Financial Analysis Report: Sources of Finance and Financial Planning

This report delves into the crucial aspects of financial management for businesses. It begins by identifying and evaluating various sources of finance, including internal sources like personal savings and sales of assets, and external sources such as bank loans, leasing, factoring, and government grants. The report assesses the implications of each source based on legal, financial, and control aspects, concluding with a recommendation for a restaurant business. It then highlights the importance of financial planning, the information needs of different stakeholders, and the impact of financial sources on financial statements. A cash budget is prepared and analyzed to aid in decision-making. The report also discusses the financial performance of Dixon Carphone Plc, analyzing its financial statements, and comparing its performance against competitors using ratio analysis. Overall, the report provides a comprehensive overview of financial management techniques and their application in a business context.

MFRD

Table of Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Identifying the sources of finance available to business..................................................3
1.2 Assessing the implications of varied sources of finance son the basis of different
aspects....................................................................................................................................4
1.3 Evaluating the suitability of selected source of finance...................................................5
2.1 Analyzing the cost of different financial sources.............................................................6
2.2 Defining the importance of financial planning................................................................6
2.3 Identifying the information need of different decision makers........................................7
2.4 Explaining the impact of financial source on final accounts...........................................8
3.1 Preparing budget and analyzing it for making suitable decisions....................................8
3.2 Assessing unit cost and making pricing decisions...........................................................9
3.3 Selection of suitable source of finance by using investment appraisal techniques..........9
TASK 2....................................................................................................................................11
4.1 Discussing the main financial statements that are prepared by Dixon Carphone Plc....11
4.2 Identifying the differences take place in the final accounts prepared by varied firms. .11
4.3 Assessing the financial performance of Dixon Carphone Plc in against to the
competitor by using ratio analysis........................................................................................12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14
APPENDIX..............................................................................................................................15

INTRODUCTION
In the business organization it is the accountability of owner to develop highly
competent framework which in turn facilitates optimum use of financial resources. Moreover,
for the execution of business plan firm requires enough funds. Hence, by making continuous
monitoring of monetary aspects or performance firm can take strategic for improvement. In
this way, by applying the financial tools and techniques business entity can select best
proposal out of several. In this, by considering the monetary support offers by the
government authority entrepreneur has taken decision in relation to opening restaurant. In
this, the present report will describe the sources that can be undertaken by business entity to
meet monetary requirements. Besides this, it will shed light on the manner in which
budgeting and investment appraisal techniques help in making suitable decisions. Further,
report will also furnish information about the extent to which profitability, liquidity and
solvency position of Dixon Carphone Plc is sound.
TASK 1
1.1 Identifying the sources of finance available to business
On the basis of cited case situation, with the motive to ensure high economic growth
and development government is offering support to the business entities. Hence, to realize the
dream business entity has taken decision in relation to starting the business of restaurant.
Thus, owner of Spice restaurant can start venture by using both internal and external sources
of finance.
Internal sources of finance
 Personal savings: Business entity saves some money with the motive to meet
contingent situation and achieving objectives (Hubbard and et.al., 2014). Thus, by
making use of personal saving business entity can start his venture.
 Sales of assets: By selling unproductive assets business entity of restaurant can
generate more funds and thereby would become able to start venture.
External sources of finance

 Leasing: Sole trader can meet monetary requirements by taking fixed assets on
contractual lease basis.
 Bank loan: In the recent times, financial institutions are involved in offering financial
support to the growing business units. Hence, by approaching to the banking
institution entrepreneur can start restaurant.
 Factoring: Business entity can get fund by discounting bills from financial institutions
(Anselmi, Lagarde and Hanson, 2014). For this, financial institution charges some
cost as discount.
 Government grant: Entrepreneur can raise funds or finance by presenting highly
competent plan to the government authority.
1.2 Assessing the implications of varied sources of finance son the basis of different aspects
Particulars Legal Financial Dilution of
control
Bankruptcy
(Priority of
getting money
from first to
least)
Internal sources
Personal savings - No No Least
Sales of assets Transfer of
ownership right
from seller to
buyer (Picker and
et.al., 2016).
Registry,
advertisement
expenses
No -
External sources
Leasing In accordance
with the legal
aspect, business
entity is obliged
to return back
assets after
stipulated time
frame.
Financial cost :
Rent
Limited to the
leased assets
First
Bank loan Entrepreneur is Monetary cost: Bank can First

obliged to fulfill
documentary
formalities for
getting loan.
Interest on loan
amount
control
operations in
relation to the
amount
provided by
them.
Factoring - Discounting
charges
- -
Government
grant
Owner of the
business unit has
accountability to
use money in
suitable
activities for
which it is
granted
(Jamieson,
Wakefield and
Briedé, 2014).
Interest on
monetary
assistance
provided
Moderate First
1.3 Evaluating the suitability of selected source of finance
By considering the current monetary position, it is suggested to an entrepreneur who
is willing to open restaurant namely Spice should raise fund from bank loan and leasing
source. Both such sources of finance have following advantages and disadvantages:
Bank loan
 Advantages: Entrepreneur of restaurant will enjoy tax benefits or exemptions if he
gets financial assistance from banking institution. Moreover, deductions on the
payment of interest are available to the business entity which in turn places positive
impact on the income of business entity (Smith, Nicolla and Zafar, 2014). In addition
to this, under bank loan business enjoys ease in making payment. Moreover, in bank
loan, business entity is required to make payment in the form of fixed monthly
installments.

 Disadvantages: The main drawbacks of bank loan are that sometime financial
institutions do not grant full money for which an entrepreneur has applied. In addition
to this, interest amount imposes fixed burden in front of business entity.
Leasing
 Advantages: Exemptions in tax brackets is one of the main benefits that is associated
with the leasing source. Along with this, leasing source enables firm to make use of
high tech equipments and land by paying rent (Aguilera-Caracuel and et.al., 2015). In
this way, by investing small portion of funds business entity can carry out business
activities more effectually.
 Disadvantages: In the case of leasing, entrepreneur is obliged to make use of assets
according to the instructions of an owner. This is one of the main aspects which in
turn highly limit the significance of such method.
2.1 Analyzing the cost of different financial sources
Each source of finance imposes cost in front of firm either in financial terms or
opportunity. Hence, all the above identified sources have following cost to the firm:
 Personal savings: It has opportunity cost because when business entities use their
personal savings then they are not in position to get income in form on interest by
lending money to others.
 Bank loan: Under bank loan, individual is obliged to make payment of interest at
fixed rates. Hence, such source of finance imposes monetary cost and thereby impacts
profitability aspect of firm.
 Leasing: Financial cost is imposed by such source in front of the business entity
because in the case of leasing entrepreneur has to rent to the owner of asset (Wicker
and Breuer, 2015).
 Factoring: Discounting charges in against to the early payment facility imposes
monetary cost in front of the firm.
 Government grant: In return of offering monetary assistance government authority
also charges cost which comes under the category of financial cost.
Thus, owner of Spice restaurant should keep in mind all the above mentioned costs
associated with each source while making selection of the most suitable one.
2.2 Defining the importance of financial planning

Financial planning is the process that is undertaken by the manager to assess the fund
requires for meeting the long and short term goals. Hence, in this financial policies are
framed by the business entity in relation to procurement and investment of funds. With the
motive to make optimum use of monetary resources owner of the restaurant makes financial
plan. Hence, to ensure stability by making balance between cash inflow and outflow owner of
Spice restaurant undertakes financial plan (Financial Planning - Definition, Objectives and
Importance, 2017). By preparing competent plan business entity can ensure that adequate
fund is available.
Along with this, sole trader can also reduce the level of uncertainties by making
competent plan. In the recent times, quick changes take place in the market trends and
customer demand. Thus, through the means of sound financial plan entrepreneur can cope
with the strategic business condition more effectually. By considering all the above aspects it
can be stated that financial planning is highly significant which in turn helps in achieving
success.
2.3 Identifying the information need of different decision makers
Stakeholders of the firm can be distinguished into two types such as internal and
external. Both such stakeholders make evaluation of final accounts with the motive to meet
their information needs as follows:
Internal stakeholders
 Management: To devise suitable strategies and competent framework for the near
future management make evaluation of all final accounts. Moreover, financial
statements enable higher management team to make evaluation of profitability and
monetary position in against to the competitors.
 Employees: High growth and getting monetary benefits is one of the main objectives
of employees (Simba, Mukose and Bazeyo, 2014). Hence, personnel of the firm make
evaluation of profitability statement to assess the extent to which company is
growing. s
External stakeholders
 Investors: Shareholders undertake all the final accounts with the motive to extract
valuable information for decision making. Hence, by conducting ratio analysis
investors can take decision whether they needs to invest or divest money.

 Financial institution: To get information about whether business entity is capable to
make payment of interest and installment on time or not (Freund and Mustaro, 2016).
Hence, by evaluating balance sheet monetary institution can take decision whether it
should grant loan or not.
 Supplier: At the time of supplying goods on credit supplier is highly concerned that
business entity will make payment on time. In this, by making evaluation of balance
sheet ability of an entrepreneur can be assessed.
 Government: Tax is one of the major sources of income for government. Thus, to
assess tax liability government authority makes evaluation of income statement.
2.4 Explaining the impact of financial source on final accounts
Income statement: Selected sources such as bank loan and leasing will place direct
impact on income statement. In the case of bank loan, interest charges impose high level of
cost in front of business unit. Besides this, in leasing rent on leased assets also imposes fixed
cost. Hence, both such costs influence the profitability of income statement to the large
extent.
Balance sheet: Statement of financial position also influenced significantly in bank
loan and leasing. Under bank loan, business entity has to repay the amount after the specified
times frame. Besides this, in leasing entrepreneur is required to return back assets after the
predetermined times frame. Both such sources impose obligations so they are recorded on
liabilities side (Zhuk, Bezdushna and Vdovenko, 2013). Along with this, cash amount will
also increase with the amount raised through bank loan.
3.1 Preparing budget and analyzing it for making suitable decisions
Budget may be defined as a quantitative plan which is highly linked with vision,
mission, goals and objectives of firm (Van Deventer, Imai and Mesler, 2013). Hence, to make
effectual use of funds owner of Spice restaurant lays emphasis on preparing budget by
making estimation of revenue and expenses.
Cash budget of Spice restaurant from July to December is as follows:
Particulars July August September October November December
Opening cash balance 25000 53080 82693.6 113920 146843 181549
Sales revenue 36000 37800 39690 41674.5 43758.2 45946.1
Other income 7000 7000 7000 7000 7000 7000

Total cash inflow 68000 97880 129384 162595 197601 234495
Cash outflows
Administration expenditure 3600 3780 3969 4167.45 4375.82 4594.61
Salaries of personnel 5000 5000 5000 5000 5000 5000
Promotional expenditure 2520 2570.4 2621.81 2674.24 2727.73 2782.28
Electricity expenditure 1800 1836 1872.72 1910.17 1948.38 1987.35
Maintenance and other
expenditure 2000 2000 2000 2000 2000 2000
Total cash outflow 14920 15186.4 15463.5 15751.9 16051.9 16364.2
Closing cash balance 53080 82693.6 113920 146843 181549 218131
The above mentioned cash budget shows that cash flows of Spice restaurant will
increase from £53080 to £218131respectively at the end of December. By making assessment
of budget it has been identified that sales revenue will increase in each month. Moreover,
now individuals prefer to dine in the restaurant more frequently. Along with the sales,
expenses of the restaurant will also incline. Hence, by using such budget owner of Spice can
make evaluation of current performance and thereby would become able to find out
deviations. Hence, by conducting analysis firm would become able to take strategic action
within the suitable time frame. In this way, budgeting is highly significant which in turn helps
in making control on high spending and thereby helps in making effectual use of funds.
3.2 Assessing unit cost and making pricing decisions
Unit cost and pricing both such elements are highly associated with each other.
Moreover, without having information about unit cost it is not possible for the business entity
to assess suitable price level (Neri, 2014). In this regard, owner of Spice restaurant can
determine unit by dividing all the expenses from number of individuals served. Thus, by
adding profit margin in unit cost owner of Spice restaurant can set suitable price.
Calculation of unit cost and price (on monthly basis)
Particulars Amount (in £)
Direct expenses 18000
Indirect expenses 15000
Total expenses 33000
Number of customers served 600

Cost per customer 55
Margin % 11
Price [cost + (cost * profit %) 66
3.3 Selection of suitable source of finance by using investment appraisal techniques
Investment appraisal techniques are the most effectual monetary tools which in turn
assists manager in making suitable and highly profitable decision. Moreover, payback, NPV
and IRR technique clearly states the extent to which proposed investment will prove to be
beneficial for the restaurant firm (Hubbard and et.al., 2014). For instance: Owner of
restaurant has two projects for the purpose of investment such as proposal A and B. In this,
owner of Spice restaurant has evaluated profitability of projects by undertaking capital
budgeting tools entrepreneur can select suitable investment proposal.
Project A
Year
Cash
inflow
Cumulative
cash inflow
PV factor
@ 10%
Discounted
cash inflow
1 60000 60000 0.909 54545
2 78000 138000 0.826 64463
3 72000 210000 0.751 54095
4 90000 300000 0.683 61471
5
11000
0 410000 0.621 68301
Total discounted cash inflow 302875
Initial investment 200000
NPV (total discounted cash
inflow – initial investment) 102875
IRR 27%
Payback period: 2 + 62000 / 72000
= 2.9 years
Project B
Year
Cash
inflow
Cumulative cash
inflow
PV factor @
10%
Discounted cash
inflow
1 50000 50000 0.909 45455
2 67000 117000 0.826 55372
3 58000 175000 0.751 43576
4 79000 254000 0.683 53958

5 95000 349000 0.621 58988
Total discounted cash
inflows 257348
Initial investment 200000
NPV 57348
IRR 20%
Payback period: 3 + 25000 / 79000
= 3.3 years
By taking into account the selection criteria, it is advised to the business entity of
restaurant to employ money in proposal A. Moreover, NPV and IRR in the case of Project A
is £102875 & 27% respectively. Along with this, payback period of project A is 2.9 years
which is lower as compared to other proposal. Thus, it can be stated that project A will aid in
the profit margin of firm and overall success.
TASK 2
4.1 Discussing the main financial statements that are prepared by Dixon Carphone Plc
With the motive to evaluate financial performance over the timeframe Dixon
Carphone Plc prepares following statements:
 Income statement: Dixon Carphone Plc prepares income statement to identify the
profitability generated during the specified time frame. Gross and net profit, direct as
well as indirect expenditure is the main elements of income statements. Thus, by
making evaluation of all such as aspect Dixon Carphone can assess profit attained in
against to the expenses.
 Cash flow statement: This statement includes three main sections such as operating,
investing and financing activities. By making evaluation of all such activities Dixon
Carphone Plc can assess the sources from where cash generates as well as used
(Anselmi, Lagarde and Hanson, 2014). Thus, by making in-depth evaluation of each
are telecom company can identify the area of expense which needs grater account of
control.
 Balance sheet: It contains information regarding the assets and liabilities. Assets side
provides deeper insight about the fixed and current assets such as cash, bank, debtor
etc. On the other side, elements of liabilities side include shareholders, long term
obligations and current liabilities. In this, by evaluating balance sheet Dixon

Carphone can get information about its capability in relation to making payment on
time as well as capital structure.
 Statement of changes in equity: Retained earnings, equity share capital, profit and
dividend are the main elements of such statement. By making evaluation of equity
statement business unit can take suitable decision about near future.
4.2 Identifying the differences take place in the final accounts prepared by varied firms
There is significant differences take place between the final accounts prepared by the
different types of firm in the following way:
Basis of difference Sole trader Public and private
firm
Partnership firm
Meaning Sole trading firm
who takes decision
without any
interference of
others.
Dixon Carphone
comes under the
category of publicly
listed organization. It
lays emphasis on
offering high quality
telecommunication
services to the
customers.
Partnership firm is
the one in which
two or more parties
agree to share profit
or loss at
predetermined ratio
(Picker and et.al.,
2016).
Final accounts They lay emphasis
on preparing income
statement with the
aim to evaluate
profit margin.
Income and cash flow
statement, balance
sheet, changes in
equity statement is
prepared by Dixon
Carphone Plc to
evaluate profitability
aspect.
Similar to Plc al the
statements are
prepared by
partnership firm.
However, such firm
additionally
prepares partnership
account which in
turn provides
information about
the capita goodwill,
profit or loss of
partners.

Accounting Rules and
regulations
Not obliged to
follow specific rules
and regulations.
UK GAAP and IFRS Same as PLC
Auditing requirements No Yes Yes
4.3 Assessing the financial performance of Dixon Carphone Plc in against to the competitor
by using ratio analysis
Financial performance analysis:
 Internal analysis: Table depicted in appendix shows that gross and net profitability
aspect of Dixon Carphone Plc decreased in 2015 as compared to 2014. It shows that
firm failed to generate high sales revenue and making control on expenses during
such period. Current ratio of Dixon Carphone Plc is 1.38 & .93 in the year of 2014
and 2015. By considering the ideal ratio such as 2:1 it can be said that firm does not
have enough funds for meeting the obligation. Debt-equity aspect of Dixon Carphone
is also lower than ideal ratio which shows that company’s capital structure is not
sound.
 External analysis: Outcome of ratio analysis shows that in 2015 NP ratio of Dixon
and British Telecom accounts for 1.65% & 11.87% respectively. It presents that
profitability of rival firm is sound. Further, current ratio of Dixon and British Telecom
was within the range of .90 in 2015 which was not good. However, efficiency ratio
shows that British Telecom was performed well and employed highly competent
framework.
CONCLUSION
By summing up this report, it has been concluded that owner of restaurant can meet
financial requirements through bank loan and leasing. Besides this, it can be inferred that by
preparing suitable plan through making assessment restaurant owner can coordinate activities
more effectively. Moreover, financial plan provides deeper insight about the manner in which
personnel need to spend money. Further, it has been articulated that investment appraisal
techniques assist manager in select best proposal by evaluating their viability. It can be
summarized from the report that entrepreneur should invest money in the project A which
will offer positive and high return. It can be seen in the report that monetary position of

Dixon Carphone Plc is not sound as compared to the rival firm. Further, firm is required to
make focus on developing competent framework which in turn helps in enhancing
performance to the significant level.

REFERENCES
Books and Journals
Aguilera-Caracuel, J. and et.al., 2015. International cultural diversification and corporate
social performance in multinational enterprises: The role of slack financial resources.
Management International Review. 55(3). pp.323-353.
Anselmi, L., Lagarde, M. and Hanson, K., 2014. Equity in the allocation of public sector
financial resources in low-and middle-income countries: a systematic literature review.
Health policy and planning. p.czu034.
Freund, A. and Mustaro, P. N., 2016. PHABRIKA: teaching financial techniques to sell
through Serious game. In New Advances in Information Systems and Technologies (pp.
199-208). Springer International Publishing.
Hubbard, R. E. and et.al., 2014. Frailty, financial resources and subjective well-being in later
life. Archives of gerontology and geriatrics. 58(3). pp.364-369.
Jamieson, L., Wakefield, L. and Briedé, M., 2014. Towards effective child protection:
ensuring adequate financial and human resources. ChildGauge®. p.51.
Neri, F., 2014. Open research issues on computational techniques for financial applications.
WSEAS Transactions on Systems. 13.
Picker, R. and et.al., 2016. Applying international financial reporting standards. John Wiley
& Sons.
Simba, D., Mukose, A. and Bazeyo, W., 2014. Institutional capacity for health systems
research in East and Central African Schools of Public Health: strengthening human and
financial resources. Health Research Policy and Systems. 12(1). p.23.
Smith, S. K., Nicolla, J. and Zafar, S. Y., 2014. Bridging the gap between financial distress
and available resources for patients with cancer: A qualitative study. Journal of Oncology
Practice. 10(5). pp.e368-e372.

Van Deventer, D. R., Imai, K. and Mesler, M., 2013. Advanced financial risk management:
tools and techniques for integrated credit risk and interest rate risk management. John
Wiley & Sons.
Wicker, P. and Breuer, C., 2015. How the economic and financial situation of the community
affects sport clubs’ resources: Evidence from multi-level models. International Journal of
Financial Studies. 3(1). pp.31-48.
Zhuk, V., Bezdushna, Y. and Vdovenko, O., 2013. Accounting Techniques in Providing
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Online
Financial Planning - Definition, Objectives and Importance. 2017. Online. Available through: <
http://www.managementstudyguide.com/financial-planning.htm>. [Accessed on 30th April
2017].

APPENDIX
Ratio analysis of Dixon Carphone Plc in against to British Telecom is as follows:
Profitability ratio analysis
Ratios Formula Dixons Carphone plc British telecom
2014 2015 2014 2015
Gross profit 664 2185 16737 16406
Net profit 48 161 2018 2135
Sales revenue 2576 9738 18287 17979
Profitability ratios
GP ratio GP / NS *
100
25.78% 22.44% 88.24% 91.25%
NP ratio NP / NS *
100
1.86% 1.65% 11.04% 11.87%
Liquidity and solvency ratio analysis
Ratios Formula Dixons Carphone plc British telecom
2014 2015 2014 2015
Liquidity ratios
Current ratio Current assets
/ current
liabilities
1.38 .93 .74 .97
Quick ratio CA – (Closing
stock +
prepaid
expenses) /
CL
1.13 .55 .53 .76