrowing, saving, investing, forecasting and budgeting. For the development of business, they
required some sources that provide cash. Sources of finance is the finance provision for business
to cover their needed working capital for short periods and fixed assets and investments for
longer period. Clariton Antiques Ltd also required some finance for their resources
(Massingham, 2014). Some sources of finance are debentures, equity, term loans, letter of credits
and so on. Sources of finance for unincorporated business and incorporated business are
mentioned below:
a. Unincorporated business:
Unincorporated business usually refers to business related to sole proprietorship and
partnership firms due to which it is the responsibility of owners of these business to procure
funds for their business. Some sources of finance available in this businesses are personal
investments, business incubators, governments grant and subsidies, bank loans and venture
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capital. Clariton Antiques Ltd. which is an unincorporated business their sources of finance are
as follows:
Personal investments:
Personal investment is referring to financial investment by an individual, instead of
financial institutions or enterprises. For every starting business, initially the owners have to
invest whether by giving cash or collateral the assets. This shows to bankers as well as investors
that the owner has commitments for longer periods in projects and also ready to bear risk. At the
time of start-up owners of Clariton Antiques Ltd. Invest their own cash and capital and agree to
take risks. So, initially their finance source is personal investments (Maskell, Baggaley and
Grasso, 2016).
Venture capital:
Venture capital is a kind of private equity, which mostly financing that investors who
generally start their organisations and small enterprises that are trusted to have potential of
growth for longer periods. These are capitals that usually comes from financial institutions,
investment banks and investors. This is not compulsory for all entrepreneurs. From this capitalist
expected good returns of their investments which are generated when enterprise start selling their
share to public. Clariton Antiques Ltd. Have this source of finance as it has high growth
potentials that refers to focus to innovations at the time they required finance in large amounts to
get constituted into existing markets.
b. Incorporated business:
An incorporated business is referring to separate entity through owner of business and
have naturals rights. As Clariton Antiques Ltd. Plan to go for public company so they can use
some financial sources available in this business which are mentioned below:
Equity capital:
Equity capital is a source of funds that is paid in enterprises by investors in exchange for
preferred and common inventory. This is the most essential source of finance as in this capital is
created by enterprises internally. Clariton Antiques Ltd. can use this source of finance to assure
the growth for their business without cutting their absolute majority stake.
Working capital loans:
Working capital loan is a loan which can be lend to finance the day to day business
operations. This loans are not needed to purchase asset and investments for longer periods. It is
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used to covers wages, accounts payable and so on (Working capital loans, 2018). Clariton
Antiques Ltd. As coming to public companies they can also considered this sources of finance
through this they can resolve their finance problems and also to assist generate more liquidity to
finance so that they can fulfil their gaps of working capital.
1.2 Assess the implications for using:
Implications of sources of finance is considered to an effects of various sources on
enterprises. An enterprise always has an expectation for positive impacts but due to many factors
impacts may be negative also (Cowling and Mailer, 2013). Some implications of internal and
external sources of finance are mentioned below:
a. Internal sources of finance:
Internal sources of finance are a capital that is produced internally through enterprises
different from finances like loan that is externally financed by financial institutions and banks.
Some internal source of finances is sale of assets, retained profits and controlling or reduction of
working capital.
Owners capital:
This is also known as owner's equity which shows the equity accounts and owners stake
in company.
Advantage: In this owners have rights to take parts in business management and get high returns is
business becomes successful.
Disadvantages:
 In this owners cannot ask for investment returns they have to bear all business risk.
b. External sources of finance:
External sources of finance are those capital that comes from outside of company. Some
external sources of finance like venture capital and bank loan are as follows:
Venture capital:
Venture capital is a type of investment made into company that may be lost if business
suffers from losses or bankrupt and investors are various set of individuals.
Advantage:
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 New and inventions projects are financed with this capital that generates high profit for
long term and also facilitates valuable resources, data and so on. To manage financial
resources and in decision making.
Disadvantages:
 Venture capital is not certain kinds of financing and this benefit can be acknowledge in
long run.
Equity capital:
Equity capital is that part of company's finance, that arise in exchange for ownership
share in business.
Advantages: In this business don't have to paid dividends in cash deficit case and can be skip equity
dividends without any legal obligations.
Disadvantages:
 Cost of this capital is high though shareholders of equity wants more rate of returns
compared to another investors.
1.3 Evaluate the most appropriate sources of finance for Clariton Antiques Ltd.
Sources of finance are very essentials for every company as it assist them to expand their
business, manage resources and gain more profitability to make effective decisions of businesses.
But knowing about that sources is also necessary as which source of finance is most appropriate
for their businesses as various company has different financial goals and process which is proper
for another. Both sources of finance that is external sources and internal sources of finance are
profitable for businesses (Bell, Wilson, Mcbride and Cairns, 2012). As Clariton Antiques Ltd. Is
an unincorporated business for them personal investments which are also considered as a owners
capital is most appropriate as:
 This provides more control other than another options of finance and they don't have to
pay back or depend on external lenders or investors.
 They can retain whole business ownership and also get 100% profit.
Bank loans is also appropriates source of finanace for Clariton Antiques Ltd. as it is a common
source of finance for company. It facilitates capital for day to day operations like working capital
loans. Some more benefits for them are provides better interest rates, ownership continue with
borrower, cash discounts and also can be purchased without liquidity.
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TASK 2
2.1 Analysis of cost of sources
a) Dividend
Dividend is the distribution of rewards from companies earnings, and it is paid to
shareholders of the company. Dividends can be issued in cash payments, as share of stocks or
through other property, though cash dividends are most common. Dividend that will paid for
20% stake to We Finance Limited that will cost 40000. As dividend of 8000 distributed from
profit of 40000.
Dividend 8000
Cost of dividend 8000 * 20%
16000
b) Interest
Interest is the amount that is paid by borrower of fund to money lander. In this case
Clariton Antique borrowed funds to make expansion of business that fund will be charged with
interest rate of 2%APR payable for 10 years.
Interest on 0.5m
APR 2% for 10 year
Cost of interest 500000*2%
10000*10
100000
c) Tax
Tax is a mandatory financial charge or some other levy imposed by government on
taxpayer. Taxes are paid from profits earned by Clariton Antique in a particular financial year.
Deferred tax is the amount of difference in tax value due to different accounting concept. This
belongs to previous year and pain in current year (Coombs, 2014). Total of tax amount of current
year and paid for previous year is included to calculate cost of of tax for company.
Tax
Deferred tax (2015) 25000
income tax (2016) 14000
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Cost 39000
2.2 Importance of financial planning
Financial planning is a process of determining how a business will afford its strategic
plans and objectives. Financial plan is a comprehensive evaluation regarding current payments
and future payments made by Clariton Antiques. Through financial planning company estimates
its capital requirements and also made policies for its future expansion. Capital structure is also
developed through financial planning. Impotence of financial planning for-
 Budgeting- Financial planning helps in budgeting to create a plan that helps in spending
for various business activities. Business requires planning and budgeting to achieve its
goals and objective effectively. As financial planning sets goals and provides direction to
business and describes about action needs to be performed to by businesses. And budget
looks at financial position and allocate funds for different business activities that helps to
achieve planned goals. Financial planning provides basis to budgeting on which whole
activity is performed (Epstein, Buhovac and Yuthas, 2015).
 Implications of failure to finance adequately- Financial planning helps Clariton
Antiques to analyse requirement of funds in business to operate future activities. Failure
in financial planning or inefficient planning makes wrong estimation of required funds.
This creates financial crises in business and also when opportunity to expand business
come that cannot be garbed due to insufficient funds. Availability of funds helps business
to operate as per plans and achieve goals.
 Over-trading- Over-trading happens when business expands too quickly without having
the financial resources to support such quick expansion. Clariton Antiques achieve
growth by making sufficient capital investment and financial planning helps to adopt
these quick expansion decisions. Through financial planning requirement of finance for
future is also calculated and when growth opportunities are found then expansion of
business can be done smoothly (Rakodi, 2014).
2.3 Assessment of information for takeover decision
Available information needs to be assessed properly to make various business decisions
that provides fair solutions. To take takeover decision various persons are concerned and affected
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and they require information regarding this takeover decision. Various concern persons are as
follows:
Partners- When takeover of business is done and fair price to partners of acquired
company is provided. Companies can provide this fund in cash or by offering shares in new
company. As offering shares will dilute ownership of existing partners so company’s decision
will totally depend on partner’s reaction. In this case 'WE FINANCE LIMITED' wants 20%
stake for 0.5 million capitals.
Venture Capitalist- Investors makes investment in small and medium business to start
businesses called venture capitalist. Investors aim to grow business on continuous basis ans
sustain for long term. When takeover is done then information regarding annual growth of
company and its profits will be prior concern of venture capitalist.
Finance Broker- Finance broker are the persons who organise loans required for
businesses and individuals. In process of takeover they negotiate sale, purchase of shares and
other assets. Company will arrange a finance broker to obtain loan who will charge 1% as
brokerage of the amount secured (Vasavada, 2013).
2.4 Impact of choosing finance broker and venture capitalist
Finance broker- Finance brokers are expert in providing financial assistance to retail
consumers. While arranging a deal relating to investment brokers analyse rate of interest that is
more suitable to businesses. Chances of fraud will be reduced when a transaction is arranged by
broker as details regarding company’s financial position and assets and liabilities are clear with
broker. But having a finance broker will have a negative impact on balance sheet of the company
as cost of brokerage will affect it negatively.
Venture capitalist- Funding a new business through venture capitalist is considered as
better source in past few years. It is considered as effective method to arrange funds for business
but business needs to analyse its impact on each decision. This will have high risk as investors
always interested in high growth and sustainability. As, Clariton Antique is needed to give to
WE Finance Limited 20% share for 0.5 million as capital to make expansion in business.
Takeover in a business can have positive or negative impact on business (Kim, Lim and Brymer,
2015). Income statement of company shows that profits are growing yearly and also dividend is
paid regularly. Takeover of profitable company will always have a positive impact on business.
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TASK 3
3.1 Preparation of cash budget
Cash budget is a plan of expected cash receipts and for disbursement of payments for a
particular period. Cash budget specifies inflows and outflows of Clariton Antiques for specific
budget period quarterly, half-yearly and yearly. Its primary purpose is to provide information
regarding cash position of company at certain point of time. Preparation cash budget helps to
avoid problem of shortage in cash that affects liquidity of company. Managing cash helps to
allows creditors more credit period whenever required (Aldis and Herd, 2014). Cash budget also
help company to plan its expenditures and budgets that are required for its different departments.
To know financial position of Clariton Antiques for last six months’ cash budget is prepared as
follows-
CASH BUDGET
Particulars
January
( £)
February
( £)
March
( £)
April
( £)
May
( £)
June
( £)
Opening balance 110000 -539750 -392000 -76750 48500 166250
Receipts:
Cash sales 15000 22500 30000 15000 15000 3750
Received from debtors 142500 262500 405000 547500 330000 285000
Total A 267500 -254750 43000 485750 393500 455000
Payments 807250 137250 119750 437250 227250 219750
Total B 807250 137250 119750 437250 227250 219750
Closing balance (A-B) -539750 -392000 -76750 48500 166250 235250
Working Note:
Particulars
January
( £)
February
( £)
March
( £)
April
( £)
May
( £)
June
( £)
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Received from debtors:
15% of next following month 22500 22500 45000 67500 90000 45000
80% of following month 120000 240000 360000 480000 240000 240000
Total 142500 262500 405000 547500 330000 285000
From cash budget prepared for Clariton Antiques it is seen that position of cash is weak
as company's outflow is more than its inflows. Also cash position is increasing month by month
but in the month of June a decrease in sales is seen. Poor financial position of company needs to
be improved by management of Clariton Antiques. To improve financial position outstanding
debts should be recovered on time. As debtors of Clariton Antiques are allowed with two
months’ period to repay amount due from them. Creditors in business should be asked for more
time to repay as frequent payments creates liquidity crises in company. One of the most
important task that needs to be done is to create sources that will bring inflows of cash in the
company. As sales of Clariton Antiques has reduced in month of June that needs to be improve
to increase financial position of company (Malmström, Wincent and Johansson, 2013). To
improve sales various marketing activities needs to be performed and that also requires budget.
3.2 Pricing decision
Pricing is a process of determining what manufacturer will receive in exchange of the
product. Pricing is considered as marketing strategy as it has its direct influence consumers at
large. When price of product and service is fair and competitive that will attract more consumers
that will ultimately increases profits of the company. Price charge for a product must cover all
the cost incurred and a profit margin set by company. Companies that deals in products makes
pricing decision on the basis of total cost and profit margin divided by units produced for
example: -
Calculation of selling price
Units 20000
Direct material 60000
Direct labour 15000
Fixed cost 10000
Profit margin 10%
Units cost Total cost /no. of units
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(60000+15000+10000) / 20000
4.25
Profit margin 4.25*10%
Selling price 4.25+0.425=4.675
As Clariton Antique is not engaged in manufacturing process then unit cost of services
provided will be calculated on the basis of number of services provided in a day or in a month. In
services industry cost per day of providing service is calculated and fixed cost is also included
for measuring total cost (Haynes, Hitt and Campbell, 2015). A budget of estimated cost per
month is formed which is increased with profit margin. Cost per service is calculated on
estimation basis, by estimating average number of services expected to be provide in a month.
3.3 Viability of the projects using investment appraisal techniques
Calculation for NPV and IRR
PROJECT 1
Year Investment (1) PV Factor @ 14%
Cash
outflow C.F
0 -8.6 1 -8.6 0
1 1.6 0.877192982 1.403508772 1.6
2 2.8 0.769467528 2.15450908 4.4
3 3.4 0.674971516 2.294903155 7.8 0.8
4 3.6 0.592080277 2.131488999 11.4 0.222222
5 4 0.519368664 2.077474657 15.4
6 4.2 0.455586548 1.9134635 19.6
Total 11.97534816
NPV 3.37534816
ARR 23%
Payback period 3.22 years
PROJECT 2
Year
Investment
(2) PV Factor @ 14%
Cash
outflow C.F
0 -4.4 1 -4.4 0
1 0.8 0.877192982
0.70175438
6 0.8
2 1.4 0.769467528 1.07725454 2.2
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