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Diploma in Business
Unit Number and Title
Managing Financial Resources Decisions - Green Supplies
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.
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:
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.
They are third party investors and after evaluating the overall performance & profitability they show their interest in investing adequate amount in their business.
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.
They are performing activities from number of years and they have adequate amount of reserve funds which get utilised to make business expansion.
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.
Implications are discussed below in context to above discussed sources of finance such as: -
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.
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.
Control remain with Green Supplies Ltd.
Moderate level of risk.
Various Legal contract is made.
Required element gets arranged.
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.
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.
Appropriate source of finance get discussed below such as: -
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).
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 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.
Above adopted sources of finance having effective cost with them such as: -
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.
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:
There are different decision makers of organisation demand different information such as:
The impact over different financial statements of different sources gets discussed below such as:
Impact on balance sheet
Impact on income statement
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.
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.
Cash budget such as: -
Cash receipts (Credit sales)
Total revenues (A)
Payment of credit purchases
Balance (+/-) (A-B)
Opening cash balance
Closing cash balance
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:
Mark up at 30% on cost (250 * 30%)
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)
Mark up at 25% on cost (250 * 25%)
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).
Investment appraisal techniques get discussed below:
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.
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.
Calculations of NPV:
Calculation of Pay-back period: -
Results of both calculations:
Payback period results
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).
Public Ltd. company
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.
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.
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: -
Calculation of ratios as follows: -
Interpretation of ratios calculated: -
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.
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.
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.
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.
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.
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.
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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 Locus units solutions so scholars can explore the our Assignment Help in UK and get review the quality of our work.