Financial Resource Management and Decision-Making at Radission PLC

This report analyzes the financial resource management and decision-making processes at Radission PLC, a software manufacturing firm in London planning to expand its business. It identifies appropriate sources of finance, assessing the implications of internal and external options like bank loans, retained earnings, and venture capital. The report evaluates the costs of equity versus debt financing, recommending debt financing due to tax benefits and manageable repayment terms. It emphasizes the importance of financial planning for cash flow management, resource utilization, and cost reduction. The analysis includes the impact of financing options on financial statements, the significance of budgets for variation analysis, unit cost calculation for pricing decisions, and investment appraisal techniques like NPV for project viability. Furthermore, the report discusses and interprets Radission PLC's financial statements using ratio analysis, comparing them with another company to provide a comprehensive financial overview.

Managing Financial resources and
Decisions
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
A) Identification the appropriate source of finance for the firm and assess the implication of
different sources.....................................................................................................................3
B) Evaluating the appropriate sources of finance for the company ................................................6
TASK 2............................................................................................................................................7
A) Analyse the cost of fund the project using equity versus debt finance and recommendations
on choice.................................................................................................................................7
B) Explain the importance of financial planning and assessing the information requires needs
for the financial decision-making ..........................................................................................9
C) Explain the impact of suggested finance option on financial statement...........................9
TASK 3..........................................................................................................................................10
A) Analyse the significance of budgets for variation and make appropriate decisions for the
firm.......................................................................................................................................10
B) Explanation how would calculate unit cost and make pricing decisions based upon the
appropriate information at the firm......................................................................................12
C) Assess the viability of the expansion project using investment appraisal techniques such as
NPV......................................................................................................................................13
TASK 4..........................................................................................................................................15
A) Discussion on the financial statements of Radission PLC..............................................15
B) Interpret the financial statements using appropriate ratio of a public limited company and
compare with those of another company..............................................................................17
C) Ratio Analysis for the Radission PLC .....................................................................................18
CONCLUSION .............................................................................................................................20
REFERENCES..............................................................................................................................21
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INTRODUCTION
Radission PLc is a manufacturing medium size firm of software at the London and it is
want to expand its business. The manager of the company feel that there is a lot of opportunities
relate to expand it business activities and operations. In the present research project, there is a
different source of available an it has a legal, financial implication and dilution of control.
Furthermore, there is an also explain the importance of financial planning and comparison on the
debt finance and equity (Misund,2016). There is also a comparison on the two company
financial statements and also discussion on the investment appraisal techniques.
TASK 1
A) Identification the appropriate source of finance for the firm and assess the implication of
different sources
Every firm needs a finance to run their business operations and functions smoothly. Thus,
there is two types of sources of finance available to the Radisson Plc in London and its
implication that are describe below-
Internal sources- It is that type of funds that can be generate by the firm from internally
and there of various type of internal sources available are:
Internal sources Description Legal
implication
Financial
implication
Dilution of control
Sales of an assets  The Company
can generate its
finance within
the organisation
by sale of
machinery,
furniture, office
equipment,
goodwill,
licenses, land
and building.
 There is a
legal
implicatio
n of sales
of an
assets by
the seller
to the
vendor so,
it requires
a legal
formalities
 These internal
sources also
create a
financial
implication in
that the owner
of an assets
sales any kind
of assets to
the purchaser
it will raise it
short-term
 There is no
dilution of control
as there is no any
other external
parties engage
with the firm.
3

and
documenta
tion
process
under the
contract.
funds.
Therefore, in
the other the
firm have to
reduce its
price to clear
off the stock.
Retained profits  In this internal
source of
finance the
Radisson Plc
can generate its
long-term
finance from
internally
 In that the
company can
used its retained
earning that are
remains after
the distribution
of dividends to
the
shareholders. It
is beneficial for
the company as
its helps them to
reinvest in the
organisation to
expand its
 There is
no a legal
as well as
financial
implicatio
n as the
retained
profits is
used by
the
company
for itself
so, it does
require
any legal
formalities
. (Epstein
and
Buhovac,2
014)
 Further, there
is no financial
implication
but the
company
increase its
sales by
reinvesting in
its business.
 These type of
retained profits
does not have a
dilution of
control.
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business in a
short period of
time. Thus, it
helps in
generating large
revenues.
External sources- It is that type of sources that are used by the firm from the outside the firm to
generate its funds more effectively.
External
sources
Description Legal
implication
Financial
implication
Dilution of control
Bank loan  The company
can generate its
funds by take
any type of loan
for the purpose
of business
from the
banking and
financial
institution.
 The bank loan
can be taken by
the Radisson
PLC from the
bank firm at the
rate of interest
for some
maturity time
period.
 The bank
loan given
by the
company
only when
the other
party fill
all the
legal
requireme
nts that are
necessary
required.
So, there
is a legal
requireme
nts
(Jackson,2
010).
 The bank loan
have a
financial
implication
for the
company as
they have to
re-pay its loan
payment
before
maturity
period at
interest.
 The bank loan
have a
financial
implication
for the
company as
they have to
 . The dilution of
control of bank
loan with the bank
firm is low.
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re-pay its loan
payment
before
maturity
period at
interest.
Venture capital  The Radisson
PLC can take
generate its
funds from the
externally with
the venture
capitalist by
borrow the
equity capital
participants.
 These external
source of
finance not only
provide
financial
assistance
support but it
also act as a
consultancy
firms in which
they give the
proper
guidance.
 There is
legal
implicatio
n of
venture
capital is
that the
company
who
borrow the
equity
capital
have to fill
all the
legal
formalities
before
borrow
capital
from the
venture
capitalist.

 The financial
implication is
that the
venture firms
is a part of
stakeholder
so, it is a
responsibility
of the
Radisson PLC
is that to pay
the dividend
as a cost of
finance to
them from its
profits.
 The dilution of
control of the
venture capital is
high as the
venture capitalist
invest its major
part.
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B) Evaluating the appropriate sources of finance for the company
The Radission PLC choose the appropriate source of finance by take into consideration its
advantages and disadvantages that are discussed below-
Bank loan
Pros
 The main benefits from the bank loan is that it is a secured loan and there is not any
change in the fixed interest rate.
 The firm who take bank loan can get an advantage of tax benefits.
Cons
 The disadvantage of bank loan is that it is not suitable for the small firm as they charge
high rate of interest (Eckerd,2015).
 Bank charge high penalty cost from the firm if they not re-pay amount of bank loan on
maturity period.
Retained earning
Advantages
 The main advantage of the retained profits is that it help the firm to expand it business
effectively.
 The another advantage of these external source of finance is that it does gives any kind of
financial burden to re-pay the loan like other bank loan.
Disadvantages
 The company sacrifice its money by re-investing in the firm and its also create
opportunity cost to the firm. .
 The company may suffer loss if they cannot earn high returns from the re-investing in a
business (Epstein and Buhovac, 2014 ).
From the above advantages and disadvantage of sources of finance it can be said that the
most appropriate sources of finance for the Radission PLC is a bank loan. Thus, it gives benefits
for the firm as company can easily finance its business from the bank loan and they can easily
generate high rate of profits.
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TASK 2
A) Analyse the cost of fund the project using equity versus debt finance and recommendations
on choice
There is a difference among the equity finance and debt finance
Sources Cost implication advantages
Equity
 Preference
shares
 Retained
profits
 Equity shares
The cost of these
sources of finance is
that in which there is
a payment of
dividends in the
annual that are from
earning and with the
payments there is a
tax
implication(Yellen,2
016).
 There is a
less risk as
compared to
other finance
source.
 There is an
dividend has
been made
after
deduction all
the firm's
cost.
Disadvantage
 No Tax relief
 Higher cost
Debt
 Bank loans
 Commercial
borrowings
from
financial
institutions
 Issue of
bonds as well
as
debentures
etc.
 The cost is
relate to the
interest rate
of loans
 Tax benefits
 Cost incurred
less
 The payment
are to be
made on
periodical
basis
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Recommendations
From the above it has been analyse that Radisson PLC should opt the debt financing in
which the there is a completion of contract from the software supplier than they can easily afford
to re-pay loan. There they get tax-benefits on payment interest that leads to reduce risk.
B) Explain the importance of financial planning and assessing the information requires needs for
the financial decision-making
There is an significance of the finance planning for the Radission PLC are as follows-
 It help the company to assist the inflow of cash and outflow of cash of future periodical
time period.
 It also help them to optimum utilization of resource and they can able to determine the
right time to generate funds.
 It also help in reduction cost and make a financial plan regard to cost and revenues.
 The another benefit is that they can easily forecasting its profitability.
C) Explain the impact of suggested finance option on financial statement
The company can opt for the finance to expand its business from the debt financing that
can be taken from the bank is a long term loan. It will impact on the Radisson PLC financial
statements in which there is a reduction in Net profits due to maximizing the interest cost which
is a part of the net/ profit of the firm(Greenbaum, Thakor and Boot,eds., 2015). Along with that,
in the balance sheet there is an increase in the non-current liabilities on the debit side and the
cash at bank will increase in the credit side of the B/S. The cash inflow from the financing
activities in the cash flow statements as a loan procurement. Thus, it will be given as follow-
Statement of financial position
9

Statement of profit or loss and other comprehensive income
10

TASK 3
A) Analyse the significance of budgets for variation and make appropriate decisions for the firm
Budget means that the company can make plan and forecast all the activities that are
related to the business and also operations for the future time period. These budgets mainly
include in it are the sales budge, purchase budget, cash budget and marketing budget etc. The
most significant budget can the Radission PLC used that is Cash budget it helps the firm to
forecast all the business activities more effectively. Therefore, this budget is important for the
firm:
 Helps in forecasting future requirement: Cash budget is beneficial for the Radisson
PLC as its helps them to forecasting the requirement of monetary for the future. The
manager of the company easily make decisions regard to which sources is beneficial for
them to enhance the money (Misund,2016 ).
 Control cash expenditure: The cash budget helps the company to control expenses due
to which the finance department manager take more restrictions on its subordinates. Thus,
they can optimum usage of financial resources and influence them not to exceed the
target limit.
 Planning: The Cash budget helps the manager of finance to construct the polices as well
as make plans. It is relate to the investment plans for the future by manage the surplus
cash and also make arrangements when there is any deficiency arise.
 Performance evaluation: The cash budget can be used by the firm as a standard tool for
the evaluating the firm's performance. It is possible by make comparison of actual
management of cash with the target that are set by the firm earlier.
 Co-ordination: The cash budget is beneficial for the Radission Plc to make coordination
among all the function of marketing, sales and production etc.
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From the above cash budget it has been analyse that the Radission Plc has a better
financial position at the end of the six months. In the initial stage, the Net cash flow is positive
that is £ 1600 in the January but in the next two months the NCF is start decrease in the February
and march. It is £ 750 in the February and in the next month it is £ 490 that means there is
reduction of 35 % (Geng, Bose and Chen,2015). The reason behind the variation of NCF start
decreasing as the Radission PLC spend a lot of money on the purchase on an assets and increase
expenses of advertising of its goods or services. Therefore, it has been said that there is increase
in the NCF in the next three months that is April, May and June that is £ 1000, £ 2670 and £
5250 respectively. It is only possible when the firm see that there the NCF goes downward in the
month February and March. Thus, the company start using its unique marketing strategies this
will able them generate more revenue from the potential market.
Decisions to mitigate from the shortfalls
 Provide the trade discount offers to increase the sales amount
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