Financial Resources and Decisions for Clariton Antiques Limited

This report delves into the critical aspects of managing financial resources and making sound financial decisions, using Clariton Antiques Limited as a case study. The report begins by identifying various sources of finance, including unincorporated businesses, retained earnings, venture capital, bank loans, and partnerships, and assesses their implications. It then evaluates the most appropriate sources for Clariton Antiques, analyzing the costs associated with bank loans and the issuance of shares. The importance of financial planning is emphasized, along with the information required for financing decisions. Furthermore, the report examines the impact of selected financing sources on the business's financial statements, including income statements and balance sheets. A detailed analysis of cash budgets, unit costs, pricing decisions, and investment appraisal techniques is also provided, along with an interpretation of the findings. Finally, the report discusses the key components of financial statements and compares statements of different types of businesses, culminating in an interpretation of key financial ratios.

MANAGING FINANCIAL
RESOURCES AND
DECISIONS

TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................................................3
TASK 1...........................................................................................................................................................................3
1.1Identifying the sources of finance .......................................................................................................................3
1.2 Assess the implication of sources........................................................................................................................4
1.3Evaluation of most appropriate sources of finance for Clariton Antiques Limited.............................................5
TASK 2...........................................................................................................................................................................5
2.1Analysing cost of two sources of finance.............................................................................................................5
2.2Explaining the importance of financial planning for Clariton Antiques Limited................................................6
2.3Assesment of the information which will be required to make decisions on the financing ................................6
2.4Explaining the impact of selected sources on the financial statements of the business.......................................7
TASK 3...........................................................................................................................................................................8
3.1Analysing cash budget..........................................................................................................................................8
3.2Assessing unit cost and making pricing decision.................................................................................................9
3.3Evaluating the viability of proposed by using investment appraisals techniques..............................................10
Interpretation...................................................................................................................................................................1
TASK 4...........................................................................................................................................................................3
4.1Discussing the key components of financial statements .....................................................................................3
4.2Comparing the financial statement of the different types of business .................................................................4
4.3Interpretation of ratios..........................................................................................................................................5
CONCLUSION...............................................................................................................................................................8
REFERENCES................................................................................................................................................................9

INTRODUCTION
Managing financial resources is considered as essential part of the business which is
highly needed in order to sustain in competitive environment. Further, in an organisation it is
important to adopt some of the financial resources for the purpose of expansion of business.
Financial manager of a firm is required to use resources in an effective and efficient manner for
achieving success (Brigham and Ehrhardt, 2013). Present report is based on the Clariton
Antiques Limited that is started by the four partners in London and planning to open a new
branch in Birmingham for the purpose of generating high level of profit for the business.
Furthermore, with the help of this report there is clear understanding regarding the different
sources of finance which are available to the business. It also includes the preparation of cash
budget which helps the business to analyse the different actions of the business so that
improvement can be made for the level of performance.
TASK 1
1.1Identifying the sources of finance
There are different types of sources of finance which can be short term or long term that
helps in the expansion of the business. In context of Clariton Antiques Limited there are certain
sources of finance which are available to the business that are discussed below:
Unincorporated business- In this type of business, it is started by one or more than one person
in order to carry out the activities of the business. Further, there is no separate legal entity
between the business and the owner.
Retained Earnings- In this type of sources of finance where the entity do not pay the amount of
dividend but at the same time it is retained by the firm in order to make investment in the
business (Fayol, 2016).
Venture Capital- This is also considered as internal source of finance that helps in funding the
firm and able to take risk and along with this the external owner are also make investment in the
enterprise. Further, there is certain amount which is given to the owner of the business that
supports to fulfil the demand of the new business.
Incorporated business- It includes certain benefits to the business such as reduce the amount of
taxes and liabilities of the firm.

Bank Loan – Clariton Antiques Ltd can also raise fund by taking loan from the financial
institution and for this there are some of the legal formalities are required to be fulfil in order to
get loan. It generates high level of fund for the business so that they can expand their business in
an appropriate manner (Hill, Jones and Schilling, 2014).
Partnership- This is considered as external source of finance which is carried out by taking help
from the outside business which is profitable and there is a mutual agreement between both of
the parties.
1.2 Assess the implication of sources
It is important to analyse the essential sources of finance which will be beneficial for the
business and its impact on the various conditions of the entity. There are certain implication of
the sources of finance at Clariton Antiques Limited which are mentioned below:
Aspects Venture capital Partnership Retained earnings
Legal implication It is important to
submit all of the
financial statements to
the venture capitalist
of the business. Other
than this, it is essential
for Clariton Ltd to sign
a contract with the VC
firm (Johnson, 2014).
In this, there is
appropriate level of
support is provided by
the government such
as different parties.
It is important to show
the amount of retained
earning in a separate
balance sheet.
Financial implication There is high level of
dividend and fees of
seating is required to
pay in terms of this
source of finance.
Financial investment is
imposed on the
enterprise in order to
meet the expenses.
It is generated through
the level of business
performance so that
there is no cost of
retained earnings.
Control There is control of
existing directors on
All of the partners are
equally participate in
By using retained
earning that helps in

the business as the
shares issued to the
VC enterprise.
the activities of the
business so that profit
as well as loss will be
shared among them in
an appropriate manner.
order to avoid changes
made for the different
shareholders.
1.3Evaluation of most appropriate sources of finance for Clariton Antiques Limited
In order to evaluate appropriate sources of finance for Calriton Antiques Limited as there
are different sources are available for the business and the firm can take support from the
banking institution in order to raise fund to a greater extent. This is considered as most effective
sources which helps in achieving the goals and objectives of the business. The banks are offering
different types of secured loans and collateral to the business enterprise. Moreover, by taking
loan from financial institution which helps in generating high level of fund in an appropriate
manner (Morden, 2016). Further, this type of sources provide convenience to the business in
terms of repayment of loans. Along with this, it also assists the business for attaining benefits of
tax to a great extent.
In addition to this, it is also advised to Clariton to issue shares in order to raise the funds
in an effective and efficient manner. Main aim behind this is that is does not require high level of
expenses in the issuance of shares. Apart from this, the investors are also ready to invest as the
shares of enterprise are highly growing. In such manner, through the issue of shares Clariton can
generate high level of fund to a large extent (Petty and et.al., 2015). In this aspect, Clariton not
needed to pay the amount of dividend each year as they have to pay dividend as if there is
appropriate level of profit is generated for the business. However, it can be stated that business
has pressure for offering dividend for the purpose of increasing the faith of investors.
TASK 2
2.1Analysing cost of two sources of finance
Sources of finance imposed the cost in terms of business enterprise for monetary as wel
as non-monetary aspects. Further, bank loan and issue of shares are selected as a source of
finance for meeting the needs of Clariton Antiques Ltd which are as follows:

Bank Loan- If the stated firm take loan from financial institution so that they are obliged to pay
the interest amount to that banking institution (Brigham and Ehrhardt, 2013). In this manner, this
source has monetary cost to the business. Further, it is considered as effective that offers benefits
on the high level of tax to the firm.
Issue of shares- In this source, there is both financial and non-financial cost that affects the
business entity to a greater extent. In context of shares, Clariton is required to pay the amount of
dividend to their shareholders at the time of earning profits. If in case Clariton fails to generate
appropriate level of profit so that they are not able to pay dividend to their shareholders (Brush,
Edelman and Manolova, 2015). Thus, it creates negative impact on the investors and changes in
the decision-making of the shareholder.
2.2Explaining the importance of financial planning for Clariton Antiques Limited
Financial planning refers to the procedure which provides appropriate knowledge
regarding the business and the funds which are required for business in order to meet the
competition level. Clariton Antiques Ltd are mainly focuses on to develop an effective plan for
achieving goals and objectives. Hence, the business entity concentrate on to frame budget for
giving information related to the manner in which they want to spend money (Cole, Giné and
Vickery, 2016). Thus, it will reduce the overspending and to manage the facilities of optimum
utilisation of financial resources. In addition to this, through budgeting Clariton Antiques Ltd can
also evaluate the effective aspects related to the personnel and departments.
Apart from this, with the help of financial plan there is appropriate resource allocation
can be done at Clariton. Further, financial plans shows the activities which are to be carried out
by the business in coming year (DRURY, 2013). With respect to this, through allocation they can
generate appropriate funds to all of the activities of Clariton which can solve the problems of
monetary crisis. Moreover, there is huge impact of financial inadequacy on the profitability as
well as productivity of the business. Thus, financial planning plays important role in order egt
appropriate results or achieving success.
2.3Assesment of the information which will be required to make decisions on the financing
As per the given case study, Clariton is required to evaluate of certain aspects before
making any decision regarding the financial takeover which are discussed below:

Partners- In a business enterprise, all of the partners have appropriate information related to the
options which are available to them and by evaluating them they can take the decisions of
investment. In addition to this, partners can also make decision regarding the gain which is
enjoyed by them through investing fund for the purpose of expansion (Fayol, 2016).
Venture capitalist- There is an appropriate assessment made by Clariton regarding the payment
of dividend to the venture capitalist with reference to the financial offerings. The aim behind this
is that the venture capitalist are considered as shareholder of the business so that they have right
to take part in the process of decision making. Thus, by considering the monetary as well as non-
monetary in context of business enterprise they are able to take decisions of financing (Finkler
and et.al., 2016).
Financial broker- In this, there is an evaluation made by the Clariton for the prices which ae
charged from the broker in order to prepare framework for the presentation of financial
institution. Further, charges of brokerage are high with respect to the firm. In addition to this,
bank also charges 2% of interest on the loan amount (Hill, Jones and Schilling, 2014). Hence, it
can be stated that all of the partners required to make analysis of the cost before taking any
decision regarding the services of the broker.
2.4Explaining the impact of selected sources on the financial statements of the business
If there are certain services taken by the business from the venture capitalist and financial
broker so that there is impact on the financial statements in such manner:
Income statement
Particulars Amount Particulars Amount
To Dividend to the
venture capitalist a/c
xxx
To Brokerage charges xxx
To interest on bank
loan
xxx
Balance sheet

Assets Amount Liabilities Amount
Bank loan xxx Cash [ (Venture
capitalist + bank loan) -
(interest +brokerage
charges)]
xxx
Equity share capital Xxx
From the above mentioned analysis which shows that if the stated business considering
venture capitalist so that they are required to pay dividend to the investors. This can be recorded
in the debit side of the income statements. Other than this, brokerage is considered as another
expenses that leads to reduction in the profit (Kaplan and Atkinson, 2015). Further, interest that
is to be paid by the business on the loan from bank which is considered as expenses. Thus all of
this are important aspects which can have impact on the profit margin of the company.
TASK 3
3.1Analysing cash budget
Cash budget can be termed as the framework which records all of the information related
to the income and expenses (Morden, 2016). It is considered as an estimation which shows the
revenue which is generated by the business in a specific period of time.
Clariton Antiques Ltd
CASH BUDGET FOR SIX MONTHS ENDING
30TH JUNE 2017
Details January£ February
£
March £ April £ May £ June £ Total £
RECEIPTS
Received in the
same month
15000 22500 30000 15000 15000 375000 101250

Received in one
month
120000 240000 360000 480000 240000 240000 168000
Received in two
month
22500 22500 45000 67500 90000 45000 29250
Total Receipts 157500 285000 435000 56250 345000 288750 2073750
PAYMENTS
Payment to
suppliers
807250 137250 119750 437250 227250 219750 94850
Shortage/ Surplus -649750 147750 315250 125250 117750 69000 125250
Cash at the
beginning of the
month
110000 -539750 -392000 -76750 48500 166250 110000
Cash at the end of
the month
-539750 -392000 -76750 48500 166250 235250 235250
Interpretation
From the above mentioned cash flow statement it can be identified that there is reduction
in the revenue of sales during the period of April and May. So in such case the firm required to
use the social media marketing for creating awareness of antique products to the wide range of
customers. In addition to this, the expenses reflects that the trend is fluctuating. Thus, Clariton
Antique Ltd required to focus on to raise the sales and make control on the expenses of the firm.
3.2Assessing unit cost and making pricing decision
According to the given case study, in manufacturing industry there is computation of cost
is carried out through the production cost along with the expenditure of fixed and variable which
can be divided to the total number of units (Petty and et.al., 2015). Further, Clariton does not

produce any goods so that they are using the method of costing for determining the cost.
Determination of cost at Clariton Antiques is mentioned below:
Cost of purchase= 15000
Salaries of staff= 5000
Utility= 3000
Other expenses= 2000
Sold units= 500
Total cost= (15000+5000+3000+2000)/500= 50GBP
Pricing decision- In the method of cost oriented the decisions of prices are taken by the mark-up
percentage in the item costs. It make sure some of the returns to firm and generating appropriate
return by collecting excess revenue above the cost of product.
Price= cost per unit + Mark-up percentage
=50+(50*20%)
= 50+10
=60
Percentage of profit on sales= 10/60*100
= 16.67%
As a result, it has been founded that through 20% mark-up so that Calriton can earn 20%
return on the cost and 16.67% on cost.
3.3Evaluating the viability of proposed by using investment appraisals techniques
Table 1: Industry benchmarks
Particulars Criteria for selection
Payback 3.5years
ARR 35%

NPV 2 million

Table 2: Projects details
Computation of payback period
Particulars
Project A (in
£ m)
Cumulative
cash inflow
Project B (in
£ m)
Cumulative
cash inflow
Initial
investment 8.6 -8.6 -4.4 -4.4
1 1.6 -7 0.8 -3.6
2 2.8 -4.2 1.4 -2.2
3 3.4 -0.8 2 -0.2
4 3.6 2.8 2.4 2.2
5 4 6.8 2.3 4.5
6 4.2 11 2.6 7.1
3 years and 2 months 3 years and 1 month