Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 2 Managing Financial Resources - Radisson Plc
Radisson Plc is a medium sized enterprise which is indulged in the manufacturing of software and is based at London. The company recently acquired a contract to supply bespoke software for many companies in UK for long term. Bespoke software is a kind of software which is customized for the client in accordance with their needs and specifications for the software. Thus the operations manager of the company believes that the market share of company in the industry will increase since there are lot of opportunities for company to expand its operations. This unit 2 assignment on managing financial resources - Radisson Plc discusses the methods and procedures for managing the financial resources of the operations of business. The sources of finance for the operations of company and its expansion plan, their implications, cost of funding the project, importance of financial planning, recommended financing option, budgets and variance analysis, cost fvolume profit analysis, investment appraisal techniques, financial statements analysis, interpretation of financial ratios, comparison of company performance with peers etc are some elements of managing financial resources of a business which are included in this report for the expansion plan of Radisson Plc.
The sources of finance available for the business of Radisson Plc and its operations which relate to the manufacturing of software as well as the implications of these sources are as follows:
The expansion plan for Radisson plc is to enter into contract with various companies in UK to supply the bespoke software. The appropriate sources of finance for this expansion plan for company are as follows:
Equity versus debt financing
The cost associated with this source of finance is the payment of dividends annually from the earnings and tax implications from such payments. The opportunity cost is the cost of capital which is minimum required rate of return (Caglayan, 2014).
There are lesser risks associated with this form of financing since the payment of dividend has to be made out of retained earnings after deduction of all the costs of business.
Higher cost and no tax relief or tax benefits to the business are the disadvantages of this form of funding.
The cost associated with this source of finance is the payment of interest to the providers of loans However tax benefits are available on payment of interest on loans. Opportunity cost is the required rate of return.
The advantage in this source of funding is lesser cost due to benefits of tax saving on interest payment. Any amount can be procured for the investment in the projects without limit.
The disadvantages include regular payments to be made at periodical intervals, even in case of losses suffered by business. Huge burden of debt increase the levels of financial and liquidity risk of business.
Recommendation – On the basis of analysis of cost of equity and debt funding for the project, the company is recommended to adopt debt financing for the expansion plan since after completion of contracts for supply of software, the company will be easily able to repay the loans and thus reduce the risks. Also the company can avail tax benefits on interest payment.
Importance of financial planning: Financial planning refers to as the process of forecasting the financial results of a specific project or business determining the manner in which the financial resources of a business or a company can be used in the best possible manner. Financial planning is done with the objective of achieving long-term and short term goals of a business. There are many benefits of financial planning which justify the importance of financial planning for a business. They are as follows:
Information needs for financial decision making: Financial decision making is the process of assessing the financial viability of a project or business operations on the basis of financial information of that business or project. Thus information is the most important element of the financial decision making process. Information from all the levels of management including strategic, operational and tactical is needed for the appropriate decision making. Financial decision making involves mainly quantitative information as compared to the qualitative information which is required for some specific areas such as opportunity cost. Thus all the accounting information related to the business and its different departments and functions is relevant for the purpose of financial decision making (Serrasquerio, 2011).
The suggested financing option for the expansion plan of company is debt financing which involves procurement of long-term loan from the bank. The impact of this option on the financial statements of Radisson Plc will be decrease in profits due to increase in interest cost as part of statement of profit and loss. Apart from this the non-current liabilities will increase in the Balance sheet on the asset side and the amount representing cash at bank will also increase at liabilities side. The cash flow statement will include cash inflow from financing activity as loan procurement. It will be recorded as follows:
Statement of financial position
Cash at Bank
Statement of profit or loss and other comprehensive income
Profit from operations
Less: Interest paid
Profit before tax
Profit after tax
Budget is a kind of presentation of a plan of management in relation to its financial activities and financial performance in quantitative form for a specific period. A financial budget relates to the presentation of expectation of the management in terms of profits, financial position and cash flows from business activities for a specific period. Budget is used as an important tool for the monitoring of the actual performance from the standard performance expected from the business. The actual performance can be compared in context of all departments and sections and for all periods. This difference between actual and budget is known as variance. When actual performance is better it is favourable variance and vice versa. Thus for the monitoring and control of financial performance of Radisson Plc and make appropriate decisionswith regards to cost control and achievement of long term and short term goals, the budget and variance analysis is very important (Yahya, 2012).
Unit cost is the cost of each unit or product of the company’s business. It is calculated by adding the total costs of the company and dividing it by the number of units produced. The calculation of unit cost for the expansion plan of Radisson plc will be calculated by adding the total budgeted costs of the project which includes manufacturing of bespoke software for different companies individually and then dividing the total cost by the number of softwares supplied to that specific company. For example if total cost of supplying software to Logics software is £8 million and the number of softwares supplied to this company is 800, then the cost per unit will be £8,000,000/800 = £80,000 per software package. This method will be appropriate since the total cost of software will be different for each company in UK as these softwares will be customised.
Investment means any expenditure of capital nature which is done with the expectation of earning future economic benefits for many years. It involves a huge amount of money in the form of initial investment. Investment appraisal is an approach or a method which is used to select the best investment option or investment project. It involves origination of alternatives, screening of project options, and analysis of available alternatives, selection of feasible option and monitoring and review of the selected project option. Investment appraisal techniques are of two types discounting and non-discounting. Non-discounting techniques include Payback period analysis and Accounting Rate of Return (ARR), whereas discounting techniques include Net Present value (NPV) and Internal rate of Return (IRR).
Net Present Value – It is the investment appraisal technique which is used to assess the financial feasibility pouf an investment proposal in terms of cash flows. The net present value is the excess of present value of cash inflows from the project over present value of cash outflows invested in the project (Robison, 2015). It is the net benefit which is achieved from the project during the life of the project. If a project has a positive NPV it is worth accepting otherwise not. Also out of two mutually exclusive projects, the project with higher NPV shall be selected. The viability of expansion plan of Radisson Plc can be assessed by calculating NPV from the project as follows:
Cost of capital
Life of project
Yearly cash inflow
Present value of cash outflow
Present value of cash inflow
Net Present Value
From the above calculation of NPV, it can be observed that the NPV from the project is positive and therefore the company shall undertake the project since the project has the potential to generate good returns for the company in the form of cash inflows during 10 years (Weber, 2014).
In every organisation there are required to maintain various financial statements which help in analysing and evaluating the various aspects related to the financial positioning of the company. The following are some financial statements of the company Radisson Plc.
Income statement:Income statement is a financial statement which shows the position of the organisation’s income and expenses and defines financial performance of the company for a defined accounting time period and also provides a base for taking effective decisionsin organisation. Following is the income statement of the company.
Amount (in Pound)
Cost of Goods sold
Profit before tax
Statement of cash flow:This financial statement leads to track all the cash transactions in the company resulted from operating, investing and financial activities in the company for a specific time period and also defines the cash equivalents in the company. Following is the statement of cash flow of the company.
Cash flow from operating activities
Operating Income (EBIT)
Loss in sale of expense
Increase in Accounts Receivable
Decrease in Accounts Payable
Net Cash Flow from Operating Activities
Cash Flows from Investing Activities
Sale of Equipment
Purchase of Equipment
Net Cash Flow from Investing Activities
Cash Flows from Financing Activities
Payment of Dividends
Payment of Bond Payable
Net Cash Flow from Financing Activities
Net Change in Cash
Beginning Cash Balance
Ending Cash Balance
Statement of financial position:This financial statement defines various assets and liabilities of the company which shows the actual position and solvency of the company in different aspects. Following is the balance sheet of the company (Puri, 2014).
Plant and equipment
Financial statements of two different companies may be different as per the applicable financial reporting framework and accounting framework regulation applicable on such company. Other reasons for the differences include size of organization, type of organization, whether listed or not etc. The two companies for comparison of format of financial statements are Radisson plc which is a medium sized manufacturing company which is not publically traded or listed and other company is Merlin Entertainments Plc which is a listed company and belongs to service sector. The comparison of formats of financial statements of these two companies is as follows:
The public limited company is Merlin Entertainments Plc and the other company is Radisson Plc. The comparison of financial ratios of the two companies is as follows:
Financial ratios of two companies
Merlin Entertainments Plc
Profit Marguin Ratio (%)
Return on Equity (%)
Current Ratio (%)
Acid Test Ratio
Inventory Turnover Ratio
Asset Turnover Ratio
From the above discussion about the techniques of managing financial resources and making appropriate decisionsfor a software manufacturing company and its expansion plan, it can be concluded that the financial investment decisions can be taken in an appropriate manner and efficient way through application of appropriate financial management operation and methods. From the evaluation of investment decision of Radisson Plc to expand its operations by entering into contracts to supply bespoke software to different companies in UK, it can be concluded that the project is feasible for the company and therefore it shall invest in the project through debt financing as recommended.
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