Unit 2 Managing Financial Resources and Decisions

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Introduction


 Aim

The unit aim is to provide learners with an understanding of where and how to access sources of finance for a business, and the skills to use financial information for decision making.

 Unit abstract

This unit is designed to give learners a broad understanding of the sources and availability of finance for a business organisation. Learners will learn how to evaluate these different sources and compare how they are used.They will learn how financial information is recorded and how to use this information to make decisions for example in planning and budgeting.Decisions relating to pricing and investment appraisal are also considered within the unit. Finally, learners will learn and apply techniques used to evaluate financial performance

Learning outcomes


1 Understand the sources of finance available to a business

  • Rangeofsources :sources for different businesses; long term such as share capital; retained earnings; loans; third-party investment; short/medium term such as hire purchase and leasing; working capital stock control; cash management; debtor factoring
  • Implications of choices:legal, financial and dilution of control implications; bankruptcy
  • Choosing a source:advantages and disadvantages of different sources; suitability for purpose Eg. matching of term of finance to term of project

2 Understand the implications of finance as a resource within a business

  • Finance costs:tangible costs eg interest, dividends; opportunity costs eg loss of alternative projects when using retained earnings; tax effects Financial planning: the need to identify shortages and surpluses eg cash budgeting; implications of failure to finance adequately; overtrading
  • Decision making: information needs of different decision makers
  • Accounting for finance: how different types of finance and their costs appear in the financial statements of a business; the interaction of assets and liabilities on the balance sheet and on international equivalents under the International Accounting Standards (IAS)

3 Be able to make financial decisions based on financial information

  • Budgeting decisions: analysis and monitoring of cash and other budgets
  • Costing and pricing decisions: calculation of unit costs, use within pricing decisions; sensitivity analysis
  • Investment appraisal: payback period; accounting rate of return; discounted cash flow techniques ie net present value; internal rate of return
  • Nature of long-term decisions: nature of investment importance of true value of money; cash flow; assumptions in capital investment decisions; advantages and disadvantages of each method

4 Be able to evaluate the financial performance of a business

  • Terminology: introduction to debit, credit, books of prime entry, accounts and ledgers, trial balance, final accounts and international equivalents under the International Accounting Standards (IAS)
  • Financial statements:basic form, structure and purpose of main financial statements ie balance sheet, profit and loss account, cash flow statement, notes, preparation not required; changes to reporting requirements under the International Accounting Standards (IAS) eg statement of comprehensive income, statement of financial position; distinctions between different types of business ie limited company, partnership, sole trader
  • Interpretation: use of key accounting ratios for profitability, liquidity, efficiency and investment; comparison both external ie other companies, industry standards and internal ie previous periods, budgets

Resources


  • Dyson J R – Accounting for Non-Accounting Students (Financial Times/Prentice  Hall, 2007) ISBN: 9780273709220

Journals 

The financial and mainstream press can provide useful background reading, and can also be a useful source of case studies and financial information. Copies of  published financial reports are available from companies themselves, or via The  Financial Times (a free online ordering service is available).

Websites:

  • www.aat.co.uk
  • www.bized.co.uk
  • www.ft.com The Financial Times

 

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