Delivery in day(s): 5
Diploma in Business
Unit Number and Title
Unit 2 Managing Financial Resources
Management is indulge into managing the things within the organisation. Their prime responsibility is to manage the available finance. There are various tools and techniques that utilised for managing the finance and these tools & techniques are financial planning, budgeting and many more. For getting finance organisation having various sources some of them are internal and some are external. There are various stakeholders associated with the organisation having interest in their functioning. Organisation made use of the investment appraisal techniques in order to chose the most adequate investment option for their business purpose and also follows ratio analysis technique for the purpose of analysing their financial position internally and externally. In the below report all these terminologies get discussed briefly and effectively.
Radisson Plc is looking for huge share of finance as they need to complete the long term contract of rendering bespoke software to different companies around UK. So there are various sources available that helps in raising funds such as: -
The implications of above discussed sources of finance are as follows such as: -
The ownership is divided between Radisson Plc and their shareholders.
Radisson Plc need to follow the legal process of issuing ordinary shares.
Radisson Plc is having any risk as they need not to repay share amount.
The share of finance is huge and large enough to meet out the expectations.
The ownership remain with Radisson Plc only as they pay interest over it.
To get funds Radisson Plc need to satisfy the legal requirements.
Radisson plc have to repay borrowing funds otherwise they face legal consequences (like bankruptcy)
Radisson Plc get the desired share of funds to support their financial activities.
Radisson Plc is having overall control as they pay rentals.
Radisson Plc sign the lease agreement in order to begin the lease.
Radisson Plc need to pay regular rentals otherwise lessee took the asset back and close down the lease.
Radisson Plc get the desired capital nature equipments that helps in their new project.
Radisson Plc avail the service rendered only and need not to share ownership with bank.
Radisson Plc is legally eligible to avail the bank overdraft facility as they maintain adequate funds in their current account.
Radisson Plc need to repay overdraft amount in the given time period otherwise the adverse consequences may declare them bankrupt.
Radisson Plc get adequate funds to meet out their routinely expenses.
Radisson plc took equipment on instalments not share the ownership with seller.
Radisson Plc sign the agreement in order to pay the instalments in the consecutive months.
Radisson Plc need to pay regular instalments otherwise seller took the asset back and finance company charge legal case over them.
Radisson Plc able to get the capital nature assets with the payment of small instalment amounts.
There is no second party involve as Radisson plc utilising their own money so control remain with them.
There is no legal implications made over Radisson Plc as they utilise their own funds.
If Radisson Plc not make adequate use of retained profits then they might face problem of out of funds.
Radisson Plc get the huge funds as they save handsome amount on regular basis out of their profits.
The appropriate sources of finance for the expansion plan of Radisson plc are as follows such as:
There are three different types of costs are associated with the sources opted for sourcing the funds such as: -
Cost of equity capital: This cost is associated with the issue of shares in the form of dividend payment. Shareholder invest their money within company in order to get the dividend (Baginski& Hinson, 2016). The formula of calculating cost of equity capital is as followed such as: -
Ke = d/P0
Ke = Cost of equity capital
d = annual dividend per share
P0 = share price (Baginski& Hinson, 2016)
Cost of debt capital: This cost is associated with the amount get borrowed from the bank. They need to pay interest over the loan amount. They also took finance lease that also get utilised for calculating cost of debt capital (Baginski& Hinson, 2016). The formula of calculating cost of debt capital is as follows: -
Kd (1 - T)
Kd = Cost of debt capital
T = tax rate (Baginski& Hinson, 2016)
Opportunity cost = This cost is associated with the amount of retained profits that get utilised for business expansion plan. As they can invest their profits somewhere else where they get effective rate of return (Baginski& Hinson, 2016).
Financial planning: The process of forecasting the future financial results and determining how they can utilise their company's financial resources in best way. It helps in attaining the short- term as well as long-term objectives of business. It involved high level of judgement as well as uncertainty. For financial planning there are different techniques get utilised such as ratio analysis, cash flows, budgeting and many more. There are three types of financial planning such as short-term, medium-term and long-term financial planning (Rehl, et. al., 2016). Short term refers to planning for one year and in this they look after company's need of working capital. Medium term planning duration among one year to five year as plans include replacement or maintenance of assets, R & D programs, etc. And long term planning is made for more than five years and it include business expansion plan, capital structure and many more.
Importance of financial planning are as follows: -
For the purpose of financial decision making there are three types of information needed that get discussed below such as: -
There is adequate impact put by the suggested financing option over the financial statements of Radisson Plc and the impact get discussed below such as: -
Budget: An effective tool that get utilised for implementing organisational strategies. It is an proposed action plan by management for a specific time-period in order to coordinate what need to be done for implemented plan. There are different types of budgets get prepared such as sales budget, cash budget, master budget and many more (Roper &Ruckes, 2012).
The importance of preparing budgets are as follows: -
With the help of the budget Radisson Plc took appropriate decisions such as: -
Unit cost: It is that part of cost that get incurred by the manufacturing unit for producing single unit of product. It include variable cost, fixed cost and all other direct costs (de Souza, &Lunkes, 2016).
There is effective relationship between cost and pricing because if the prices of product are too high then customers didn't purchase their product and if the prices are too low then organisation is not able to recover their overall cost incurred over product manufacturing. There are some factors that influence pricing decisions such as customers, competitors and costs. For Radisson plc there are various pricing methods available for pricing decisions such cost plus pricing method, marginal cost plus pricing, marketing-based pricing, premium pricing, market skimming, penetration pricing, price differentiation, discount pricing, controlled pricing and many more (de Souza, &Lunkes, 2016).
For their decision making Radisson Plc make use of total cost plus pricing method. According to this method Radisson Plc add up an mark-up amount within the cost of their product that gives selling price of their product (de Souza, &Lunkes, 2016).
In order to assess the viability of the expansion project Radisson Plc make use of different investment appraisal technique such as: -
NPV: - NPV or Net Present Value: It is the difference amount between the present value of total cash inflows and initial investment amount. Positive balance referred as profitable investment and vice-versa (Adkins &Paxson, 2014).
Payback period: It is that time period in which cash inflows become equal to the cash outflows and it get expresses in years. But it neglects the profits rendered by the investment after pay-back period (Adkins &Paxson, 2014).
Below is the example of NPV and pay-back period such as: -
Scrap value (end of year 4)
Depreciation calculation: -
Depreciation = (Initial investment - Scrap value) / number of years
= (46,000 - 4,000) / 4
New cash inflows: -
Calculation of NPV
NPV of project A: -
Dis. Rate @ 10%
Dis. Cash inflows
NPV of project B: -
Dis. Rate @ 10%
Dis. Cash inflows
Project B is higher NPV (9,445) as compare to Project A (7,169)
Payback period: -
Project A PBP: -
= 2 + [(46,000 - 31,000) / 23,000]
= 2 + 0.65
= 2.65 years
Project B PBP: -
= 3 + [(46,000 - 43,0000)/ 25,000]
= 3 + 0.12
= 3.12 years (Adkins &Paxson, 2014)
Project A is having lower PBP (2.65 years) as compare to Project B (3.12 years).
Radisson Plc maintain three major financial statements that get discussed below such as: -
Comparison among Radisson Plc and XYZ & Son's is made in the below table: -
XYZ & Son's
Nature of business
They are company.
It is an sole proprietor firm.
Shareholders are owner
There is only one single owner of the firm.
Limited share of liability is associated with single owner
Unlimited share of liability is attained by owner.
Format of Statement of financial position
They follow the set guidelines of IFRS while preparing statement of financial position
They didn't follow the set guidelines in order to prepare horizontal balance sheet.
Format of Statement of cash flow
Radisson Plc make use of IFRS guidelines in order to prepare the statement as they make use of it for extracting liquidity information.
Sole proprietor didn't prepare cash flows statement.
Format of Statement of comprehensive income.
IFRS rendered set of guidelines that get followed by Radisson plc while preparing statement as it helps in recording detailed information set and helps in getting profitability information easily.
They generally not prepare profit and loss account. If they do so then they prepare it for measuring their profits or losses only. They don't follow any set guideline of IFRS.
There are various ratios are available some of them are as follows along with comparison such as: -
Inventory turnover ratio
Interpretation and analysis: -
All the points get discussed in effective manner as there are various sources available for getting desired amount of funds along with analysing their implications. There are effective set of cost is associated with them in the form of interest, dividend etc. Budgeting is utilised for better allocation and controlling purpose. Ratio analysis is utilised for comparing their overall performance with others and investment appraisal techniques get utilised for evaluating the available projects or investments. All these techniques and tools get utilised by Radisson plc for their financial planning.
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