Managing Financial Resources and Decisions Report

This report provides a comprehensive analysis of managing financial resources and decisions, focusing on Clariton Antique Ltd. It covers various aspects such as identifying sources of finance, assessing internal and external finance implications, evaluating appropriate finance sources, analyzing finance costs, and the importance of financial planning. The report also includes a detailed cash budget, unit cost calculations, investment appraisal techniques, and an analysis of financial statements using ratio analysis. The conclusion emphasizes the importance of effective financial management for business growth and profitability.

Managing Financial
Resources and Decisions

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
1.1 Identifying sources of finance available to incorporated and unincorporated businesses.....4
1.2 Assessing the implication for using internal and external sources of finance.......................5
1.3 Evaluating the most appropriate source of finance for Clariton Antique Ltd........................6
TASK 2............................................................................................................................................6
2.1 Analyzing the cost of two sources of finance........................................................................6
2.2 Importance of financial planning ..........................................................................................7
2.3 Information needs to make decision on financing the takeovers...........................................8
2.4 Impact of financial statement in case of selection of finance broker and Venture capitalist.8
TASK 3............................................................................................................................................9
3.1 Preparing and analyzing the cash budget for Clariton Antique Ltd.......................................9
3.2 Calculating the unit cost for making pricing decisions........................................................10
3.3 Assessing the viability of project using investment appraisal techniques...........................11
TASK 4..........................................................................................................................................13
4.1 Discussing the key components of financial statements......................................................13
4.2 Comparing the format of financial statement of Clariton Antique Ltd and partnership
business......................................................................................................................................15
4.3 Interpreting the recent financial statements of Clariton Antique Ltd..................................16
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

Index of Tables
Table 1: Cash budget.......................................................................................................................9
Table 2: Working note.....................................................................................................................9
Table 3: Costing.............................................................................................................................10
Table 4: Payback period.................................................................................................................11
Table 5: Accounting rate of return.................................................................................................12
Table 6: Net present value.............................................................................................................12
Table 7: Ratios...............................................................................................................................16

INTRODUCTION
Financial resources are the most important aspect which assists corporation to integrate
all business activities in the direction of growth and success. The effective management of
financial resources is done with help of application of different technologies such as budget,
investment appraisal and ratio analysis. This ensures better management of all financial
resources by considering cost and profitability generated by each. Present report is based on
Clariton Antique Ltd; operating with 2 branches in London and dealing with antique items.
Currently, business is looking forward to acquire a building in Birmingham to open another
market. However, it requires to raise £0.5 million for working on its plan which assists
corporation to access cost effective source of finance and determine success of the business in
the marketplace (Clariton Antiques Ltd, 2016). Furthermore, different sources of finance
available for business are explained and analyzed. Similarly, cash budget has been prepared in
order to assess the variation between actual and expected results. Apart from this, impact of
finance has been explained on financial statement which affect its overall performance to a great
extent. In addition to this, ratio analysis has been done to analyze the performance of business.
TASK 1
1.1 Identifying sources of finance available to incorporated and unincorporated businesses
The sources of finance are referred by business in accordance with specific requirement.
However, it can be different for incorporated and unincorporated business.
Sources for incorporated business
The businesses which are incorporated are generally considered as the public limited
which has right to issue the equity share and raise their finance. It enables management to access
cost effective source and accomplish the selected sources. Similarly, leasing companies, banks
and financial institutions are also the effective sources of finance for corporation like Clariton
Antique Ltd which aids to operate the business in the marketplace with increased rate of return as
finance can be acquired at any particular time (Archibald and Archibald, 2016). However, it
depends on the requirement of business and accordingly sources of finance are acquired.
Sources of unincorporated business

The unincorporated business are referred as those which are not registered. They cannot
raise money from public finance due to obligation and requirement. At this juncture, sources like
owner's capital, sale of old assets, financial institution and bank loan can be acquired by them.
However, firm can also get overdraft if its credit rating is good (Dekker, Ding and Groot, 2016).
This enables business to reduce overall risk by accessing cost effective sources by doing proper
analysis of the internal as well as external situation of the company. It reflects that varied sources
are available for both kind of business.
1.2 Assessing the implication for using internal and external sources of finance
The implication of internal and external source of finance can be understood effectively
in a detail manner as follows-
Internal source
The internal sources of finance covers sale of old assets, retained profit which generally
create obligation for business in taking right decision. For example, sale of old assets must be
done effective on right valuation otherwise business might sale the same on wrong or
undervaluation basis. Furthermore, retained profit can be utilized by checking the priority with
consideration of expansion project, working capital etc (Husted, Montiel and Christmann, 2016).
All these aspect are considered by management for taking effective decision and support
business to cater requirement of all related parties and ensure its long run survival with increased
rate of return.
External source
The external sources can also be defined in the positive and negative implication and then
appropriate one can be selected. Here, example of equity can be taken under which management
need to occur floatation cost and extensive time is needed to get the finance. Furthermore,
shareholders dilute the control as their views and suggestions must be incorporated in the
decision making process. Owing to this, management ensure to include shareholders in the board
meeting and expansion project must be followed by their consent (Oh, Chang and Cheng, 2016).
On the other hand, bank loan is backed by collateral securities as evidence that it will be paid by
company back. However, non-payment of interest and installment has direct impact on credit
rating of the business. Furthermore, leasing companies create obligation for business to pay the
cost on right time.

1.3 Evaluating the most appropriate source of finance for Clariton Antique Ltd.
The appropriate sources of finance can be selected by business in accordance with its
specific requirement and internal position. According to the given scenario, Clariton Antique Ltd
is planning to acquire building in Birmingham to open another branch, following sources of
finance are the most appropriate- Issue of equity share-It is the most effective source of finance for Clariton Antique Ltd
which aids to raise the more finance for the project of corporation. It assists business to
acquire huge capital in order to meet long as well as short term obligation in the
marketplace (Raikes and McBean, 2016). It is because equity share is considered as the
most safe and secured source of finance under which corporation tend to focus upon
reducing the cost and long run survival of the business. For this purpose, equity share has
been selected for new expansion project of the business. Bank loan-Bank loan is an effective source for Clariton Antique Ltd as management get
large amount of finance by approaching banks and providing the idea of expansion of the
business. However, it is the incorporated business where expansion plan can be easily
implemented by the firm. However, cost of the business will be relatively low as firm can
easily focus upon meeting expectations of all related stakeholders (Stacchezzini, Melloni
and Lai, 2016).
 Leasing companies-By selecting this source of finance management easily start operation
at new branch. This is because highly equipped machinery for producing furniture can be
got by leasing companies. Hence, it is considered as the most effective source of finance
for the firm.
TASK 2
2.1 Analyzing the cost of two sources of finance
The cost of finance plays vital role while taking decision related to the most appropriate
project for the business. Generally, management put efforts to grab the cost effective source so
that accordingly well being firm can be ensured in the marketplace. These cost are explained as
follows in term of two sources of finance- Equity share-This is the most effective source of finance under which management need
to pay for its dividend (Adams, Litan and Pomerleano, 2010). Here, it is necessary to get

appropriate rate of return in the particular financial year so that accordingly shareholders
can get the benefit. However, tax is also associated with equity share because among after
payment of tax is distributed among shareholders for their higher rate of return by
considering the well being of business. In addition to this, dividend of the firm can be
canceled when it gets loss. It is the most effective aspect associated with equity finance
which tend to ensure well being of corporation. Furthermore, capital gain is also provided
for the equity providers through which their expectations can be met effectively and well
being of the same is ensured. This in turn serves as the cost which reduces the
profitability available to business.
 Bank loan-Under this source of finance, firm need to pay interest on right time along
with payment of installment in the respective month (Allen and Economy, 2011). It
enables management to work in accordance with agreed terms and condition where
interest rate might fluctuate. However, bank loan is paid after payment of tax as this is
considered as the prime liability of Clariton Antique Ltd which ensure ethical conduct of
business in the marketplace. Owing to this, it important to pay cost of finance along with
cost to party like government.
2.2 Importance of financial planning
Financial planning is the procedure to acquire, allocate and manage the finance in the
company in accordance with set aim and objectives. It can be made possible in different manner
with application of techniques like budgeting, over trading and implication of failure to finance
in an effectual manner. These three aspects play important role in effective financial planning for
Clariton Antique Ltd (Bain and Nowak, 2015). For example, cash budget under which
forecasting is done for future expenses and income where uncertainties associated with business
can be ensured in an advance. By doing this, company come to know about requirement of
finance as objectives are focused on priority basis. For example, here, firm is planning to expand
the business, hence management would consider the need of huge finance. On the other hand,
implication of failure to finance appropriately, is also considered by making the contingency plan
so that company can use retained profit for managing its new plan. At the same time, strategies
like using internal sources of finance can also be applied. It tends to reduce the risk of business
to a great extent and help company to accomplish its long as well as short term objectives

(Bryan, Verles and Santini, 2014). In addition to this, over trading strategy is also used by
Clariton Antique Ltd so as to manage the finance effectively.
Therefore, financial planning consists of different activities such as identification of
resources requirement and estimating the total expenses incurred to acquire them along with
expected revenue. This in turn corporation can effectively prioritize the resource use and forward
the activities towards preparing the budget. However, budget is made for next six month or for a
quarter so as to analyze the current and expected performance of the business.
2.3 Information needs to make decision on financing the takeovers
There are different decision makers who take appropriate decision for the purpose of
expansion. In case of takeover partner need information related profitability and liquidity of the
business so that accordingly future return can be expected effectively., However, in case
management of Clariton Antique Ltd is thinking to finance through finance broker then no any
kind of information is needed for that particular person (Devaney, 2014). The concern is just
about varied sources from where is going the finance on given time span. However, cost of
finance matters a lot but company can be assured to get the fund on time. Furthermore, venture
capitalist can reflects that managemetn need to ensure that company is sound and operating in
the marketplace with strong goodwill. It will have direct impact on rate of return of Clariton
Antique Ltd as availability of fnance facilitate to expand the project (Farzanegan, 2013). In this
manner, all three parties are considered at the time of making decision on financing the takeover.
It would be effective to take sound decision so as to accomplish the set objectives and enhance
overall rate of return of the corporation.
2.4 Impact of financial statement in case of selection of finance broker and Venture capitalist
Financial statement of company contain all important detail related to cost, profit,
solvency and debt position. For example, company access to finance broker then a particular
commission will be paid and the same will be shown in the income statement,. It affect operation
of business by lowering down overall profitability (Henderson and et.al., 2015). Similarly, access
to venture capitalist enhance the cash balance of balance sheet which in turn assets side will be
increased. However, at the same time, obligation of firm raised which tend to increase the
liability side also. It reflects that all transaction tend to have two side impact on all financial
statement. However, access to finance broker also need payment of cost in term of commission

or interest. It will have direct impact on the income statement or the profit and loss statement of
the business. It is because loss will be occurred to business due to higher indirect expenses.
Owing to this, it can be said that financial statements get affected through which overall
performance of firm get affected. This shows that selection of financial resources is based on
cost and availability which tend to support business in an effective manner (Khan, 2015).
Furthermore, finance broker will have significant impact on cash balance also which then
increase the size of current assets. In this manner, impact of both options has been demonstrated
on financial statements of Clariton Antique Ltd with respective to cost and rate of return.
TASK 3
3.1 Preparing and analyzing the cash budget for Clariton Antique Ltd.
The cash budget shows that activities related to expenses and cash for future time span.
This enables management to recover cost of production in relatively less time span and
accomplish overall rate of return of the business in the marketplace (Milner and Rosenstreich,
2013). The following cash budget is showing that sales turnover of corporation is varying to a
great extent. Here, the overall sales turnover of the business has been mentioned in the following
manner in accordance with each months. Furthermore, it has been found that surplus of business
is varying at rapid speed at in the month of January it was -649750 which was directly increased
in the next month. However, after that revenue is having variation. Owing to this, it can be said
that management of Clariton Antique Ltd can ensure better management of financial resources
and implementation of strategies to reduce cost of production for enhancing rate of return.
Table 1: Cash budget
Particulars January February March April May June
Receipts
Total receipts 157500 285000 435000 562500 345000 288750
Payments
Payment to suppliers 807250 137250 119750 437250 227250 219750
Shortage/Surplus -649750 147750 315250 125250 117750 69000

Opening cash balance 110000 -539750 -392000 -76750 48500 166250
Closing cash balance -539750 -392000 -76750 48500 166250 235250
Table 2: Working note
Months November
Decembe
r
Januar
y
Februa
ry March April May June July
Sales 150000 150000 300000 450000 600000
30000
0 300000 75000 150000
Revenue of the
month (5% of
sales) 15000 22500 30000 15000 15000 3750
Month
following the
sales (80%) 120000 240000 360000
48000
0 240000 240000
Second month
following the
sales (15%) 22500 22500 45000 67500 90000 45000
Total sales 157500 285000 435000
56250
0 345000 288750
3.2 Calculating the unit cost for making pricing decisions
Calculation of unit cost is considered as the most important task for the business as it
helps in setting right price so that accordingly corporation can manage its performance in a most
effective manner. The pricing decision can be understood in the following manner-
Table 3: Costing
Number of units 500
Particular Per unit Total cost

cost
Variable cost (average
price of purchasing
antique piece) 30 15000
Fixed cost (Utilities and
maintenance) 50 25000
Total cost 80 40000
Mark up of 25% 20 10000
Selling price 100 50000
The example of 500 units of antique items has been taken under which per unit cost is
calculated along with total cost associated with the same. Here, it has been found that cost of
selling price is 100 under which firm get margin worth 25%. The main reason behind putting this
much margin is to recover cost of acquiring the products and enhance overall rate of return
generated by corporation through varied sources (Rondi and et.al., 2013). It would be effective to
deliver good quality of services to large number of buyers as management also get chance to
offer discount for them. In this manner, it can be said that pricing decision is taken on the basis
of rate of return generated by corporation.
3.3 Assessing the viability of project using investment appraisal techniques
The investment appraisal techniques are important for business as it assists them to select
the most suitable project in accordance with cost as well as rate of return generate (Rosenthal and
et.al., 2015). These two available investment options for Clariton Antique Ltd. Are assessed in
accordance with Peter's criteria for investment-
 Payback period-It is the foremost investment appraisal technique under which
management select the project in accordance with recovery of initial investment
employed in a project. For example, investment 2 can be recovered in 3.08 years whereas
investment one need only 3.22 years. Hence, investment 2 is more beneficial for business
to recover its cost of production on right time.
Table 4: Payback period
Years Investment 1 Investment 2
Cumulative cash flows of
Investment 1
Cumulative cash flows of
Investment 2
0 8.6 4.4 -8.6 -4.4
1 1.6 0.8 -7 -3.6

2 2.8 1.4 -4.2 -2.2
3 3.4 2 -0.8 -0.2
4 3.6 2.4 2.8 2.2
5 4 2.3 6.8 4.5
6 4.2 2.6 11 7.1
Payback
period
= 3+0.8/3.6
=3+0.22
=3.22 years
3+0.2/2.4
=3.08 years
 Accounting rate of return-According the below mentioned table, it has been found that
investment 2 is generating higher rate of return. It is because investment 1 generates
37.98%. Hence, investment 2 generates higher rate of return for the business. Owing to
this, investment 1 is not selected and 2 will be selected as it can easily recover the cost
and generated greater profitability.
Table 5: Accounting rate of return
ARR
Year Investment 1 Investment 2
0 8.6 4.4
1 1.6 0.8
2 2.8 1.4
3 3.4 2
4 3.6 2.4
5 4 2.3
6 4.2 2.6
Total 19.6 11.5
Average 3.67 1.67