Financial Resource Management: Sources, Costs, and Statements Analysis

This report provides a detailed analysis of managing financial resources, focusing on a case study of the Morrison company. It explores various sources of finance, including long-term, medium-term, and short-term options, along with their implications. The report delves into the costs associated with different funding sources, emphasizing the importance of financial planning and assessing the information needs of decision-makers. Furthermore, it discusses the impact of finance on financial statements, analyzing budgets, calculating unit costs for pricing decisions, and interpreting financial statements using relevant ratios. The analysis covers internal and external sources of finance, assessing their advantages and disadvantages for business growth and sustainability. This report aims to provide a clear understanding of financial challenges and solutions within a medium-sized retail company operating in the international market.

MANAGING FINANCIAL
RESOURCES

Table of Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
1.1 What are the sources of finance available to a business?................................................................3
1.2 Tell the implications of various sources............................................................................................4
1.3 Tell the appropriate source of finance for the business project.......................................................5
TASK 2..........................................................................................................................................................5
2.1.Analyse the costs of different sources of finance ?...........................................................................5
2.2.Explain the importance of financial planning ?.................................................................................6
2.3.Assess the information needs of different decision makers ?..........................................................7
TASK 3..........................................................................................................................................................7
3.1 Discuss the impact of finance on financial statement of the company?..........................................7
3.2 Analyse budgets and make appropriate decisions for the organization?.........................................8
3.3 Explain the calculation of unit costs and make pricing decisions using relevant information?.........9
TASK 4..........................................................................................................................................................9
4.1 Discuss the main financial statements?............................................................................................9
4.2 Compare appropriate formats of financial statements for different types of business?................10
4.3 Interpret financial statement using appropriate ratio and comparison. Both internal and external?
..............................................................................................................................................................10
REFERENCES..............................................................................................................................................12

INTRODUCTION
In today's world we can see that the medium-sized retailers are growing at an international level
by proposing a theoretical framework. Morrisons is a company from UK. It is a medium sized
retailer formed by some member of friends .It specialises in the quality food products and also
deals in the other non-food products. This medium-sized retails company is doing good. In this
case we will be studying about the various sources of financial decisions,sources of
finance,decisions made etc. This is a clear study about the relationship of this firm with the
international market and networking. The purpose here is to understand the financial problems
and sources related to the company and here we can see that this a good medium retailed
company. It can be seen that the level of foreign market knowledge is in relationship between
international market involvement and the various source of market knowledge.
TASK 1
1.1 What are the sources of finance available to a business?
There are various sources to a business. It includes capital loans,venture funding,term
loans. These are classified on various sources like ownership and control and their source of
generation. Their is a process to select the right source of finance. On the basis of a time period it
is classified into short,medium and long term.(Vargo, S.L. and Lusch, R.F., 2014.)
1.Long term sources – It refers to the capital requirement for a period of about 5 years,10,20 or
may be more which are directly related to different factors. Plant and machinery,land and
building etc. are the capital expenditures are funded using long-term sources of finance.(La
Rocca,2011)
2.Medium term sources of finance – It refers to the financing for a period of about 3 to 5 years. It
is normally used when long term capital is not available and when the expenditures like
advertisements which are to be done over a period of 3 to 5 years. Medium term loans is one of
the example of this medium term source it includes financial institutes,commercial banks etc.
3.Short term sources of finance – This refers to the financing for less than 1 year. It includes the
finances for debtors,finished goods,bank balance etc. it is also named as the working capital

financing.,fixed deposits which are for a period of 1 year or less.(Vargo, S.L. and Lusch, R.F.,
2014.)
1.2 Tell the implications of various sources.
All kinds of business requires finance because without it nothing can happen and no
profits can be made. The business need the long-term capital as well as the short-term capital to
help them grow and expand over a number of years. We can see that there are two sources of
finance that is external and internal source.(La Rocca,2011)
Internal sources include :
1.personal savings – the owner must be having some sorts of savings because this savings can be
used at anytime.
2.retained profit – refers to the profit that has already been set aside to reinvest in business.
3.asset selling – buildings and machinery can generate money for new areas.
Impact of internal sources: It is essential for a business organization is to arranging sources of
finance. Internal source of finance are one of the most appropriate tools where the cost of capital
is very law which save their cost and increase profit. The firm having no obligation to paid any
loan for given period of time which increase their decision making freely.
External sources :
1.shares – companies can sell their additional shares to new share holders or the old ones in
exchange of return to their investment.(Minichilli 2010)
2.loans – we also have debenture loans,having variable or fixed interest which are usually
secured against any asset. The company can't sell the asset without the lender's prior agreement.
It totally depends upon the lender here.
Certain loans are also present here :
1.Overdraft – it includes the short term finance for the business.

2.Credits which are from suppliers – a company can take the maximum time to pay and use this
money in the given period of time for the other things.(Subramanian, N. and Ramanathan, R.,
2012)
Impact of internal sources: On the other hand, external sources is helps to in growth of their
business. The disadvantage of such sources is not easy to get loan and required more formalities
and takes more time and the cost of capital also too high which increase their cost and decrease
profit.
1.3 Tell the appropriate source of finance for the business project.
The most appropriate sources of finance are :
Internal sources incudes the finances within the company and the external finances includes the
finances which comes from outside the company.(Subramanian, N. and Ramanathan, R., 2012)
The main inernal sources are :
Personal sources – these are the finance which are developed or arranged personally form ones
own pocket.
Retained profits – refers to the cash generated by the business when it trades profitable.
Share capital which is invested by the founder of the company – it depends on the founder to put
money in his company and hence he puts according to the wish.(S.K., 2010)
The main external sources are :
Loans from the bank – banks provide various loans on some interest rate and most of the
business firms are dependent on theses loans. These are good for financing in fixed assets and
generally provided at a lower interest rate.(S.K., 2010)
Share capital – for any small business company or a start up the main source of external investor
are friends and family of the entrepreneur. Because they can have better trust and bonds. Family
plays a big role here.
Bank overdraft – it is a short term kind of finance which is widely used by the small business.
These are exceptionally helpful for handling the seasonal fluctuations in cash flow or when the

business goes into short term cash flow issues. It is also flexible and so it very useful.(Malhotra,
R. and Temponi, C., 2010)
TASK 2
2.1.Analyse the costs of different sources of finance ?
Sources of finance help to decision making, identify how much WC(Working capital) needed),
decide which assets to buy and explain what is total investment required for purchasing assets.
Sources of fund selecting by Cost of source of fund, leverage setup by organisation and Tenure.
Source of Finance consist with three factors security financing, internal financing and loan
financial and these three factors help to analysis the source of financing. Security financing
include equity shares, preference shares and debentures. Equity are also known as ordinary
shares and Equity shares are represents/issued to the owners of a Morrisons company, Ordinary
shares(Equity) have a face value. Equity shareholder take funds into Morrisons company by
through retained profit and paying for new issue of shares. Preference Shares work with certain
specific and fixed rate of dividend payable before paid ordinary shares. Debenture is certificate
of loan which issued by Morrisons and it is a unsecured loan. Internal financing include retained
and deprecation fund. Retained earning refer to the share of net profit not paid out as dividend.
Deprecation fund adjust by company to giving money to purchase new fixed assets. Loan
financing is divided into short-term and long-term loan financing. Loan financing also known as
loan stock which is long- term debt capital and it is increased by a company for interest is paid at
a certain rate.
2.2.Explain the importance of financial planning ?
Financial planning is process of achieving company goals and it provide direction and maintain
effective process that help achieve goals and objectives. Financial planning helps to achieve
company's long and short term financial objectives and targets. Financial planning helps to
manage income, cash flow, capital, investment, living standard, financial understanding, assets,
savings, long range view, spotting trends, prior expenditures and measuring progress. In
organization easy to focus on the problems and issues that deal with daily basis and it create

image that help to company for achieving goals and objectives. Financial planning help to
manage income that help to run business effectively. Financial plan helps to set long-term goals
which company want to achieve. Financial planning help to understand and identify risks, put
number of goals, and manage present and future cash flows to your objectives and goals, prepare
a statement of company net worth and make recommendations for company portfolio. Planning
in business is most important that help to identify risk and give chance to make plan how to
tackle that risk. Financial forecasting measure financial process of the company, guide in right
direction, guide you to take secure loan and funding such as lenders and investor, gives an
calculation of future cash needs and measuring future performance, summarize the costs to create
income statements such as balance sheet, Cash flow statements and many more and budget,
estimate the total cost of each type of resource, to understand business environment and set the
business vision and objectives. Main role of financial planning are planning cycle, objective of
financial management and strategic role of financial management. CEO of company to set
financial target help of financial planning.
2.3.Assess the information needs of different decision makers ?
P&L details is most important for taking decision and Balance sheet information help to tell
company liability and assets. Financial statement information support in decision making and
financial statement base on three components and these are balance sheet, cash flow statements
and Income statements. Income statement part of intangible tax and deprecation and it doesn't
tell when payable are paid and when receivable are receive. Income statements help to identify
profitability of company over a year . Income statement help to decision maker to take decision
related to other company by comparing his company performance to other company
performance. Income statement control expenses and cost of product sold. Company assets and
liability part of Balance sheet. Cash flow is most important for taking business decision and its
tells organization need to pay cash for its bills and help to show financial picture. Cash flow
show real condition of the company which help to decision maker to take decision related to
management. It also help to show company cash position and its show the company inflow and
outflow.

TASK 3
3.1 Discuss the impact of finance on financial statement of the company?
There are a number of operations that has an impact on the financial statement of the JJN
company. These include those operation which are related to the flow of cash from as well as for
the company namely sales operation, collection of money from the debtors, payment of interest
to creditors, expenses, cost of purchases etc. because all these have a direct impact on it.
Whenever there is a transaction occurring in the organization these this would be having a impact
on financial statements.
Second is when the organization tries to collect money from their customers, collection
of debt from partner or the costumer. This is known as collection of money, this results in the
increasing of cash and decreasing the amount of debt on debtor's of the company. It makes an
increase in current assets and capital in the income statement.
Owner's capital investment is the amount invested by the proprietor in the business .
Through this business starts to perform its activities by incurring expenses and purchases, this
have a direct impact on balance sheet which is a part of financial statement . The company
prepares it's financial statement in order to attract investor for the company . Which is uploaded
on a common platform which an investor could easily access .Some organizations upload fake
financial statements in order to attract new investors . This in an unethical practises which is a
part of market working system.
A budget is a financial statement which provide the estimation of their overall cost for a specific
period of time. The main aim of such summary is to provide all relevant information and save
time and cost which is major goal for a business.
There are following formal of operating budget:

3.2 Analyse budgets and make appropriate decisions for the organization?
A budget is a financial plan for the future including various aspects like revenue and cost
of a business. A budget is much more than just financial number it is a process through which
financial control is kept within the organization without a proper financial budget the
organization would not have a proper flow of cash to meet the expenses and purchases of the
firm . Budget is actually a financial overview of a department of the firm under which that
department makes it's goal and plan for the year. It includes a separate share for each process of
that department. JJN company should make its budget in an effective manner so that they could
have more return by doing less expenses . Being a small retail business it would be difficult for
the company to manage the budget. Being a starter their main focus should be more on sales in
order to meet the companies target for the year . By analysing the company structure more
budget should be included to the purchase department of the company so that they could
maintain a proper stock for sales of goods to the consumer . The budget of the finance
department of the company should be reduced because they only include the cost of stationary
products .

3.3 Explain the calculation of unit costs and make pricing decisions using relevant information?
Unit cost is the cost incurred by the company in order to manufacture, store and sell a
single unit of a particular product or service. It includes all fixed cost ,overhead cost, labour cost
and all the other variable cost for the production of a unit by the company . It is calculated by
total cost divided by the total number of production . This will give us the cost incurred by the
company for manufacturing of a unit . In the calculation of JJN's unit cost it was easy to find that
the cost of purchasing the raw material, transportation and the delivery cost of product is high
under this the purchase of raw material should be done by changing the contract with the supplier
of raw material or by changing the supplier itself. Second there is a huge cost involvement in the
transportation department which should be reduced by 40% of the total budget of transportation
department . Last there should be a cut short of 20% budget of the delivery department by either
changing the terms of agreement of giving the contract to some other transportation company
which should have a better quality of work also because due to late delivery of the product
company
TASK 4
4.1 Discuss the main financial statements?
A financial statement is a document which consist of all the financial activities of the
company within a fiscal year . There are various ways to calculate financial statements mainly
two ways first is on the basis of material used it also consists of further two type which is
external and internal environment .External environment consist of analysis done by outsider
who do not have a detailed information about the internal accounting information of the firm .
These include government agencies , investors, creditors and the general public .The second is
internal analysis which is done by a person who have access to internal accounting of JJN
company this king of analysis can be performed by the executives , audit department of the firm
and government agencies. In the second type of financial statement analysis again there are two
ways namely horizontal and vertical analysis . Under horizontal analysis of financial statements
a person compare the data of present year with the data of previous year of the company for this
company have a standard or base year of data which is used to compare with present year's data
this is also known by the name of dynamic analysis. The last category of second type of financial
statement analysis is vertical analysis in this a person studies the relationship of the various items

in the statement of one accounting year this process of analysis is also known as static analysis .
These are other 2 types of financial statement analysis but being a small retail company it is not
useful.
4.2 Compare appropriate formats of financial statements for different types of business?
There are various types of financial statements depending upon the types of businesses
mainly :-
 Income statements consists of the financial performance of the company for a
financial year. It starts with sales and from sales we subtract all the expenses
which will give us the profit or loss. This statement is considered as most
important as it describes performance of the company.
 Balance sheet reflects the position of the business as on the date it is issued by
the company . In this information is arranged into general classification of assets,
liabilities and equity. Line items within the asset and liability classification are
also present in balance sheet generally every company prepares its balance sheet.
 Cash flow statement reveals the cash inflow and outflow experienced by the
organization during the reporting period . It is further breakdown into three
classification which are investing activities, financing activities and operating
activities. These documents are issued for public interest . This is mostly issued
by big organizations in order to attract investors for the company.
 Statement of change in equity reports documents all changes in equity during the
reporting period. They generally include purchase of share , dividend issued and
profit or loss .This kind of statement is used by the shareholders who have
invested in the company but it is not useful for JJN as it is a small retail business
and does not issue shares of the company.
4.3 Interpret financial statement using appropriate ratio and comparison. Both internal and
external?
Financial statement having a great significant for the company it can help to provide relevant
information. This data and information helps to use in the decision making process in order to
attain organizational goals and objectives. The financial data of the Morrison’s as given below:
Particulars 2015 2016
Gross Margin 4.5 3.8

Asset Turnover -7.65 2.40
Return on investment -9.75 5.18
Current ratio 0.50 0.48
Quick Ratio 0.18 0.22
As per the given data the above given data the financial health of the cited business unit is quite
good as compare to last year. The gross margin of the company of 2016 is 3.8 which is small
change. ROI is one of the significant ratio which is can influenced the investors. If the rate of
ROI is good it can help to attract large number of customers. In the context of Morrison, the last
year ROE is not good which having the impact on their future growth. Apart from that, current
ratio of the cited business unit is 2015-0.5 and 2016-0.48. these ratio is quite good which can
help to attract suppliers and create a healthy image of the company.
Conclusion
As per the above mentioned report it has been concluded that the role of management in the
financial resources is having too significant. In this report it is explained about the various
financial available for the company. It also discussed about the implications of the various
sources, appropriate sources and it effective analyses which can help to attain their long term
goals and objectives in an effective manner. Apart form that the report also concluded that
various financial statements which can be used by the company.