Financial Resource Management: Analysis, Planning, and Decision Making

This report comprehensively examines financial resource management within a business context, focusing on a case study involving a restaurant chain's expansion. The report begins by identifying various sources of finance, including internal and external options like personal savings, government grants, bank loans, and leasing, along with their respective implications. It then delves into the importance of financial planning, budgeting, and investment appraisal tools, such as payback period and NPV, for making informed decisions. The analysis extends to cost analysis, including financial and opportunity costs. Furthermore, the report explores the information needs of different stakeholders and the impact of financial sources on financial statements. The second task involves analyzing Sainsbury's financial statements, including the income statement, balance sheet, and cash flow statement, and interpreting them through ratio analysis to assess the company's financial health. The report concludes with recommendations for effective financial resource management and decision-making.

Managing Financial Resources

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
TASK 1......................................................................................................................................1
1.1 Identifying sources of finance available to business........................................................1
1.2 Presenting the implication of financial sources identified...............................................2
1.3 Evaluating appropriate sources of finance that is suitable for business project...............3
2.1 Analyzing cost of different financial sources...................................................................3
2.2 Explaining the importance of financial planning.............................................................4
2.3 Assessing the information need of different decision makers.........................................4
2.4 Impact of sources on financial statement of the firm.......................................................4
3.1 Analyzing budgets for making appropriate decisions......................................................5
3.2 Calculation of unit cost for making pricing decisions.....................................................6
3.3 Evaluating the viability of projects using investment appraisal tools..............................6
TASK 2......................................................................................................................................8
4.1 Discussing the main financial statements that are prepared by Sainsbury.......................8
4.2 Comparing the financial statement formats of different business units...........................8
4.3 Interpreting financial statements of Sainsbury through ratio analysis.............................9
CONCUSION..........................................................................................................................10
REFERENCES.........................................................................................................................11

INTRODUCTION
In the business unit, effective allocation, management and utilization of financial
resources are highly required to meet the organizational goals or objectives. In this,
considering the supported which is provided by the government authority business of Food
for Friends is planning to open another restaurant in London for the purpose of expansion. In
this, report will entail the sources that can be considered by business entity for fulfilling
monetary requirements. Along with this, it will provide deeper insight about the manner in
which concepts such as financial planning, budgeting, investment and ratio analysis aid in
effective decision making.
TASK 1
1.1 Identifying sources of finance available to business
For opening another restaurant in London business entity requires £160000, whereas
now entrepreneur has only £20000 for the purpose of investment. In this regard, by using the
following sources entrepreneur can meet financial needs such as:
Internal sources
Personal savings In the recent times, with the motive to fulfil future need and meeting
contingent situation business entity lays emphasis on saving money.
Thus, by using personal savings business entity can generate fund for
implementing business plan.
Sale of unused
assets
Company can also meet financial needs by selling fixed assets that are
not used recently in productive activities.
External sources
Government grant Now, government is offering financial assistance to the firms at
concessional rates. Hence, by presenting lucrative business plan to
government authority entrepreneur of F&F can raise funds.
Bank loan Business entity can meet monetary requirements by applying to the
banking institution for loan. Moreover, banks are usually ready to give
loan to the company on the basis of collateral security (Peirson and
et.al., 2014).
Leasing For making investment in fixed assets such as land & building, plant

and machinery etc business entity requires high funds. In this regard,
by taking assets on lease restaurant owner can meet monetary needs.
1.2 Presenting the implication of financial sources identified
At the time of taking decision or making section of sources, owner of F&F should
keep in mind following implications:
Sources of
finance
Legal
implications
Financial Dilution of
control
Bankruptcy
Personal savings No Opportunity cost
in terms of loss of
interest on capital
No Least priority
Sales of assets On the basis of
legal aspect, in
this, ownership
rights are shifted
to others.
Charges of
advertisement and
other
documentary
aspects
No -
Government grant Need or obliged
to use money in
the activities for
which it is
granted.
Interest on loan Limited At the time of
bankruptcy,
concerned
authority enjoys
priority in getting
back amount
Leasing In leasing,
business entity is
obliged to return
back asset after
the specific time
frame (Kemp and
et.al., 2015).
Periodical rent
pertaining to the
asset taken on
lease
Limited to the
assets provided
Same as above
Bank loan In the case of
default, banking
unit has legal
right to take
action in against
Interest charges Limited to the
financial
assistance offered
Likewise in
government grant
and leasing

to the firm.
1.3 Evaluating appropriate sources of finance that is suitable for business project
Out of several sources available to F&F, business entity should select below
mentioned internal and external sources as they has following advantages & disadvantages:
Personal saving
Advantages Disadvantages
 Free from periodical obligations
 No reduction in ownership rights
 Loss of interest on capital employed
Government grant
Advantages Disadvantages
 Comparatively highly lower interest
rate
 Offer assistance in other areas as
well (non-financial)
In the case of government grant, business
entity is accountable to use money in
accordance with the description provided to
the concerned authority (Kadous, Koonce and
Thayer, 2012).
Leasing
Advantages Disadvantages
 Tax benefits
 Offers opportunity in relation to
making use of latest equipment
 In this, lessee is obliged to make use
of assets as per prior terms and
conditions
2.1 Analyzing cost of different financial sources
 Financial cost: Sources such as government grant and leasing imposes monetary cost
in front of business organization. Moreover, as per the terms and condition mentioned
in the contract entrepreneur of restaurant unit is accountable to make payment of
interest on financial assistance undertaken (Hong and Hanna, 2014). Further, in

leasing, in return of making use of assets sole trader obliged to pay rent. Hence, both
interest and rent are considered as financial cost for F&F.
 Opportunity cost: Personal saving source of finance has opportunity cost to the firm.
Moreover, if business unit uses personal savings then it is not in position to capitalize
future opportunities or contingent situations. In this way, such internal source of
finance imposes opportunity cost in front of the firm.
2.2 Explaining the importance of financial planning
Financial planning is the process that is associated with the procurement, investment
and administration of funds. In the context of F&F, financial planning is highly significant
which in turn helps in ensuing stability by making proper balance in inflows and outflows.
Besides this, competent financial plan assists in reducing uncertainties pertaining to current
trends (Hong and Hanna, 2014). Moreover, it enables business entity to keep some fund for
the contingent situation and thereby ensure smooth functioning of operations.
2.3 Assessing the information need of different decision makers
Information need of all the internal and external stakeholders vary to the significant
level in the following way:
Internal stakeholders
 Management: In the context of F&F, manager undertakes all the financial statements
with the motive to assess monetary position and performance. Monetary information
assists manager in developing strategic framework for the upcoming time period
(Rehan and et.al., 2015).
 Personnel or employees: They make assessment of profitability statements with the
objective to evaluate their growth in monetary terms such as bonus, incentives etc.
External stakeholders
 Investors: For making estimation about return in the form of dividend investors or
shareholders make evaluation of profitability statement.
 Financial institution: To assess the capability of firm in relation to meeting monetary
obligations financial institution does evaluation of balance sheet (Users of financial
statements, 2016).

2.4 Impact of sources on financial statement of the firm
Selected financial sources have direct impact on the financial statement of F&F in the
following way:
 Income statement: Under income statement, both interests will be paid on
government grant and rent pertaining to lease recorded in debit side. Moreover, both
are considered as expenses and have influence on organizational profit margin.
 Balance sheet: Lease and financial assistance provided by the government is
recognized as liability because after specific time period restaurant unit has to return
the same. Referring the same, in statement of financial position, both the sources are
recorded in liabilities side. Further, cash element of assets side will also increase with
the amount of loan sanction by the government. Further, fixed assets will also be
increased as per the lease transaction.
3.1 Analyzing budgets for making appropriate decisions
Cash budget is prepared by F&F with the motive to estimate or evaluate cash inflows
and outflows (Kemp and et.al., 2015). The below depicted budget presents that closing cash
balance of F&F increased from £25500 to £121014 respectively at the end of December.
Thus, it can be presented that cash position of firm is good and increased over the years to a
great extent.
Cash budget of F&F for the period of six months is enumerated below:
Particul
ars
July Augu
st
Septem
ber
Octob
er
Novemb
er
Decemb
er
Cash inflows
Sales
revenue
300
00
3300
0
36300 39930 43923 48315.3
Other
income
500
0
5000 5000 5000 5000 5000
Total
cash
inflows
350
00
3800
0
41300 44930 48923 53315.3
Cash outflows
Material 750
0
8250 9075 9982.5 10980.8 12078.8

Labor
and
salaries
of
personne
l
450
0
4950 5445 5989.5 6588.45 7247.3
overhead
s
360
0
3960 4356 4791.6 5270.76 5797.84
Other
expenses
390
0
4290 4719 5190.9 5709.99 6280.99
Total
cash
outflows
195
00
2145
0
23595 25954.
5
28550 31404.9
Net cash
flow/
deficit/
surplus
155
00
1655
0
17705 18975.
5
20373.1 21910.4
Opening
balance
100
00
2550
0
42050 59755 78730.5 99103.6
Closing
cash
balance
255
00
4205
0
59755 78730.
5
99103.6 121014
3.2 Calculation of unit cost for making pricing decisions
Unit cost implies for the expenses incurred by the firm for offering services to each
customer. In this, by adding profit % in the unit cost owner of F&F can determine suitable
price and would become able to get desired margin (Peirson and et.al., 2014).
For example:
Particulars Formula
Figure
s
Fixed cost £5000
Variable expenses £10000
Total cost (TC)
TC: Fixed + variable
cost £15000
Number of people
served £300
Unit cost TC / Number of people £50
Mark-up 20%
Profit per unit (Unit cost * mark up ) £10
Price per unit TC + profit per unit £60

3.3 Evaluating the viability of projects using investment appraisal tools
Investment appraisal tools give indication to the business entity about the viability of
project and helps in making suitable decision (Wahlen, Baginski and Bradshaw, 2014). For
instance: Owner of F&F has two proposals such as A & B with the same initial investment
amounted to £160000 but both the proposals having varied cash flows:
Payback period and NPV
Year
cash
inflow
of
propos
al A
Cumulat
ive cash
inflow
PV
factor
@
10%
Discount
ed cash
flow of
proposal
A
Cash
inflow
of
propos
al B
Cumulat
ive
inflow
Discount
ed cash
flow of
proposal
B
1 50000 50000 0.909 45454.55 53000 53000 48182
2 68000 118000 0.826 56198.35 72000 125000 59504
3 62000 180000 0.751 46581.52 66000 191000 49587
4 80000 260000 0.683 54641.08 84000 275000 57373
5 96000
356000 0.621 59608.45 10200
0
377000
63334
Total
discount
ed cash
inflows
262483.9
3 277980
Less:
Initial
investm
ent 160000 160000
NPV
102483.9
3 117980
Payback period
Project A: 2 + 42000 / 62000
= 2.7 years
Project B: 2 + 35000 / 66000
= 2.5 years
Internal rate of return (IRR)
Year Proposa Proposal

l A B
-160000 -160000
1 50000 53000
2 68000 72000
3 62000 66000
4 80000 84000
5 96000 102000
30% 33%
Interpretation: By taking into account the outcome of investment appraisal it is
suggested to F&F owner to employ money in proposal B. It will offer opportunity to the
business entity in relation to recovering initial investment within the less time period and
earning higher returns. Thus, firm should select proposal B over A, which in turn aid in the
success and profitability of firm.
TASK 2
4.1 Discussing the main financial statements that are prepared by Sainsbury
Main financial statements which are prepared by Sainsbury’s Plc is enumerated
below:
 Income or profitability statement: It includes or renders information about gross and
net profit as well as direct & indirect expenses. Hence, Sainsbury Plc prepares such
statement with the motive to assess return or margin generated over the expenses.
 Balance sheet: Liabilities and assets are the main two elements of statement of
financial position (Wright, 2014). The main objectives of firm behind preparing such
statement is to assess liquidity, solvency and fixed assets position.
 Cash flow statement: It entails cash position by presenting business transactions in
three different categories such as operating, investing and financing. By using such
statement firm can take decision about the areas that account for high control.
 Statement of changes in equity: It exhibits information about the changes take place
in shares, retained earnings etc over the time frame. Sainsbury prepares such
statement to assess the level of increase or decrease in share capital and would
become able to take effectual decisions for the near future.

4.2 Comparing the financial statement formats of different business units
Difference
Basis of difference Sole trader Private firm Voluntary
organization
Meaning The main objective of
sole trade is to
maximize profit by
carry out operations
and functions.
Sainsbury Plc comes
under the category of
private firms whose
main motive is to
enhance customer base,
productivity and
profitability.
It implies for the one
which work for the
welfare of others.
Financial Statements Profitability statement
is prepared by sole
traders to get
information about
margin generated
(Kadous, Koonce and
Thayer, 2012).
For meeting the need
of stakeholders and
providing information
to investors Sainsbury
prepares following
statements:
 Income
statement
 Balance sheet
 Statement of
cash flow
 Equity
statement
Voluntary and non-
profit organizations
prepare income &
expenditure to record
business transactions.
Compliance
requirement with IFRS
and UK GAAP
NO Yes No
Publishing requirement No Mandatory NO
Following specific
format
No Yes No
4.3 Interpreting financial statements of Sainsbury through ratio analysis
Ratio analysis of Sainsbury Plc
Particulars Sainsbury Plc Tesco Plc

2016 2017 2017
GP ratio 6.2% 6.2% 5.2%
NP ratio 2% 1.44% -.07%
Current ratio .66 .74 .79
Solvency ratio .34 .30 1.47
Total assets turnover
ratio
1.40 1.43 1.24
Interpretation: The above depicted table presents that net profit margin of Sainsbury
Plc decreased over the years which is not a good indicator of the firm. However, as compared
to Tesco Plc, profitability aspect of Sainsbury Plc is good. Further, it can be stated that
liquidity position of both the companies was not good during the concerned years. Along
with this, considering the ideal debt-equity ratio such as .5:1, it can be depicted that solvency
position of Sainsbury Plc is good over Tesco (Hu and et.al., 2012). Outcome of ratio analysis
shows that in comparison to Tesco, Sainsbury Plc has made optimum use of assets for
generating sales. Thus, on overall basis it can be presented that financial position of
Sainsbury is good over Tesco.
CONCUSION
By summing up this report, it can be concluded that business entity of F&F should use
both internal and external sources for raising funds. Besides this, it can be inferred that
financial planning and budgeting exerts control on spending to a great extent. Along with
this, it has been articulated that business entity should employ money in project B which will
prove to be profitable for the restaurant unit. It can be seen in the report that financial
performance and position of Sainsbury Plc is good over the rival firm.