DESCRIPTION

Program

BTEC Higher National Diploma in Business

Unit Number and Title

Managing Financial Resources Decisions - Green Supplies

QFC Level

Level 5

Introduction

Organisational management is engaged into different activities in order to manage the business activities and took corrective actions to strengthen organisational growth. There are various different management departments for different activities. From these managements one management is working in order to manage their financial activities and this management is termed as financial management. Their prime duty is to manage inflow and outflow of cash and utilise available funds in adequate manner. This Managing Financial Resources Decisions Assignment Green Supplies look over the different financial sources after reviewing its legal implications, benefits and demerits. Finance is required essentially in order to meet out different purposes such as routinely expenses, purchases, payments, expansion and many more. Some activities performed with the use of the small finance whereas some of them require huge finance. Management utilise financial planning to make diversified usage of their finance and enhance the inflow of cash. Various topics related to the management of finance will be discussed in context to Green Supplies Ltd. such as managing financial resources and planning, different techniques of investment appraisal, formats of financial statements and ratio analysis.

Managing Financial Resources Decisions Assignment Green Supplies - Assignment Help in UK

Task 1

(a) Identify different sources of finance available to Green Supplies Ltd. This should include raising funds through a combination of internal and external sources of finance. You are required to select at least 5 sources of finance. (Covers AC1.1)

For fulfilling the purpose of business expansion there is a need of huge finance and with this effect Green Supplies ltd. evaluates the various source of finance such as:

Sources

Description

Loan from bank

They have effective reputation in market. They borrow funds from the bank against adequate level of securities. Bank pay money against securities as if they fail to pay the loan amount bank sells out the securities and recovers their amount.

Venture capital

They are third party investors and after evaluating the overall performance & profitability they show their interest in investing adequate amount in their business.

Leasing option

There are various elements which can be arranged through this option such as land, building, furniture & fixtures, equipment’s, etc. They need to pay regular rentals against the utilisation of these elements to the respective owner.

Reserve funds

They are performing activities from number of years and they have adequate amount of reserve funds which get utilised to make business expansion.

Hire purchase

They get the equipment or any other element on instalments in order to support their business expansion plan. They pay adequate amount at the time of purchase and then make payments in equal instalments.

(b) Assess the implications of different sources of finance and what are the legal, financial and dilution of control implications (percentage ownerships) and risks of bankruptcy. (Covers AC1.2)

Implications are discussed below in context to above discussed sources of finance such as: -

Sources

Dilution

Risk

Legal

Finance

Loan from bank

Green Supplies ltd. having full control over their company.

Due to repayment of loan amount risk factor is high.

Lots of legal implications are made by the respective bank.

Desired huge amount get arranged.

Venture capital

It is up-to venture capitalist as they share ownership (share profits as well as losses) or attain interest.

Risk factor is moderate.

Legal agreement is made between them.

Huge amount is invested by the venture capitalist.

Leasing option

Control remain with Green Supplies Ltd.

Moderate level of risk.

Various Legal contract is made.

Required element gets arranged.

Reserve funds

No external party is involved as control remains with them only.

Zero level of risk is present.

No legal implications are present.

Adequate sum get arranged.

Hire purchase

Required element is purchased on instalment basis so no dilution takes place.

Moderate level of risk is associated.

Legal agreement is made.

Required element is purchased on the basis of instalment.

(c) Evaluate appropriate sources of finance for your business: (Choose 3 sources) (Covers AC1.3)

Appropriate source of finance get discussed below such as: -

Source

Description

Merits

De-merits

Loan from bank

They gather some amount from it and agree to pay interest over it for a set period. They make payment in regular instalments (interest amount + part of loan amount).

  • Controlling of organisation remains with them only.
  • They enjoy tax benefits over paying interest amount.
  • They didn’t miss the payments of instalments.
  • Regular payment of interest is necessary even they have loss.

Leasing option

They took some of the major elements on lease such as building, furniture, equipment’s, etc. and pay adequate rentals against the use of it.

  • They make diversified usage of their available finance.
  • They didn’t make capital expenditures.
  • They can make adequate changes in short period of time such as adopt latest technology by replacing existing one.
  • Ownership remains with the owner only as they get only right to use.
  • They need to pay regular rentals and return the lease elements to the owner after the termination of lease.

Reserve funds

They utilise their save finance for their purpose. They make regular savings of adequate amount and this is the best time period to make use of it.

  • It doesn’t create any type of liability.
  • No payments need to make against the use of this amount.
  • It lowers the ratio of earned profit as reserve funds is the part of profits.
  • It lowers down the liquidity of the organisation.

(d) Analyse the costs of your chosen sources of finance for Green Supplies Ltd. Provide a brief explanation of how they would be shown in the Income Statement and in the Balance sheet. (Covers AC2.1)

Above adopted sources of finance having effective cost with them such as: -

Head

Description

Cost related to bank loan

Bank lends handsome amount against security offered. But in order to get some compensation against rendering money they charge interest at reasonable & feasible rate. The amount paid as interest is termed as cost for bank loan.

Cost related to leasing option

The owner of the equipment or any other elements transfer the “right to use” to them and charge reasonable share of rentals against it. The amount of rentals gets termed as cost of leasing.

Cost related to reserve funds

There is no cost is associated with it because organisation make use of their own funds for their business expansion. They already pay taxes over it so there is no more cost associated with it.

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Task 2

(a) Explain the importance of financial planning and discuss why it is important to the success of Green Supplies Ltd. (Covers AC2.2)

Financial planning: Making plans for utilising available finance in diversified manner so that they make utmost use of it. By following plans they try to avoid financial crisis. Green Supplies ltd. management also make use of it to diversify their finance and manage their situation in effective manner. They try to get the desired results with the use of it. Below importance of financial planning is discussed such as:

  • Green supplies set effective plans to utilise their finance.
  • They get aware about making effective savings in order to safeguard their future position.
  • They become capable in forecasting the need of finance in the near future.
  • They adequately evaluate the effectiveness of available project before making investment in it (Dusuki & Bouheraoua, 2011).
  • They put adequate level of control over their financial activities and focused over increasing cash inflows.
  • It helps in increasing adequate inflow of cash.
  • It makes aware about the problems related to it such as financial crisis.
  • They become capable enough in order to control their available finance and utilise them in adequate manner (Dusuki & Bouheraoua, 2011).

(b) Assess different information need of each decision makers of an organisation. Identify and assess the information that is needed for a range of decision makers. (Covers AC2.3)

There are different decision makers of organisation demand different information such as:

  • Board of directors: They demand supply for all available information such as profitability, liquidity, financial position. They evaluate all the information and make effective planning for the betterment of the business organisation. For this purpose they analyse their financial statements.
  • Management: They demand for the information related to the financial planning, budgetary information and other planning’s in order to make their decisions of making effective investments and make adequate allocation of the available resources (BenDavid-Hadar, 2014).
  • Shareholders: They demand for the information related to the profitability and liquidity as they have their interest in getting adequate share of profits. They evaluate performance of organisation and make decision to continue with them or not.
  • Government: They make demand of all available information such as liquidity, profitability and financial position in order to evaluate the performance and tax paid by them. They evaluate performance in order to stop or render subsidy to them (Archer, et. al., 2010).
  • Investors: They are third party to business organisation and they demand for information related to financial position, liquidity and profitability. They evaluate all demanded information in order to make decisions whether they make investment in business projects or not.

(c) Explain the impact of loan and equity finances or investment on the balance sheet and income statement. (Covers AC2.4)

The impact over different financial statements of different sources gets discussed below such as:

Head

Description

Impact on balance sheet

Impact on income statement

Equity capital

They issue 20,000 shares at £1.00 each at par. They agree to share dividend at the rate of 4%.

By issuing shares there is inflow of £20,000 in business which effectively increases the balance of cash & bank account.  Along with this it also increase the liabilities as there is increase in equity capital by same amount of £20,000.

They promise to share dividend at 4%. The profit sharing leads to increase in the expenditure and lowering the earned profits in effective manner.

Loan

They borrow funds of £20,000 from bank at the rate of 5%. They promise to repay it within 5 years and till that period they make payments in regular instalments.

The balance of cash & bank account get increased by amount of £20,000 with this there is also increase in the long term debts by the same amount. Both assets and liabilities get increased by £20,000.

The payment of interest amount and instalment amount increases the overall share of expenditure and also decreases the profit share.

Task 3

(a) Prepare the Cash Budget for four months ending September 2015. (Covers AC3.1)

Cash budget such as: -

Particulars

June

July

August

September

Revenues

£ ‘000

£ ‘000

£ ‘000

£ ‘000

Cash sales

60

70

75

85

Cash receipts (Credit sales)

-

550

630

770

 

 

 

 

 

Total revenues (A)

60

620

705

855

 

 

 

 

 

Payments

 

 

 

 

Cash purchases

310

450

500

520

Payment of credit purchases

-

55

65

60

Rent paid

30

-

-

30

Bank Installments

15

15

15

15

Other expenses

75

80

90

95

 

 

 

 

 

Total payments

430

600

670

720

Balance (+/-) (A-B)

-370

20

35

135

Opening cash balance

75

-295

-275

-240

Closing cash balance

-295

-275

-240

-105

Analysis: The above prepared cash budget is not yielding favourable results as all closing balances shows deficit balance. Some recommendations are there in order to recover from these deficits such as:

  • There is effective need of increasing cash sales and reducing the share of their credit sales because it hampers their liquidity.
  • There is effective need of decreasing cash purchases and increasing the share of credit purchases. As it helps in maintaining adequate level of liquid funds.
  • They need to put control over their other expenses as there is effective increment is noted down (Roper & Ruckes, 2012).

3b (i) calculate the selling price per unit with 30% mark up on cost and calculate profits on 550 units sold. (Covers AC3.2)

Particulars

Amount (£)

Variable cost

150

Fixed cost

100

Total cost

250

Mark up at 30% on cost (250 * 30%)

75

Selling price

325

Total sales revenues are £325 * 550 units = £178,750.

Profit over 550 units = £75 (mark up amount) * 550 units sold = £41,250.(de Souza & Lunkes, 2016)

3b (ii) Calculate the selling price per unit after 550 units sold with 25% mark up and the profit on additional 1500 units sold. (Covers AC3.2)

Particulars

Amount (£)

Variable cost

150

Fixed cost

100

Total cost

250

Mark up at 25% on cost (250 * 25%)

62.5

Selling price

312.50

Profits earned over 550 units = 550 units * £62.6 = £34,375.00

Profits earned with the sale of 1,500 units = 1,500 * 162.5 = £243,750(Heaton, et. al., 2011).

(c) Assess the viability of each project using the following investment appraisal techniques and briefly explain which project you would recommend and why? (Covers AC3.3)

Investment appraisal techniques get discussed below:

Particulars

Description

Merits

Demerits

Net Present value

When the sum of invested amount get deducted from the overall inflow of cash after discounting them then the attained value is termed as NPV. The positive difference is denoted as profit and vice-versa. High positive difference means high profits and vice-versa.

  • Importance is rendered to the cash flows present value by this method.
  • There is effective maximisation in the overall value of organisation.
  • With the use of it risk as well as profitability get evaluated and preferred in effective manner.
  • Both flows whether it is inflow or outflow get valued in adequate manner.
  • It is not easy to make use of this investment appraisal technique.
  • For calculation and comparing investment amount must be same or equal.
  • It becomes hard task to get adequate discount rate.
  • All available projects must be of same life otherwise it is not possible to make effective comparison among them.

Pay-Back period

Organisation makes investment for a specific time period or start project for a time period. With the help of inflow when they recover their invested amount is such time period which is termed as pay-back period.

  • This technique is easy to use for an organisation.
  • It is easy to use as well as it is also understand easily.
  • Management utilise it in their decision making process as it renders adequate liquidity emphasis for project.
  • It deals with the highest inflow and focus over recovery of funds.
  • It didn’t make use of cash inflows present value due to which it has less effectiveness.
  • This method put whole emphasis over liquidity factor only and they forget to measure profitability measures.
  • For calculation cash flow till payback time period is utilised after that they didn’t consider the inflow of cash.

Calculations of NPV:

Calculations of NPV - Assignment Help in UK

Calculation of Pay-back period: -

Calculation of Pay-back period - Assignment Help in UK

Results of both calculations:

Projects

NPV results

Payback period results

Project A

£24,685

2.91 years

Project B

£8,450

3 years

Project C

(£26,640)

3.69 years

Analysis: Effective calculations are made in order to get the required information related to the available projects as this information helps in preferring one single project over other projects. As per the results attained by the calculations it is observed that Project A is most profitable project for Day Choice Ltd. as it provides high profits as well as it also recover the invested amount in lesser period as compare to others. Results are show in above table which also shows effective comparison among all three projects (Adkins & Paxson, 2014).

Task 4

(a) Explain the main financial statements produced by a business. (Covers AC4.1)

  • Financial statement: It is the formal record of the financial transactions made by the organisation on daily basis. Under financial statement all the relevant financial information show in structured manner and with this effect it get reviewed easily. Different statements get prepared to record different activities and get utilised to extract different information for decision making purpose. Different statements get discussed below such as:
  • Balance sheet: The statement that report the organisational assets and liabilities in effective manner. Organisation attains different kinds of assets and liabilities and while reporting these assets and liabilities they will segregate on the basis of their nature. Just like some of the assets are current assets as they easily get converted into cash and some of them are fixed assets. Like in the same way some of the liabilities are of short nature as need to be paid within short period of time like creditors whereas come of the liabilities are of long term nature such as bank loan, etc. All these assets and liabilities reported in adequate manner and helps in providing information related to financial position (Berrington, et. al., 2012).
  • Income statement: The statement that report activities related to their earnings and the expenditures made by the organisation at a point of time.Statement maintains proper and adequate record of all the activities related to their earnings and spending. Management utilise this statement in order to evaluate their performance whether they earn profits or not.
  • Cash flow statement: The statement that report activities related to their transactions which are related to only cash and cash equivalents. There are various activities performed by the organisation on regular basis and most of them are fall under such category and eligible for reporting under this statement.
  • Statement of change in equity: The statement that report activities related to the changes in the equity capital such as dividend paid, fresh issuance of the shares and many more. It provides adequate information related to the change in the equity capital (Berrington, et. al., 2012).
  • Notes: These statements make inclusion of the adjustments and calculation in context to render detailed information related to the figures shown in the above statements. These statements rendered clarified information to the users of the annual report.

(b) Compare appropriate formats of financial statements (Income statement and balance sheet) for a Sole Trader and a Public Limited Company. (Covers AC4.2)

Basis

Sole trader

Public Ltd. company

Definition

It is a small size business and run by single owner. Owner invests all the funds by using personal finance or borrows from market. All business related decisions taken by the owner only. He also enjoys the whole profit alone as well as bears all the losses. All liabilities are owned by the owner only and his personal assets also get utilised to meet his contract liabilities.

Public is the owner of the company as they purchase the shares of the organisation. All the decisions for the betterment or processing things taken by the Board of Directors in their meetings. For all liabilities company will be liable and earned profits will get distribute among the owners in the form of dividend and some part of profits put into reserve funds.

Income statement

It depends over the owner to follow the format but majority of the business follow horizontal format. They utilise it because it is easy to use and followed earlier also.

Company report their activities in the vertical format as it helps in giving detailed information to the users. It get started from the sales revenues and ended up with the net profit.

Balance sheet

Owner follows the traditional format of preparing this statement. It is easy to prepare and data get evaluated easily. Owner and some creditors have their interest in their business and for them this format is become beneficial.

Management follow the vertical format in which they become much capable in order to show case their detailed information related to their statement. It gets started with the fixed assets and gets ended with net equity capital.

Offset of losses

They utilise other available income to offset their losses.

They showcase their losses in their statements and set-off with next year’s profit.

As per IAS –I the prescribed format of Public Limited Company is as follows: -

  • Format of Balance sheet as per IAS – I: For preparing balance sheet IAS – I rendered vertical format in which it get started with assets and ended up with the share capital. Assets can be recorded as fixed assets then current assets or current assets then fixed assets. After that liabilities are show and deducted from the total assets in order to get the net assets which must get equals to the equity share capital (Tan, et. al., 2014).
  • Format of Income statement as per IAS – I: IAS –I render vertical format in order to prepare income statement in which revenues are recorded on top-most position then get followed by the payments or expenditure. It gets ended with the positive (profits) or negative (losses) balance. Sales is recorded first from which cost of goods sold get deducted and they get gross profit in balance. Now in gross profit all earned incomes get added up and then all the payments get deducted from it. In the end all payments get deducted and they get profit or loss (Tan, et. al., 2014).

(c) Interpret financial statements using appropriate financial ratios and compare the following ratios for the wholesale and retail businesses:

Calculation of ratios as follows: -

Calculation of ratios as follows - Assignment Help in UK

Interpretation of ratios calculated: -

S. No.

Ratio

Wholesale business

Retail Business

Comparison

1.

Net profit

They get the profits at the rate of 15.45%

They get profits at the rate of 16.67%.

This ratio is calculated for evaluating profit earning capacity of organisation. As per the results analysis it is clearly observed that retail business earn high profits.

2.

Gross profit

They get revenues at the rate of 27.27%.

They get revenues at the rate of 26.67%

This ratio is calculated in order to evaluate the revenue earning capacity of the organisation. As per the results analysis it is clearly observed that wholesale business is efficient enough to get adequate revenues.

3.

Current ratio

They attain funds in the ratio of 1.62.

They attain funds in the ratio of 1.72.

This ratio is calculating in order to evaluate whether they maintain adequate level of funds in order to meet their liabilities. As per the results analysis it is clearly observed that retail business maintain adequate level of funds with them.

4.

Quick asset ratio

The ratio of liquid funds attained by them is 0.70.

They maintain the ratio of 0.92 of their liquid funds.

This ratio is calculated in order to evaluate the efficiency or share of liquid funds in order to meet out their short term liabilities. As per the results analysis it get observed that retail business attain high liquid funds.

5.

Gearing ratio

The ratio of utilising debt over equity capital is 44.44%.

The ratio of utilising debt over equity capital is 36.56%.

This ratio is calculated to evaluate the usage of long term debts as compare to their equity capital. As per the analysis of results it is observed that wholesale business is utilising high ratio of debts to support their business activities.

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Conclusion

It is concluded that Green Solutions Ltd. look over the different financial sources after reviewing its legal implications, benefits and demerits. They gather huge finance from market and for the purpose of utilising in adequate manner they follow the financial planning. Financial planning benefited them as they make effective investments with the use of it and also save adequate amount for future prospective. IFRS guidelines render effective formats in order to prepare the financial statements. Ratio analysis is utilised in order to make comparison among two different organisations within the same industry. And with the use of ratio analysis effective comparison is made among whole business and retail business. Theresults of comparison are that retail business performing more efficiently in the comparison to wholesale business.

References

Adkins, R. & Paxson, D. 2014, "Stochastic Equipment Capital Budgeting with Technological Progress", European Financial Management, vol. 20, no. 5, pp. 1031-1049.
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BenDavid-Hadar, I. 2014, "Education, cognitive development, and poverty: implications for school finance policy", Journal of Education Finance, vol. 40, no. 2, pp. 131.
Berrington, M., Bhandari, V. & IFRS SYSTEM Pty Limited 2012, Pinnacle financial statements, Australian edn, IFRS System, Sydney.
Bujaki, M. & Durocher, S. 2012, "Industry Identification through Ratio Analysis", Accounting Perspectives, vol. 11, no. 4, pp. 315-322.
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Dusuki, A.W. & Bouheraoua, S. 2011, "The framework of maqasid al-shari'ah and its implication for Islamic finance",Islam and Civilisational Renewal, vol. 2, no. 2, pp. 316.
Gragnolati, M., Jorgensen, O.H. & Rocha, R. 2011, Growing Old in an Older Brazil : Implications of Population Aging on Growth, Poverty, Public Finance and Service Delivery,World Bank Publications, Washington.
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Nishizawa, T. 2011, "Changes in Development Finance in Asia: Trends, Challenges, and Policy Implications", Asian Economic Policy Review, vol. 6, no. 2, pp. 225-244.

This Managing Financial Resources Decisions Assignment Green Supplies look over the different financial sources after reviewing its legal implications, benefits and demerits, We are posting HND units solutions so scholars can explore the our Assignment Help in UK and get review the quality of our work.