Financial Report: Analysis of Clariton Antique Ltd. Finances

This report delves into the financial management practices of Clariton Antique Ltd., examining various aspects of financial planning and analysis. The report identifies and evaluates different sources of finance, including internal and external options like bank loans and retained earnings, assessing their implications and suitability for the firm. It analyzes the costs associated with these sources and emphasizes the importance of financial planning in managing over-capitalization, capital budgeting, and mitigating financial risks. The report also explores the information needs of internal and external stakeholders, such as partners, venture capitalists, and finance brokers, and discusses the impact of finance on financial statements. Furthermore, it includes a cash budget analysis, examining the cash flow of the company and offering advice on managing cash positions. Finally, it evaluates investment appraisal techniques and interprets business performance through major financial statements, providing a comprehensive overview of financial management for the company.

MANAGING FINANCIALS

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
1.1Identification of source of finance..........................................................................................4
1.2Implication of source of funds................................................................................................5
1.3Most appropriate source of finance for the firm.....................................................................5
TASK 2............................................................................................................................................6
2.1Analyse the cost of various source of funds...........................................................................6
2.2Importance of financial planning............................................................................................7
2.3 Information needs of internal and external decision makers.................................................7
2.4 Impact of finance on financial statements.............................................................................8
TASK 3............................................................................................................................................8
3.1 Cash budget and its analysis..................................................................................................8
3.2 Unit costs and price decisions..............................................................................................10
3.3 Investment appraisal techniques..........................................................................................10
TASK 4..........................................................................................................................................12
4.1 Major financial statements for the business.........................................................................12
4.2 Differences between formats of various types of businesses..............................................12
4.3 Interpreting results of business performance.......................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
In every business organisation, finance is very important aspect in order to survive
business activities and function. In the absence of finance, corporation cannot survive its
operation in an effective manner. In order to gain desired success and make business effective
and smooth, management requires to proper balance of the finance and allocate it in an effective
ways. Ineffective management of funds can lead to liquidity shortage. The following project
report is based on the managing financial resources and to know more about this a scenario of
Clariton Antique Ltd. This report explained that various financial statements and ratio analysis in
the context of cited venture. In addition to this various kinds of stakeholder which can affect the
business organisation and its financial function has also addressed in this report. At the end of
the report,. Ratio analysis is done and project evaluation method has been applied to select the
most viable project for the organisation.
TASK 1
1.1Identification of source of finance
a)Unincorporated business- This type of business are the partnership and sole-trader they
finance business by use of various sources are describe below-
Working capital- The firm finance its business to run its day-to-day operations effectively
by management of receivable, payable and stock levels (Pfohl,Köhler and Thomas, 2010). It help
them to build a brand image, easy availability of material and also manage the solvency etc.
Retained earning- The Retained profit is used by various organisation to expand the
business. This profit is remains after distribution of profit to the shareholders and reinvesting in
the firm.
b)Incorporated business- The Clariton Antiques limited use various source to funds its business
smoothly which are as follows-
Bank loan- The cited organisation take short-term as well as long term long from the
banking institution. They have to charge some instalment payments in equally for some maturity
period.
Venture capital- They take equity capital to start their business and also develop high-
technology (Healy and Palepu,2012). The capitalist firm accept the business proposal after
analyse the firm background, financial performance to meet the current obligations.

1.2Implication of source of funds
a)Internal sources
Retained profits- The profit used by the firm is internal source so, it does not require any
legal formalities so, their no implications ( Healy and Palepu, 2012). Their is no financial
implication as the funds is used to expand the business they do not posses any financial burden
of payment on maturity period. It does not involve any dilution of control of ownership.
Sales of an assets- Company sales its assets to generate more funds to another party such
as plant and machinery, building etc. It required a legal contract among two parties so, there is a
legal implication. Their is also a financial obligations as the firm sales assets to raise capital for
shorter time period.
b)External sources
Bank loan- Their is a financial implication of bank loan as a firm have to pay interest for
some maturity periods against borrowing capital. They also charge penalty as well as fee when
the borrower extend the time to repay its loan. It also involve legal procedure to fill all
formalities in the documentation.
Hire-purchase- The hire-purchase create financial implication as they have to manage the
funds to pay the rental payments before the maturity periods (Viñals and et.al., 2012). Their is
dilution of control of ownership and legal implication as there is contract among two parties
legally for some period of time on behalf of assets such as equipments, machinery and building.
1.3Most appropriate source of finance for the firm
The best source of fund are choose by the cited organisation on the basis of its advantages
and disadvantages:
Bank loan
Pros The main benefit from the bank loan is that firm can take benefits of tax (Coombs,
2014). It is a secured loan and they can be obtain from the financial and banking institution
easily.

Cons- It increase cost such as processing cost to prepare legal documentation. The rate of interest of secured loan are high so, it create financial burden on the firm.
Retained Earnings
Advantages
 The main advantages of retained profits is that it cannot create any financial burden and
legal formalities (Arena,Arnaboldi and Azzone, 2010). Firm can easily expand its business by re-investing in the organisation
Disadvantages
 The company are in risk of loss if they cannot achieve its target to earn high profits.
 The firm increase opportunity cost by sacrifice its profits.
The most appropriate source of funds for the Clariton Antiques limited is bank loan for
the long term as it is a secured loan. The company can easily re-pay its loan to increase sales and
generate revenue to deliver high-quality of products to its customers. The company is well
reputed in various potential markets and there is no financial burden.
TASK 2
2.1Analyse the cost of various source of funds
The Clarition Antiques limited use various external sources that create cost that are
discuss below-
Share capital- The firm raise its funds by issue of share capital and they have to pay dividend to
its shareholders that incur cost to the organisation. The cost arise when they distribute profits that
create wealth in the shareholders. They enable them to expand business effectively and it will
reduce the financial burden there is no re-pay of loan on some maturity period.
Bank Loan- The another source is used by the company is a bank loan for expand business. This
type of sources create burden in the minds of borrower on maturity period that incur various
additional cost such as insuring as well as processing cost to the organisation (Mols, 2013). The
firm charge penalty if they do not pay before maturity period it also create cost.

2.2Importance of financial planning
The significance of financial planning for the Clarition Antiques limited are describe
below-
Over trading- The organisation can manage its funds by reduce the level of over-capitalisation.
The proper financial planning helps the firm to maintaining its stock level, issue limited shares
and invest in those areas where there is need to expand business (Wang and Qian,2011). It also
minimize the various wastage of resources by proper planning of funds leads to maintain profits.
Capital budgeting- The firm can maintaining its financial resources by proper financial
planning. It enable them to make an adequate capital budgeting so, the company can pay its taxes
and various payments on time. It also provide the effective framework of a project that helps in
contributing in the economic development.
Overcome from inadequate finance- The proper financial planning help the firm to face the
risk of loss situation, take opportunities from the market, cover the loss in the share market and
expand business (Ettredge, Scholz, Smith and Sun,2010). The company can manage funds in
purchase the raw material, stock and re-pay loans by proper financial resources that leads the
firm to achieve goals and objectives in a desired manner.
2.3 Information needs of internal and external decision makers
Stakeholders play a very crucial role in the every business organisation who is directly and
indirectly affected by the business decision and action. Corporation have to maintain the heal;thy
relationship with them so management requires to consider them at the time of decision making
of business.In the context of cited venture, there are various stakeholder which can affected by
the business decision making which are as follows-
 The partners-Partners are those individual who have equal right to get profit and share
loss of business. They have right to take participation in the business decision making
process so cited venture requires taking equal contribution of partners in the business.
(Bäuerle, and Rieder, 2011)
 Venture capitalist- A venture capitalist is is an investor who either provides capital to
start-up ventures or supports small companies that wish to expand but do not have access
to equities markets. They needed firm financial statements in order to evaluate its

liquidity position and financial condition on specific date on the basis of evaluation of
situation they decide whether to give loan to firm.
 Finance brokers- A stockbrokers is a regulated professional individual, usually associated
wit a brokers firm or brokers dealer who buys and sell stocks and other securities for the
both retail and institutional clients through a stock exchange or over the counter in return
for a fee or commission. Company have to take their consideration in the business
decision making because they are highly influenced by the business activities and actions.
2.4 Impact of finance on financial statements
Finance have large consequence on the financial statements of the firm because whenever any
finance is upraised from the market it creates liability for the enterprise and also affects its net
income. Suppose if firm raise equity then it will get cash in its enterprise and that amount will be
recorded in the assets side of the balance sheet (Antras, and Foley, 2011). Generally financial
statement have three major types balance sheet, income statements and cash flow statements. If
corporation raised fund from the market then it influence corporations profitability as well as it
creates liability for business. On the other hand liability in the balance sheet also. it will increase
in balance sheet due to taking bank loan amount. In this way both sides of the balance sheet will
become equal to each other. In addition to this, interest rate of loan will be added in the debit
side of income statement and profit amount of firm will decrease. This profit amount will be
transferred to the liability side of the balance sheet. On the other hand if corporation collect
money or debt customers or partners then it decrease account receivable and increase cash.
In other word it can be said that cited venture requires the information in the proper
format in order to take the business related decision. They can use the two kinds of statement that
is balance sheet and profit and loss.
TASK 3
3.1 Cash budget and its analysis
Budget that provides information about the sources of cash along with its uses in various
functions are called cash budget. For instance, cash might be generated from the sales whereas
cash outflow might be the result of its uses in purchase, wages payment, utility charges & others.
Importance:
- Determining cash inflow and its outgoing
- Net cash flow = CI – CO

- Helps to motivate personnel to control cash spending
- Optimum use of cash funds
- Favourable or positive balance of cash
- Reduce the need of overdraft
Findings the outcome of the budget, it is clear that Jan, Feb & March will be tough period
for Clariton because of deficit or adverse cash position. In Janurary, Clariton’s cash
inflows are founded less comparatively to cash spending whilst in next two period; it is
negative just due to very high negative balance of previous year. Further, in the last two
months, cash incoming through sales expected to decrease, but at the same time, controlled
overheads results in good cash management as net cash balance founded positive to
166250 & 215000 respectively.
Advice:
 Needs to change and revise the credit policy and changes should be brought in
connection with credit deliveries to minimize credit sales & improve cash inflows
(Vargo and Lusch, 2014).

 Discounts, especially cash discounts must be given to encourage & promote people
to pay charges quickly.
 Closure as well as regular monitoring is also necessary for the curtailment of
unnecessary spending and maintains favourable balance of cash.
3.2 Unit costs and price decisions
Direct costs refers to those expenditures that can be traced directly to each unit whereas in
opposed to this, indirect costs cannot be traced directly to every item or unit produced. Cost is
the base of setting prices, with regards to the chosen scenario, it is measured hereunder:
Designing: 40000
Labour: 20000
Advertisement: 8000
Electricity bill: 12000
Miscellaneous charges: 10000
Total cost (TC): 90000
Assume, antiques items produced – 450
Then, unit cost = 90000/450
= 200
Cost-centric method depicts that average or desired mark-up must be added to total cost to
set selling charges (Chand, 2012), presented below:
Selling price = 200 + (200*25%)
= 200 + 50
=250
Here, the results founded that Clariton must charge 250 pound for its antique item
offerings so as to get 25% return on TC & 20% on sales.
3.3 Investment appraisal techniques
Payback duration: As name implies, predict the time requiring by an investment proposal
to recover beginning cash investment in a project (Investment appraisal techniques, 2016).
Accounting rate of return: It measures rate of accounting profit on the beginning cost of
capital, computed as follows:
ARR = Annual average profit/beginning investment *100

Net present value: It shows return remained after disposing off initial investment from the
present or current value of future estimated cash flows during whole the project life (Finkler,
SSmith and Calabrese, 2016).
PP:
Investment 1: 3 +(0.8+3.6) = 3.22
Investment 2: 3 + (0.2/2) = 3.08
ARR
Investment 1: (19.6/6)/8.6*100 = 37.98%
Investment 2: (11.5/6)/4.4*100 = 43.56%

Interpretations: Although PP and ARR suggests Clariton’s executives to accept 2nd
project proposal, still, their drawbacks of not measuring currency value and net return on the
basis of cash flows, NPV is founded as the best method. Therefore, seeing the outcome, firm is
recommended to accept 1st proposal at a high probability of net return to 3.37 GBP.
TASK 4
4.1 Major financial statements for the business
In order to maintain the financial activities and fund in the business, Some of the major financial
statements that are prepared by the business firms are as follows.
 Income statement- It is one of the most appropriate statement of financial statement that
is prepared by the organisation. It reflects the profit that is earned by the organisation.
This is statement whose main factor is revenue and expenses which is incurred in the
corporation. This will assist corporation in estimate the expense where extravagance is
made by the company. (Anandarajan, Anandarajan and Srinivasan, 2012)Therefore, it is
one of the most important financial statement of the organisation.
 Balance sheet- It is statement which indicate the financial position of the organisation at
end of the financial year. By using ratio analysis method managers evaluate firm
performance and takes there business decisions.
 Cash flow statement- It is the most important statement of finance which is used in
investing and financing the activities. On the basis of this statement company identifying
the source from which cash inflow happens and place where cash outflow is happening.
4.2 Differences between formats of various types of businesses
Sole proprietors are not obliged to prepare different kinds of statements like profitability
and balance sheet as they are individual business and they do not have to follow too much legal
formalities to set up their own business. Although, they need to measures results of their regular
operations, therefore, they prepare P&L account and balance sheet but in their own decided
format without any legal requirement (Purce, 2014). They report their money invested in