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459 Downloads1 I Published: 29 Oct ,2019

Introduction

Finance is the most indispensable tool which is required to run a business effectively and efficiently. It assist an institution to grab the upcoming opportunities in the form of growth and expansion. Availability of funds provides an opportunity to the company to analyse the areas of investment and expansion. However, a firm can efficaciously manage its financial resources with the help of finance manager. The defined person aids the organization to get a proper direction of investment and use of financial resources. In order to develop deep understanding of financial management, Clariton Antiques is about to consider. The stated firm has maintained its good reputation by selling quality antique items in London. The organization was formed by the four partners and initiated as the unincorporated business. Further, the firm has grown and created positive image in the minds of its customers. As result, the partners have decided to acquire a building in Birmingham to open another branch. It would require around £0.5 million where the management needs to make decision for arranging funds. Present document is prepared with an intention to identify the suitable source of finance available for the stated organization. Additionally, the report will also depict cash budget and financial statements of the adapted company in order to trace the actual position of the firm (Jackson, 2010).

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TASK 1

1.1 Different source of finance

a) Unincorporated business:

Unincorporated businesses are the entities which does not have separate legal identity from the owner. Majorly, sole proportioner ship and partnership business comes under the category of unincorporated businesses. The stated business concern have different sources of funds available for the growth and expansion. Following are explained below.

    • Personal saving- It is the amount collected and saved by the individual from his/her income. The cited organization can use the amount of personal saving for the business expansion. The major advantage of the adapting this sources is that the owner need not to pay any interest over the amount. This can be considered as one of the appropriate source of finance for the partners (Kaplan and Atkinson, 2015).
    • Retained earning- Retained earnings is the amount which is being kept by the owner for the revenues generated by the company.
    • Working capital- It is a amount that can be used for financing day to day operations of a firm. This amount is a difference of current assets and current liabilities. It used for short-term financing and it also aid the firm to achieve short-term financial needs.
    • Sale of an assets- It is an another internal source of finance in which an organisation generate its revenue by sale its assets such as machinery,land and building etc. However, the management of the cited firm can adapt this source by selling the company assets. This will assist the partners to generate the ample of fund for enhancing the business activities effectively.

b) Incorporated business:

Incorporated business are those which are different form sole proprietors and partnerships. These are the organizations having limited liability and these organizations sell the product over the product cost. The cited company can use the sources which are going to be discussed beneath.

Bank loan: This is one of the most appropriate source of finance where the borrower needs to pay a fix amount of interest over the amount borrowed. The amount of loan can be gathered with the help of different financial institutions. However, the cited organization can take the amount  of loan form the public or private bank. It is seen that the management of Clariton Antiques has already taken loan so it will not face any issues. Presently, the cited firm wants to purchase new building to open new branch in  Birmingham. However, the organization can take loan form any financial institution.

Share capital: The stated firm has an option to issue share capital to the general public in order to gather funds. The shares can be issued to the investors over the fixed rate of interest. As a result, the stated organization will be able to manage its funds for the enhancement of its development opportunities. Besides this, the organization can share the issues to its new and existing shareholders as well.

Debenture: Debenture is a kind of loan which is being adapted by the medium to large organizations for the borrowing of funds. These debentures carries a fixed amount of interest against the taken amount. A debenture is like a certificate which is an evidence of the amount taken to the company. It is one of the appropriate source of finance because the debenture holders does not carry rights to vote.

1.2 Assess the implication of using sources of finance

Internal sources

Personal sources: It is explained above, personal sources are those which are being generated by the owner by keeping a part of income. Or the amount can also be taken for the friends and relatives for the attainment of individual needs. The major implication of this sources is on the saving of the owner as all the saved amount will lost. Additionally, there will be no legal implication on this sources of fund. Besides this, there will also be zero implication on the financial impacts. As the amount is collected form personal sources so there will not be dilution of any control.

Retained earnings: The legal implications of retained earnings will be zero on the company because retained earnings are the amount kept form the part of profit. However, it will not have any legal implications on the company. It is the amount of company itself and it will also do not have any financial implication on the performance of the organization. Besides this, there will be no dilution of the control for the company (Yellen, 2016).

External sources

Bank loan: In legal terms, the owner will be required to attain some documentation and needed to attain legal formalities. This will remain useful for the  bank to analyse the position of the bank and its credit worthiness. On contrary to this, the financial implication will be lower to at the time of adopting this sources. The organization will be required to pay a fixed rate of interest against the amount borrowed. In this context, the dilution of control will be zero because if the firm is not able to repay the loan on time then the assets will be confiscate by the bank.

Debentures: At the time of gathering funds by issuing debentures the organization will be required to pay the rate of interest over the concerned amount. In legal terms, the organization needs to make an agreement with the part by whom the amount is issued. Additionally, there will be lower implication on the finance because the firm will be required to pay a fixed interest. Besides this, taking amount by issuing debenture will not dilute the control of the company. Therefore, it can be said as one of the effective source of finance (Locatelli, Invernizzi and Mancini, 2016).

1.3 Appropriate source of finance

The stated organization wishes to expand its operations where the organization will be required to use proper funds. In above sections different sources of funds have been discussed where the most appropriate source is being adapted. Several impacts has been analysed with reference to the sources of finance. However, the most useful source of funds for this company are explained below.

Personal savings: The owners of the stated organization can collect the amount from personal saving. It will assist the company to get required sum of money over zero rate of interest. It will result in creating good amount of revenues with the help of limited amount of investment (Mohsin, 2013).

Government grant: This is again another effective aspects which can be adopted by the business to attain the financial needs. Legal or government authorities offer loan at highly negligible interest rate. It will help the company in meeting the fund requirement of the business while financial burden will be managed. It is a risk free and highly cost effective measure.

Bank loan: In order to attain the expansion objective of this company, the stated organization can take loan from the bank. It will assist in creating a crucial implication on the growth of business. Here, the management will be required paying a fixed amount of interest which will assist the organization to manage its resources. It will remain less risky for the company and  the establishment. 

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TASK 2

2.1 Cost of two sources of finance

On the basis of analysis, the organization needs to evaluate the cost of two sources of finance. In order to gather funds, it is required to pay a some of amount in the form of cost against those funds. The analysis will help the organization to examine the cost with relation to finance. The cost incurred against the two sources of finance are explained beneath.

Bank loan: Getting loan form the bank will aids the cited firm to generate money in order to attain the demands of the organization. It is seen that the organization required to arrange £0.5 million for opening the new branches. Although, the firm required paying a fixed amount of rate of interest to the bank against the loan amount. The ultimate effect of the same will be on improving the fund management of the organization. Further, the loan amount will be paid in lump-sum during the maturity of the loan (Locatelli, Invernizzi and Mancini, 2016).

Shares: If the stated organization issues shares then the cost will incurred in terms of dividend. The organization will be required to pay dividends to the shares holders after keep the retrained profits. Using this source can stay accommodating for the organizations to run into their business necessitate. It will benefit the organization in terms of fewer burdens because there is no loan to repay. The institution will not be necessitate to pay like every month debt cost. It helps in making more wealth to develop a business concern. Australia assignment writing 

2.2 Financial planning importance for Clariton Antiques

Clariton Antique has generated revenues by selling the antique items and their products has created positive image in the minds of customers. In order to enhance its current position, the organization needs understand the importance of financial planning. This will provide assistance  to the company to make appropriate financial decisions. Additionally, the establishment will also be able to make appropriate investment decisions. Besides this, it will enhance the firm's capability to analysing the short and long term needs of the cited organization. The major importance of financial planning is explained below to the management of Clariton Antiques.

  • Budgeting: Financial planning is the process of evaluating the areas where the company can invest and manage the financial funds. At the time of preparing budget, planning of finances helps the manager to evaluate the fields where the investment is required. It is seen that budgets are prepared on yearly basis. The establishment need to doings various trading operations where they require paying sum of money or expend amount. Firms need to pay taxes, bills and various payment are paid. For this the effective financial plan is needed. It will help in evaluating the savings and investment for the company.
  • Investment decisions: This is the another advantage of financial planning where the management will be able to trace the opportunities and areas it can invest. This will assist the company to make appropriate financial decisions in an effectual manner. Besides this, the management will also be able to trace the direction of effectual working and investment decisions can be made by them (Throsby, 2016).
  • Income: This is the another benefit to this company where the financial planning will remain helpful for the stated company. With the adaption of proper planning, the organization will be able to evaluate the cost of production and other cost. Besides this, the areas of payments can be better evaluated by the management of this firm.
  • Saving: It is seen that the appropriate source for this company is bank loan. Although, if the organization adapts he same then the finance manage of this company will be able to save the money. After paying interest of bank loans and other expenses, the firm will be able to keep the money aside and use the same for further investment purpose (Locatelli, Invernizzi and Mancini, 2016).

2.3 Evaluation of business information for business decisions

For making proper business decisions, the organizations that will required business informations. These firms will be needs the information with several purposes which are explained beneath.

  • The partners: The stated organization is formed by four partners where all the partners has introduced this business with the motive to earn profits. All the partners share equal profits and losses in this organization. Although, the partners of Clariton Antiques are interested in the profit and loss account of the company. Besides this, they also focuses on the company balance sheet and trading account. Additionally, the company budgets will also being evaluated by the stated company.
  • Finance brokers: Finance brokers are the individuals by whom the process of mediation is done between the clients and organization. The clients are being advised by them about the investment decisions. They get brokerage form the company where the client invested. At the time of investment, they analyse the profit earning capacity of the organization. For this, the financial brokers evaluates the balance sheet of the company. In addition to this, they also focused on the ability of the company to generate revenues. If the company is generating high revenues then they will suggest the client to invest in the concerned firm. They also examine the profit and loss account of the company so that they can identify the company's net profits and gross profit (Throsby, 2016).
  • Venture capitalist: The venture capitalist like We finance will analyse the risk and return of the company. They will focus on the number of employees of the company and its position in the market. If the firm has good market share then they will invest in the same. It will assist them to make effective business decisions. In order to take proper knowledge of company information, the firm will be required to analyse the cash flow statements and profit and loss of the company. It will provide a deep understanding about the company and its current performance. With the help of the same they will be able to make appropriate investment decisions (Locatelli, Invernizzi and Mancini, 2016).

2.4 Financial statement's impact

On the basis of above sections, the management of the organization can take funds from finance brokers and venture capitalist. However, this will have huge impact on the company balance sheet. However, the effect faced by the organization is explained below.

Finance broker: If the organization decides to go with finance brokers then the organization is liable to pay the brokerage to the brokers. Additionally, the brokerage to the brokers will be shown in the debit side of the profit and loss account. Besides this it will have no impact on the balance sheet of the company  (Throsby, 2016).

Venture capitalist: If the company chooses to go with venture capitalist then it will be shown in the liabilities side of the balance sheet. Here, the firm will be liable to pay dividends to them. In addition to this, amount form venture capitalist will increase the cash of the company. Additionally, the amount will reduced form the balance and cash (Tsai, Pan and Lee, 2011). 

Particulars

Amount (£)

Particulars

Amount (£)

brokerage

xxx

 

 

 

Liabilities

Amount (£)

Assets

Amount (£)

Venture capitalist

xxx

Cash

Xxx

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TASK 3

Cash budget

Participants

January

February

March

April

May

June

Receipts

 

 

 

 

 

 

Opening cash balance

110000

-382250

290500

860750

738500

1051250

Sales revenue

300000

450000

600000

300000

300000

75000

Account receivables

15000

360000

90000

15000

240000

11250

Total receipts

425000

427750

980500

1175750

1278500

1137500

Payments

807250

137250

119750

437250

227250

219750

Total payments

807250

137250

119750

437250

227250

219750

Closing cash balance

-382250

290500

860750

738500

1051250

917750

The cash balance of clariton Antiques depicts the six months of opening balance of the company.  In February the opening balance of the company was negative but further the balance got increased. Besides this, the sales of the company are consistently increasing. The reason behind the increase in sales can be the firm may have lower down the cost of product. The another reason of the increasing company sales that the firm taken the raw material at lower cost. This has resulted in decreasing the over all cost of production. Additionally, the closing balance of the company in January was negative, but later on the firm has improved its performance and the balance has become positive (Locatelli, Invernizzi and Mancini, 2016).

3.2 Unit cost and pricing 

Cost per unit

 

Particulars

Amount

Fixed expenses

£60000

Variable expenses

£30000

Total expenses or cost

£90000

Output volume

900units

Cost per unit

£100

Margin of profit in percentage

23.00%

Selling price per unit

£120

As per the cost and pricing table, the organization has £60000 of fixed expenses and £30000 of variable expenses. Besides this, the total expenses of the company are £90000 in the given period. The total output volume of the company is 900 units where the cost per unit of the same are £100. It is seen that, the profit margin of the stated organization is 23% and the selling prices of the same is £123. It can be stated that the organization can generate the profit up to 23% over the cost. With the help of unit, the organization will be able to trace the actual position of the sales and profits. This will assist the organization to attain its goals and objectives in an effective manner (Tsai, Pan and Lee, 2011).

3.3 Calculation of NPV

The above table depict the NPV of two investment proposals i.e.  £ 8.6 and  £ 4.4. As per the comparison of the two proposals the most appropriate investment is the second one. It is seen that the net present value of the second investment is greater than the first one. Therefore, it can be said that investment 1 is adaptable than the another one. On this basis latter project is assumed viable for the firm.

Table 1: Calculation of Payback period

From the above table, it can be interpreted that, investment second should be adopted as it is early in recovering the invested amount. It is seen that, project 1 is taking 3.2 years in order to aback the invested amount. Whereas, project 2 is taking 3 years for taking the amount back. Therefore, it is necessary to adapt the project 2nd as compare to the project first. It will help the organization to cover the invested money earlier.

Table 2: Computation of IRR

From the above comparison, the second investment has higher average rate of return it can be considered as the profitable among the two investments.

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TASK 4

4.1 Financial statement's key components

  • Cash flow statement: It is the statement of the company which depicts about the incoming and outgoing of the cash form the business. In order to investigate the financial matters in the company, the cash flow statement can remain fruitful. If the organization wants to analyse the cash inflow and outflow then it needs to prepare cash flow statement. This assist in persuasion different root-age of currency that the institution has to achieve advanced maturation measures in the economic system. Hence, by using this evidence director can set up a plan of action for reconciliation cash flow in various concern action.
  • Income statement: This is one of the important aspect of fiscal investigation. With the help of this statement the income and the expenses of the company can be evaluated. It helps in analysing the earned or generated profits or revenues by the company. The net profit provided the clear vision of company's performance and thus helps the company in analysing what and how to proceed with the business decisions.
  • Balance sheet: It is one of the most important evidence for the business for evaluating the assets and liabilities of the company. It is a momentous fiscal instrument for study the enterprise perspective in the marketplace. This evidence approval wide in devising effectual and well characterized concern determination. Adoption of this statement will ascertain in evaluating the position of firm at period of time. If the balance sheet of a company is stable then the investors will get attracted towards the company. Stable position shows that the company has good position in financial terms (Throsby, 2016).

4.2  Compare the use of formates by Clarition and R.Riggs. 

Basis of difference

R. Riggs

Clariton Antiques

Types of business

R.Riggs is one of the sole proprietor where the company aim is to generate excess of revenues and profits. These kinds of organizations are owned and operated by private individuals.

On comparing with R.Riggs, Clariton antique is formed as the partnership firm where the profits and losses are being shared by all the four partners on equal basis.

Financial statements

The stated business owners adapts income statment in order to analyse the compny position.

Here, the partners of the company are interested in their share of capital which is shown in profit and loss account.

Rules and regulation

A sole proprietor necessarily  filling various descriptor in command to evaluate the inner revenues and imposes.

Each and every partner of the business plays an indispensable role in the business.

4.3 Ratio analysis

Table 7: Calculation of liquidity ratios

The above table depicts about the two ratios i.e. quick and current ratio of the company. However, the quick ratio of the company is 2.27 and 2.48 of the year 2015 and 2016 respectively. Whereas, the current ratio of the firm for the year 2015 and 2016 are 2.27 and 2.23 respectively. It can be interpret that the firm has good position in 2015 as compared to 2016. 

Net profit ratio: The net profit ratio of the company explains about the revenue proportion of the company in a concerned year. Howsoever, the net profit of the company is 1.89% and 2.63% in 2015 and 2016 respectively. However, it can be interpreted that the company has better net profits in the year 2016.

Conclusion

Financial management is the process of arranging the company finances in a way that the financial objectives can be attained. On the basis of above report, it can be explained that there are different sources of finance have determined. Whereas, the stated firm has adapted bank loans and venture capitalist.

References

  • Jackson, A. L., 2010. Enterprise resource planning systems: revolutionizing lodging human resources management. Worldwide Hospitality and Tourism Themes.
  • Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
  • Keller, A., 2013. Finance & Financial Management. GRIN Verlag.
  • Keller, A., 2013. Managerial Accounting - Managing Financial Resources. GRIN Verlag.
  • Locatelli, G., Invernizzi, D.C. and Mancini, M., 2016. Investment and risk appraisal in energy storage systems: A real options approach.
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