Unit 2 Managing Financial Resources and Decisions Assignment Copy 1

Unit 2 Managing Financial Resources and Decisions Assignment Copy 1

Introduction

In organisation there are various department and these department get managed by the efficient management team. Among the roles and responsibilities of the management the managing finance resources and decisions is their prime role. Because if they fail to manage their finance they can't survive for a longer time period. In order to understand the things deeply Radisson Plc. is taken into consideration and different measures get covered in this report. Discussion will be made over financial planning, budgeting, and many more in order to manage the financial resources and decisions.

Task 1

A. Identify the appropriate sources of finance available for the selected business for its operations and assess the implication of different sources.

There are different and numerous appropriate sources of finance available for Radisson plc for arranging their funds in order to expand their business and some of them get discussed below such as:

(Deegan, 2016)

Implications over the discussed sources of finance such as:

(Trotman, et. al., 2012)

B. Evaluate the appropriate sources of finance for the expansion plan of the above company.

Radisson plc make use of four options in order to render support to their expansion plan such as:

• Leasing: Radisson plc opt the lease option for their capital nature expenditures such as purchasing new equipment. With the use of this option they took required large equipment on lease and make payment of small amount in the form of interest for a set specific period. They utilise their available funds in other activities (Horngren, 2013).
• Retained profit: Radisson plc make use of their save funds while expanding their business. This option didn't create any liability over them and provide adequate support to expansion activities by their own.
• Bank Loan:Radisson plc contact the bank in order to get adequate funds against higher value of security (in the form of fixed assets). They agree to pay interest for the loan period at specified rate such as 4.5%. If they failed to repay loan amount they get declared as bankrupt (Horngren, 2013).
• Equity share: Radisson plc issue ordinary shares in order to arrange funds for expansion purpose. They get huge share of capital but they share their ownership with shareholders. Organisational functioning goes in the hand of board of directors (Horngren, 2013).

Task 2

A. Analyse the cost of funding the project using equity versus debt finance and recommend your choice.

Cost of funding having three types such as:

• Cost of equity: To arrange funds Radisson plc issue equity share and at the end of year they share earned revenues with them in order to make them satisfy. Dividend payment is considered as the cost of equity as it is paid to the shareholders (Weetman, 2013).

Cost of equity (K_e) = Annual dividend per share (d) / Share price (P₀)

• Cost of debt: For arranging funds Radisson plc took loan from bank and in return they pay interest on regular basis till they repay their loan amount to bank. Payment of interest amount determined as cost of debt.

Cost of debt (K_d) = 1 - tax rate (T) (Weetman, 2013)

• Cost of opportunity: Radisson plc make use of retained profits in their business expansion plan and if that amount get utilised for different investment purpose and it may provide better rate of returns. These better rate of returns termed as opportunity cost (Weetman, 2013).

B. Explain the importance of financial planning and assess the information needs for financial decision making.

Financial planning: The planning made by Radisson plc in order to make proper utilisation of their finance is denoted as financial planning. There are various benefits associated with the Radisson Plc and according to their business need they adopt suitable financial planning type such as short term, medium term and long term financial planning (Kemp & Waybright, 2013). There are some points discussed as importance of financial planning such as:

• It make estimations or forecast the requirement of financial needs.
• Radisson plc encourage towards saving their funds for emergency purposes or avoid lack of liquidity.
• Helps in getting adequate control over the usage of the available finance.
• It makes them efficient and effective towards achieving their set goals (Kemp & Waybright, 2013).

In the financial decision making different set of information is required which is firmly divided into three parts such as:

• Strategic information: That share of information which is utilise by Radisson plc management for the purpose of preparing their strategies which get firmly followed to meet out their objectives. Their major focus is towards long term objectives and for this purpose they make use of information related to internal aspects as well as external aspects (Kemp & Waybright, 2013).
• Tactical information: That share of information which is utilise by the middle management of Radisson plc as they get the strategies and implement them in their processing so that they attain their set objectives. They make use of adequate information for preparing plans and putting adequate monitoring over activities.
• Operational information:That share of information which is required by the lower management of Radisson plc in order to implement the plan and execute all activities in systematic manner so that their objectives get attained by them in effective manner (Kemp & Waybright, 2013).

C. Explain the impact of suggested financing option on the financial statement.

There is adequate impact put over the financial statement by the suggested financing option such as:

• Statement of cash flows: The inflow of cash get increased as from all three options adequate amount get inflow but along with this there is small outflow of funds also takes place in the form of payment of interest and dividend. There is increase in cash inflow (Freeman & Freeman, 2010).
• Statement of financial position: Radisson plc took loan from bank (that increase cash balance as well as increase their long term liability), issue shares (increases cash balance as well as increase the shareholders funds) and make use of retained profits (decrease retained funds share as well as reduce their liquidity). There is no so much fluctuations are noted down.
• Statement of comprehensive income: Radisson plc didn't earn much with the help of it but with this effect they need to make extra payments in the form of interest and dividend which lower down their overall profit share. It increase their expenditure and decreases their profit amount (Freeman & Freeman, 2010).

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Task 3

A. Analyse the importance of budgets for variation and make appropriate decisions for Radisson Plc.

Budget: The management report that include systematic procedure of processing different activities in systematic manner along with adequate allocated materials. With the use of this management adequately implement the strategies made by the upper management in order to meet out their set objectives. There are lot many budgets get prepared such as cash budget, sales budget, production budget, material budget and many more (Harrison, et. al., 2010).

Importance of budget get discussed below such as

Budget provide adequate set plan for executing the activities as it make the coordination effective. With the use of budget report they compare their actual performance that helps in evaluating their actual capabilities and identifying loop holes present in their processing. It helps in executing the activities well on time as well as helps in getting set desired outcomes. All the available resources get allocated appropriately and effectively. All activities get controlled effectively and render adequate level of support in attaining favourable results (Harrison, et. al., 2010).

Radisson plc also make use of budget for different purposes such as

They allocate their available resources in effective manner as per their desired outcomes so that they attain their set objectives. They effectively manage their funds and helps in reducing the chances of sure losses. With the use of it they make estimations and forecast the requirements as well as they make evaluation of their actual performance so that they make required changes in it. They put adequate level of control and monitoring over their activities that helps in getting adequate level of growth (Harrison, et. al., 2010).

B. Explain how you would calculate unit cost and make pricing decisions based on appropriate information at the Radisson Plc.

Unit cost: The share of funds that spend by the Radisson plc. in order to prepare final product that get termed as unit cost and it make inclusion of different variants of costs such as variable, fixed, direct and indirect, etc (Miller-Nobles, et. al., 2016).
Price: The cost at which product get sold by the Radisson plc and easily paid by the user. Price is the effective combination of the unit cost and profit margin which is easily paid by user and with the sale of product they get adequate revenues.
Cost and price are interlinked with each other and there are number of reasons such as: If the prices of product set too low then Radisson plc is not able to recover their incurred cost. On the other hand if they set the product prices too high then it can't afford by every user and in this manner they can't earn adequate profits because their product can't get sold in the desired manner. It is not easy to set the prices as pricing decisions get influences with different factors such as demand, costs, customers and many more. For processing pricing decisions there are various methods such as penetration pricing method, skimming pricing method, cost plus pricing method and many more (Miller-Nobles, et. al., 2016).

Radisson plc evaluate their market need and set the prices with the help of cost plus pricing method as with the use of it they evaluate the market need and set adequate profit margin in it that helps in getting adequate share of profit with their sales (Miller-Nobles, et. al., 2016).

C. Assess the viability of the expansion project using investment appraisal techniques such as the NPV.

Net present value: This technique is followed for the purpose of measuring profitability related to their respective project. For getting profitability information investment amount get deducted from the amount of total present value of cash inflows. If the amount is positive it states profits and vice-versa (Fleay, et. al., 2011).
Payback period: This technique is followed for the purpose of measuring recovery time period in which they recover their funds by getting inflows. The time period in which whole invested amount is recovered is denoted as payback period (Fleay, et. al., 2011).

Initial investment for both projects = £46,000

Cash flows are as below:

Calculations are as follows:

NPV calculation for project A:

(Fleay, et. al., 2011)

NPV calculation for project B:

(Fleay, et. al., 2011)

[Note: There are two "Year 4" in both the table it is the scarp value that attained in the fourth year. In order to render detailed information it is mentioned separately]

Calculation of payback period:

(Fleay, et. al., 2011)

(Fleay, et. al., 2011)

Analysis:Project A recover their investment amount in 2.65 years which is lower as compare to Project B as it took 3.12 years. But the share of profits of project A is £7,920 which is much lower than the profitability of Project B as it rendered profit of £9,445. So project B is selected over project A.

Task 4

A. Discuss the above mentioned financial statements of Radisson Plc.

Financial statements of Radisson plc include such as:

• Statement of comprehensive statement:The statement that provide a summarised overview of the revenues and expenses of the Radisson plc made or earned within a financial year and their operations management utilise this statement in measuring their net income after deducting all their expenditure (Russell, et. al., 2012).
• Statement of financial position:The statement that provide a summarised overview of their total assets (including fixed assets & current assets), short term liabilities, long term liabilities and their equity capital. It helps their management in knowing their financial position in the market.
• Statement of cash flows: The statement that provide a summarised overview of all cash and cash equivalent transactions whether it inflows or outflows. It helps in knowing the utilisation of the liquid funds as well as helps in controlling the unnecessary usage of their liquid funds (Russell, et. al., 2012).

B. Select two different types of companies (one could be Radisson Plc) and compare the formats of financial statements.

Comparisons among two different companies are as follows on the basis of financial statement formats:

(Singh, 2012)

C. Interpret the financial statements using appropriate ratios of a public limited company and compare with those of another company.

Ratio description and interpretation

(Barth, 2015)

Analysis: It is concluded that B&S Ltd. are more efficient than Radisson Plc in every item whether it is profit earning or maintaining liquidity within the organisation. It is required to make effective level of improvement as both of them are facing liquidity problems as they both fail to maintain adequate liquidity (Barth, 2015).

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Conclusion

Radisson plc effectively make use of their available financial resources with the use of the marketing planning and in case of any requirement they arrange the finance in the adequate ratio of debt and equity. There is adequate impact put by the inflow of funds over their financial assets as some of the assets get increased with this in the same ratio their liabilities get increased. Budget is prepared by the organisation in order to make the effective use of their available finance along with this they get their desired outcomes. There are different types of organisations that perform their activities and follow different set of rules in order to prepare and maintain their financial accounts. In order to analyse their performance internally as well as externally Radisson plc make use of the ratio analysis through which it get to know that they are not able to maintain adequate liquid funds as well as didn't earn adequate level of profits.

References

Barth, M.E. 2015, "Financial Accounting Research, Practice, and Financial Accountability: FInancial Accounting Research and Practice", Abacus, vol. 51, no. 4, pp. 499-510.
Deegan, C.M. 2016, Financial accounting, 8th edn, McGraw-Hill Education (Australia) Pty Ltd, North Ryde, N.S.W.
Fleay, D., Poustie, N. & Mroczkowski, N.A. 2011, TAFE accounting: financial accounting applications, 3rd edn, Cengage Learning, South Melbourne, Vic.