An Assignment on Managing Financial Resources and Decision

Table of Contents
Introduction.........................................................................................................3
Task 1 Understand the sources of finance available to a business and be able to use it..............3
1.1

Identification of sources of finance available to a business....................................3

1.2 Assessment of the implication of different sources of finance....................................5

1.3 Evaluating the appropriate sources of finance for a business project............................5
Task 2 Understanding the implications of finance as a resource within business.....................6
2.1 Analyze the costs of different sources of finance....................................................6
2.2 Explanation of the importance of financial planning...............................................7
2.3 Assessing Information needs of different decision makers........................................7
2.4 Impacts of the finance on the financial statements..................................................8
Task 3 Making financial decisions based on the financial information.................................9
3.1 Analyzing the budget and making appropriate decisions...........................................9
3.2 Calculating unit cost and making pricing decision................................................10
3.3 Assessing the viability of the project using the investment appraisal techniques...........11
a. The calculation of NPV, ARR and Payback Period for the provided net profit.............11
b. The limitations of using investment appraisal techniques to aid long-term decision making
.................................................................................................................11
Task 4 Evaluation of the financial performance of a business..........................................12
4.1 Main financial statement of Aviva Life Insurance Company....................................12
4.2 Comparison of appropriate formats of financial statements of different types of business13
4.3 Interpretation of the financial statements of two companies by using appropriate ratios. .14
Conclusion........................................................................................................15
References........................................................................................................16

Introduction
The fiscal administration or financial management may be known as likewise an indispensable
furthermore essential analytics and only oversaw economy which implies there will be a close
association between those examine from claiming accounting furthermore likewise those ponder
about economics. In this assignment, we attempted to blanket the assortment of sources from
which a business receives money alternately cash to invest, suggestion from claiming the
individuals resources, which one will be suitable what's more different sorts about money related
administration devices to assessing the current monetary position of a benefits of the business
what's more additionally analyzings a businesss money related position against different
organizations with aggravate key choice regarding how should deal with financing what's more
entryway on get a solid position in the commercial center as far as financing.

Task 1 Understand the sources of finance available to a business and be

able to use it.
1.1 Identification of sources of finance available to a business
Not many organizations often need their trade or capacity should supply the sufficient amount
for assets in cash to develop themselves. These wellsprings need aid extremely critical
particularly for another whats more developing agency which is requirement to money or
whatever available fiscal assets (Yosha, 1995). In place to aggravate the individuals exercises
paid through cash, an organization have will address those cash starting with an assortment from
claiming sources. These sources could make separated under two Classes.
Owners own or Internal Sources
Outside business or External Sources
Table 1, Name: Sources of Financing
These are described below on small business perspective:
Owners own Pocket: It may be the most secure furthermore viable
wellspring about financing is the founders own pocket cash. It is said
that if the holders would not intrigued to make danger of their own
money, the opposite possibility moguls are not eager to take hazard.

Friends and Family: A large portion persisting and persistency bunch

about moguls need aid relatives of the owners. It camwood be
companions as well. They put cash which camwood be capable
Owners own or Internal Sources

sufficient to start-up of an organization.

Profit Margin: An organization particularly an existing particular
organization procures benefit pretty much. These benefit could be a
significant wellspring from claiming inner financing. By sparing a
percentage bit starting with those profit, an organization might
contribute for their further extension.
Share Capital: Maybe the best hotspot of outer financing is the share
furthermore stock. It give an incredible advantage of the government
funded restricted organization on try government funded also getting
great perceived. Shares and stock frequently draws enormous sum of
capital for which the organization requirement with pay profit of the
shareholders.
Commercial & short term loans: One of the oldest and easiest

Outside
Sources

business

or

External

sources of financing for small or medium range business is the

commercial loans provided by commercial banks. They usually give
loans on the time frame of one year or less than that time frame.
Insurance loan: Insurance company gives loans to the business
against the insurance policy. Here they assign the amount to be
provided as a loan on the basis of insurance policy.
Brokerage loan: Broker house also provide loans on the basis of the
debentures and shares value. These debentures and shares are held as
a pledge against the repayment of the loan.
Capital Companies: Capital companies are the second choice of
small companies after the commercial banks. These companies are

willing to take more risk than the commercial banks.

Table 2, Name: Identification of sources of financing, Source: Mueller, and Lean, 1967.

1.2 Assessment of the implication of different sources of finance

Implication of financing implies finding crazy what is handy to business also the thing that may
be awful for benefits of the business journalist to that specific hotspot from claiming financing.
Suggestion about fiscal assets or wellsprings need distinctive outcomes that could be assessed by
mixed bag about criteria. These criteria would characterized below (Aizenman, Pinto, and
Radziwill, 2007):
1. Financial Implication: The implication of finance defines whether the source can draw
much benefits for the organization or it can simply a failed projection of source for the
organization.
2. Legislative Implication: Legal or legislative implication assesses the legality of the
sources of capital and the taxation implication or other exemption implication.
3. Dilution of control Implication: According to Hall (2002), dilution of control implies
those passing about control of a benefits of the business by its owners. At a business or
authors offer excessively awful huge numbers greater part which naturally diminish those
ownership they have got sooner.
4. Insolvency or Bankruptcy Implication: Insolvency intends the point when a business
alternately single person neglects will pay the advance sum.

1.3 Evaluating the appropriate sources of finance for a business project

For making fitting assessment of the sources for financing for business project, it may be
fundamental will aggravate suggestion from claiming the individuals wellsprings which intends
discovering those negative furthermore certain impact of the individuals wellsprings. For
example, authors own pocket might a chance to be most secure be that it will be not sufficient to
financing (Friedberg and Others, 1999).
On the different hand, toward setting off government funded that is offering allotments and stock
could be an incredible sourball about getting reserve for turning into an across the country vast
particular organization at disappointment to make those reimbursement of the shareholders cash
often detract an incredible toll about operation which might cause end. Different wellsprings in
bank loans, debt value and so forth.
There are some steps to be followed when to evaluate sources of financing for a business project.
These can be the followings (Scope Gater, 2015):

1.
2.
3.
4.
5.

Generate instructions and assistance from experienced people.

Focus on the risk involved on the sources.
Focus on the flexibility of the sources.
Focus on the accessibility of the sources.
Gaze on the assistance package.

Task 2 Understanding the implications of finance as a resource within

business
2.1 Analyze the costs of different sources of finance
According to Francis, Khurana and Pereira (2005), an organization chooses to make its operation
toward taking stores from self-Whats more other people, it must recognize those conceivable
wellsprings from claiming financing which might be both outside and inside. When dissecting
the expense of Contrast sourball of financing we require will see all the suspicion lying for it.
The cost of different sources of capital can be divided into two categories. These are (Griffin,
1992):
1. Categorical Cost
2. Hidden or Implied Cost
1. Categorical Cost: Those categorical expenses is that organizations pay for obtaining cash
starting with those Inward wellsprings. Concerning illustration diverse sorts from claiming
Inward wellsprings need aid utilized Toward the firm, they necessity on determine those
money streams from the individuals different Inward wellsprings Also Subsequently they
would figure out the extent to which they compelling reason to pay.
2. Hidden or Implied Cost: The hidden or implied cost is the chance cost about contributing.
Likewise shareholders contribute their cash in the company, they regularly anticipate will get
a rate of give back. A rate of comeback will be the chance expense for financing. An
organization that procures held income which need its spot to the shareholders.

2.2 Explanation of the importance of financial planning

Budgetary arrange may be a vital instrument to at whatever business. Budgetary arrangement
portraits something like the general exercises of benefits of the business for example, such that
investment sources, long haul or fleeting investment, making assessment around those sources

about investments, how they will be gainful of the business what's more entryway a significant
part benefit they might get inside a quite a while alternately more extended (Lusardi and
Mitchell, 2007). It meets expectations as an aide to normal operation from claiming at whatever
benefits of the business significantly those little you quit offering on that one. Here would a
portion fact that monetary getting ready done a business (Hallman, 1993):
Pattern analysis: Pattern dissection intends the ID number of the guidelines about arranging
which could be utilized as a model to genuine correlation of execution. Concerning illustration
entrepreneur aggravate distinctive choice toward separate time, it may be challenging to tell
which particular case will make great furthermore which one will be not.
Money stream and evaluation of the assets: Fiscal arrangement serves should create a
generally Comprehension something like the money inflows Furthermore outflows Also likewise
how settle on fitting appraisal of benefits through monetary articulation.
Longterm vision: Fiscal want gives seeing regarding those money Also holdings estimation
which assistance the business managers on make Also create long extend objectives alternately
dream to those association.
Assessment of the progress: Monetary want layouts diverse sorts about expense analysis,
estimation of money devices on measure previously, which bearing the firm will be setting off.

2.3 Assessing Information needs of different decision makers

People are connected with the operation from claiming business who would know as
stakeholders. These stakeholders use budgetary arranging furthermore instruments to gathering
data something like the companys exhibit circumstance as far as account what's more the place
it will a chance to be on future will aggravate investment choice (AADNC, 2011). Distinctive
sorts about choice makers who compelling reason data need aid portrayed below (Business
Perspective, 2014):
Private investors: These gurus need monetary data with settle on choice something like if will
give start-up capital will a chance to be useful or not.

Oversaw economy personal: Management group particularly those highest point directors
compelling reason money related majority of the data in liquidity, turnover rate and the
operational information will set the heading for those business.
Shareholders: Shareholders are those incredible client for budgetary data. They requirement
such majority of the data settle on assessment regarding if the cost about their offer will be
climbing or falling.
Government: Administration have fiscal data should settle on legitimate assessment
Furthermore administrative choice something like an organization.

2.4 Impacts of the finance on the financial statements

According to Myers (1984), at a businesss monetary exercises would note under mixed bag
about documents in pay statements, explanation about trade streams Also monetary record
Toward an individual alternately other substance may be known as monetary articulation. When
the monetary sources come into contract of the client from claiming it, it have an incredible
effect on the benefits of the business furthermore also on the fiscal explanations. These effects
could make followings (Lev and Sougiannis, 1996):
1. Stock what's more impart price: The cost of impart and the stock will be balanced in the
value part of the monetary record. Yet the profit gathered by shareholders indicated in the wage
proclamation.
2. Business loans: Business credits are those debt value which are short previously, nature. Such
bank loans need aid indicated in the obligation area of the asset report.
3. Valuation about assets: The quality of the stakes may be indicated in the wage proclamation.
It main incudes those benefit or passing starting with those bargain of the stakes.
4. Held Earnings: Loan stock implies the thing that an organization procures inside a particular
periods. It is balanced in the equity quota of the monetary record.

Task 3 Making financial decisions based on the financial information

3.1 Analyzing the budget and making appropriate decisions
The cash budget shows the cash inflows and outflows of an organization after certain deductions
are made. The cash budget of Western Fashion House is demonstrated below:
Cash budget for Western Fashion for the period January to December, 2017
Months
Beginning Balance

Jan

Feb

Mar

Apr

May

Jun

50,000

-2,36,900

-1,57,400

-1,17,600

-10,450

37,250

22,400

50,800

51,100

51,450

53,000

32,000

40,000

35,000

38,000

41,000

10,000

10,000

10,000

12,000

12,000

12,000

Jul

Aug

Sept

Oct

Nov

Dec

4,43,950

4,93,550

5,77,100

5,97,600

6,69,100

6,86,900

56,000

59,900

61,850

58,500

54,000

54,800

58,200

42,000

36,000

28,000

27,000

27,500

28,000

33,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

12,000

12,000

12,000

12,000

12,000

12,000

12,000

Cash Inflows:
In store-sales(40%
immediate & 50%
on the following
month)
Online
sale

3,00,000

Receipt from
Disposal

10,000

10,000

12,000

12,000

Sales income from

clothing
Sales income from
Hair & Beauty

55,000

15,000

15,000

Bank Loan
Interest Receivables

3,50,000

Capital
Expenditure

11,000

Cash Outflows:
Worker wages

2,000

11,000

Council Tax
Cloths order

1,500
40,000

1,500

1,800
12,000

maintenance cost

Ending Balance

11,000

2,000

2,000
1,500

14,000

14,000

14,000

14,000

2,000

2,000

2,000

2,700

2,700

2,700

2,700

1,500

1,500

1,500

1,500

1,500

1,500

1,500

2,000
40,000

1,500

40,000

40,000

55,000

55,000

5000

1,800

1,800

1,800

12,00

12,000

12,000

1,800

1,800

1,800

1,800

1,800

1,800

12,000

12,000

12,000

12,000

12,000

12,000

4,93,550

5,77,100

5,97,600

6,69,100

6,86,900

7,83,100

1,800
12,000

1,800
12,000

Storage and ware

house rental

11,000
11,000

1,500

Insurance paid
Fuel and

11,000

2,000

Heating & Lighting

Bills

11,000

11,000

-117,600
-2,36,900

-10,450

37,250

-157,400
4,43,950

Table 3, Name: Cash Budget Analysis

 From the cash budget, we can say that the position of Western Fashion House is
satisfactory, although there were some negative flows at the start of the year.

3.2 Calculating unit cost and making pricing decision

The unit cost calculation for 4000 units of Western Fashion House is demonstrated below:
Cost (Per unit Cost)
Amount (4000 units)
Variable Cost
Direct Materials
4
Direct Labor
2.5
Direct Expense
2
Fixed Overhead cost
Labor
1
Other production cost
.75
Total unit costs per unit
10.25
Table 4, Name: Unit Cost calculation for Western Fashion House
Cost Calculation and pricing decisions for Both Scenario A and B are described below:
Scenario A
Scenario B
The company policy is to add 20% mark-up on If Western Fashion House wants to increase 10% on
production cost.
variable cost, then it will be 9.35 in the second quarter.
Marginal costing method
Marginal costing method
If Western Fashion House wants 20% mark up on If Western Fashion House wants 20% mark up on
production cost based on marginal method , the price production cost based on marginal method, the price
will be: (4+2.5+2)*(1+.2)= 10.2

will be: 9.35*(1+.2)= 11.22

Absorption method

Absorption method

If Western Fashion House wants 20% mark up on If Western Fashion House wants 20% mark up on
production cost based on absorption method, the price production cost based on absorption method, the price
will be: 10.25* (1+.2)=12.3.

will be: 11.1* (1+.2)=13.32.

Table 5, Name: Cost Calculation & Pricing Decision

The Western Fashion House can use absorption method as it produces more profit in both
scenario rather than the marginal costing method.

3.3 Assessing the viability of the project using the investment appraisal techniques
a. The calculation of NPV, ARR and Payback Period for the provided net profit
Project A
Machine X

Project B
Years
Machine 1
Machine 2
2017
40,000
10,000
2018
40,000
20,000
2019
40,000
30,000
2020
30,000
60,000
2021
30,000
70,000
2022
20,000
55,000
Cost of Capital
20%
20%
20%
NPV
(418)
57,010
61,565
ARR
66.67%
240%
204.17%
Payback period
2.078 years
1 year
3 years
Table 6, Name: Calculation of NPV, ARR and Payback Period

b. The limitations of using investment appraisal techniques to aid long-term decision

making
The limitations of various investment appraisal techniques to aid long-term decision making is
described below (Kalpan Financial Knowledge Bank, 2015):
Appraisal Techniques
NPV

Limitations
The NPV is in view of future money streams and the rebate rate, both
about which would difficult to assess with 100% exactness (Boundless,
2016).
There may be a chance expense should settling on a speculation which
will be not constructed under the same way as the NPV computation.
Other metrics, for example, such that interior rate for return, would

Payback Period

ARR

necessary should fully focus the get or passing about a speculation.

It Disregards returns then afterward the payback time.
It disregards the timings of the trade streams.
This might a chance to be determined utilizing those marked down
payback time.
ARR overlooks the time quality of cash.
ARR system disregards the money stream from speculation.
ARR system doesn't think about terminal worth of the task.

Table 7, Name: Limitations of Appraisal Techniques

Task 4 Evaluation of the financial performance of a business

4.1 Main financial statement of Aviva Life Insurance Company
A monetary articulation or financial statement is an instrument for assessing those monetary
condition of a firm. It implies a record of the exercises of benefits of the business that need aid
related with the budgetary exercises for example, such that budgeting, financing proposition.
Aviva, a life insurance company make utilization of monetary articulation that holds those
following parts (Wild and others, 2004):
1. Income Statement: Income statement is also known as Profit and loss account. An
income proclamation holds two huge parts. These are: income a major aspect which holds
any income that Aviva life insurance company procures again particular time of time.
Those overhead some piece holds every last bit those consumption both bring about Also
paid.
2. Balance Sheet: Balance sheet is the significant instruments which portraits the best
possible monetary condition of the shares of the organization. There are three sub parts
about fiscal explanations from claiming at whatever organization. These are (Healy and
Palepu, 2012):
a. Assets: it holds those any manifestation about benefits in transient holdings similar to
investment, cash, bank offset furthermore long haul stakes could a chance to be bond,
equipment, buildings, machineries and so forth throughout this way, observing and
stock arrangement of all instrumentation may be etc.
b. Liabilities: Liabilities need aid transient to way. Liabilities could be obligation value
in creditors payment, bank overdraft, creditors bill and so forth.
c. Equity: Fairness implies long expression debt which bring about to more than you
quit offering on that one quite a while alternately frequently five quite some time
alternately that's only the tip of the iceberg.
3. Money Stream or Cash Flow Statement: Money stream explanation generally
concentrate on those inflows what's more outflows of the money inside an organization.
A money stream articulation about Aviva extra security accounts to three diverse
exercises. These are: Operating, Contributing furthermore fiscal exercises.

4.2 Comparison of appropriate formats of financial statements of different types of

business
International Accounting Standards (IAS) represent those foundation from claiming correct
budgetary devices also estimation strategies that would relevant with different sorts from
claiming association which they might utilize on concerning illustration, a configuration will set
those monetary articulation sections. Those monetary articulation of diverse sorts of associations
for legitimate examination may be provided for below:
a. Essential articulation for loss and profit: It will be a wage proclamation that contrasts
to distinctive association. For illustration in sole exchanging business, there would fewer
things with be specified the place the substantial association incorporates more than the
individuals of things with that's only the tip of the iceberg measure to a chance to be
incorporated.
b. Asset report differences: For a little organization particular organization those monetary
record will be humble whats more there will be no long haul obligation structure those
outcasts (Foster, 1978). Anyway over huge company, there might incorporate both in
length What's more transient debt and equity from the outcasts.
c. Money stream Statement: money articulation contrasts happen on the support of if it
will be collection alternately money foundation bookkeeping framework (Mirshekary and
Saudagaran, 2005). The greater part of the little Furthermore proprietorship benefits of
the business take after money foundation which methods should enter the things on the
accepting those installment At for huge company, there may be accumulation premise
Previously, which the things are included instantly then afterward event.

4.3 Interpretation of the financial statements of two companies by using

appropriate ratios
Interpretation of financial statements means that such outcomes may be used for determining the
current position of a particular organization. The interpretation of Western Fashion House and
Next PLCs financial statements based on ratios provide the position based analysis of them. The
interpretations are the follows:
1. Profitability analysis:
As we can see that, the gross profit ratio in 2013 was 31.48% and raised to 33.59% in
2015 for Next PLC. But when we see that ratio for western fashion house, it was 59.50%
in 2013 which decreased to 58.81% in 2015. The net profit margin was 19.59% in 2013
for Next Plc. which was 20.62% in 2015 where for Western Fashion house it was 13.96%
in 2013 and 13.19% in 2015 only.
2. Holding position analysis:
The ratio of cost of goods sold for Next Plc. was 68.52% in 2013 which reduced to
66.41% in 2015. But in case of Western fashion house the cost has raised from 40.50% in
2013 to 41.19% in 2015.
3. Longevity analysis:
In the year 2013, the assets turnover ratio was 1.89 which reduced to 1.81 in 2015 for
Next PLC but for Western Fashion House it was raised from 2.01 to 2.14 in the year 2015
followed from 2013. So we can say that, Western Fashion House has higher assets
turnover than the Next PLC which is a sign of longevity.
4. Liquidity analysis:
Those current proportion of Next PLC. has been brought up starting with 1.48 over 2013
will 1.82 What's more for Western Fashion house it might have been from 2.66 over 2013
on 2.11 over 2015. The corrosive test proportion might have been .97 for 2013 also 1.16
done 2015 to Next PLC. Be that as to Western Fashion house it might have been starting
with 1.49 over 2013 to 1.07 to 2015.
Clinched alongside end, we could say that the money related position of next Plc. Is palatable
and the companys capacity will help both short and long expression liabilities would sufficient.
Yet all the for Western Fashion House, in spite of those position will be not thick, as terrible that
it cant be mitigated be that at present it will be unsafe on put resources into it. In this way I will
recommended the account chief of Weston Ltd. to buy impart starting with the Next PLC.

Conclusion
Money related administration need been basically transformed in nature also additionally
clinched alongside growth what's more presentation in the later a long time. The extent about
money related administration is not best done these separate zones about business as well as it
assumes a paramount part clinched alongside choice making regarding the place to invest, the
extent to which dangers would connected with investment, the comeback of the financing and so
forth throughout this way, observing and stock arrangement of all instrumentation, the valuation
of assets and short term investments etc.

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