This is a solution of your Managing Financial Resources Decisions Assignment that describes about Developing business
Managing Financial Resources Decisions Assignment
| Learning Outcome | Learning Outcome | Assessment Criteria | In this assessment you will have the opportunity to present evidence that shows you are able to: |
| LO1 LO2 | Understand the sources of finance available to a business
Understand the implications of finance as a resource within a business | 1.1 | Identify the research of project available to a business |
| 1.2 | Assess the implications of the different sources | ||
| 1.3 | Evaluate appropriate sources of finance for a business strategy | ||
| 2.1 | Analyse the costs of different sources of finance | ||
| 2.2 | Explain the importance of financial planning | ||
| 2.3 | Assess the information needs of different decision makers | ||
| 2.4 | Explain the impact of finance on the financial statements | ||
| LO3
| Be able to make financial decisions based on financial information | 3.1 | Analyse budgets and make appropriate decisions. |
| 3.2 | Explain the calculation of unit costs and make pricing decisions using relevant information. | ||
| 3.3 | Assess the viability of a project using investment appraisal techniques. | ||
| LO4
| Be able to evaluate the financial performance of a business. | 4.1 | Discuss the main financial statements.
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| 4.2 | Compare appropriate formats of financial statements for different types of business. | ||
| 4.3
| Interpret financial statements using appropriate ratios and comparisons, both internal and external. |
| Purpose of this assignment This unit is designed to give learners a broad understanding of the sources and availability of finance for a business management. 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. (Pearson Education Limited). |
| Scenario There are various scenarios throughout the paper. |
| Task 1 This tasks offers you an opportunity to achieve L.O. 1: 1.1, 1.2, 1.3 Task 1.1 You have an on-going small to medium sized entreprise (known as an SME) which you have decided to expand. In order to do this, you will need to consider the amount of investment required to achieve this. Provide a description of your business including your expansion plan and the possible sources of funding/financing that might be suitable to enable this expansion. Guidelines: In order to complete the above task, your answer should include the following: · A description of your business. For Example: I have a retail children’s clothing shop in Peckham, I started it 10 years ago, I have a £250,000 turnover per year and retained profits of £100,000 and £500,000 of assets in the business. I employ 2 people and now want to start another business in Streatham as there is population density and many young families. I am going to appoint one of my staff who has been with me for 8 years as the manager of that business, I will appoint my other staff member who has been with me 6 years as the assistant manager of this business and I will work between the two. I will need to prepare a business plan in case I need to borrow money. · An indication of how much money/investment you would need. For Example: The shop on Streatham High Street has a retail floor space of 30’ x 25’ (750 sq. ft.). The rent is £20,000/year which is fixed for the first 5 years; I will need to spend £30,000 on fixtures and fittings, and stock of £25,000. I think monthly sales will be initially £6,000. I think this will drastically increase after the first year because I have a differentiating factor in the products and service that I will provide. I am going to call the shop Tough Tots. All stock will be supplied by existing suppliers and the full time Manager will cost me £25,000 per year etc. So the expansion will require an investment of £XX for the first two years. a) A discussion of the possible sources of finance available to a business. |
| Task 1.2 a) Assess the implications of the sources of finance (identified above) to your business. b) Discuss why an issue of shares on the Stock Exchange would not be a suitable option for this business. Guidelines:In order to complete the above task, your answer should: a) Assess the effects of the identified sources of finance (which you identified in task 1.1)on control and on the risk of bankruptcy for the business b) Discuss why a company listed on the London Stock Exchange is different to your business. |
| Task 1.3 Highlight the advantages and disadvantages of the different sources of finance that are suitable for your particular business. Guidelines:In order to complete the above task, your answer should: a) List the advantages and disadvantages of different sources of finance that you consider suitable for your chosen business. Completion Dates: |
| Task 2 This tasks offers you an opportunity to achieveLO2: 2.1, 2.2, 2.3, 2.4 Task 2.1 Select three sources of finance that are the most suitable for your business expansion project and explain why they are the most suitable. Also analyse the financial costs of these sources of finance to the business. Guidelines: In order to complete the above task, your answer should: a) From the sources of finance identified, choose at least 3 different sources that are suitable to your business, and justify your selection. b) Discuss the costs of the different types of finance available to the business. e.g. interest, dividends etc. |
| Task 2.2 You are working as a Bank Manager and you are approached by a long standing customer of the bank, Mr R. Smith, who wants to apply for a business loan. Prepare a letter to Mr R Smith explaining why financial planning is important for him to get such loans and more importantly, for the success of his or any other business. Guidelines:In order to complete the above task, your answer should: a) Explain what is meant by ‘financial planning’. b) Explain why the process of financial planning is important to the success of a business. c) Prepare it in a comprehensive business letter format. |
| Task 2.3 Assess the different information needs of the internal and external decision makers of a business organisation. Guidelines:In order to complete the above task, your answer should: a) Identify the different decision makers related to a business environment. b) Assess the different information needs of these decision makers. |
| Task 2.4 Explain how the getting of loans and investments (that is the purchase of ordinary shares not the selling of shares) impacts the balance sheet and income statement. Guidelines: In order to complete the above task, your answer should: a) You need to consider how the above (loans and investments) would affect the P&L Account and the effect they may have on the assets and/or liabilities in the Balance Sheet. Completion date: |
| Task 3 This tasks offers you an opportunity to achieveLO3: 3.1, 3.2, 3.3 Task 3.1 You are a business consultant and you have been asked by Coopers Garage to prepare a cash budget for the four months ending April 2015. The manager of Coopers has provided the following details: 1. The Bank Balance will be £75,000. 2. Total monthly sales for the four month period ending April are forecasted as £ Jan 108,000 Feb 112,000 March 96,000 April 128,000 3. Cash purchases during the relevant period are £ Jan 32,000 Feb 22,000 March 64,000 April 52,000 4. Monthly Salaries of £8,000 have to be paid. 5. Coopers Garage pay rent of £18,000 per month quarterly in advance. Payments are due on 1st January, 1st April etc. 6. A new supplier has offered Coopers Garage two months credit starting Jan , this means that materials bought on credit in January will be paid for in March and so on. Coopers Garage plan to make the following credit purchases from this supplier; £ Jan 16,000 Feb 24,000 March 26,000 April 18,000 7. Other expenses are forecasted as follows: (these will be paid in the month in which they are incurred). £ Jan 12,000 Feb 14,000 March 20,000 April 28,000 8. Coopers Garage will be repaying a Bank Loan at the rate of £3,000 per month. The last instalment is due in May. Prepare the Cash Budget for the four months ending April 2015, and identify whether the business has a surplus or a deficit, and if it has a surplus, suggest two ways in which it could utilise this. Take into consideration amount of surplus and how much may be needed for future cash-flows. Guidelines: In order to complete the above task, a) You need to prepare a Cash Budget working out whether the organisation has a cash surplus or a cash deficit at the end of the 4 month period b) explain how the business would react to this. |
| Task 3.2 Seville Suits makes high quality ‘executive’ bespoke suits. Each year at its factory, it makes 3,000 suits and the costs for 3,000 suits are as follows: Direct materials (£100 per suit) £300,000 Direct labour (£120 per suit) £360,000 Total Direct Cost £660,000 Fixed Cost £240,000 Total Cost £900,000 The company is currently reviewing its selling prices and is considering cost-plus pricing based on: Either a 33.33 % mark-up on cost price (i.e. profit is 33.33 per cent of cost price) Or a 15 % return on capital employed. It will choose the method that provides the highest return. Seville Suits has capital employed of £1,500,000. Calculate the unit price based on both costing methods, and select the price you think is most appropriate and explain why you think it is the appropriate price. You may round up your figures to nearest £1 when calculating your answers. Guidelines: In order to complete the above task, your answer should: a) Calculate the unit cost of producing one suit using 33% mark up, and then calculate the cost of producing one suit based on mark-up being 15% return on capital employed. Read more about : Business Decision Making Assignment b) Select which price you think is the most suitable and explain why. |
Task 3.3 Italian Ice Cream Parlour is considering two business investment opportunities but only one can be selected. The following information is provided: Business A Business B (Year 0) Initial Cost £100, 000 £150 000 Net cash-in-flows: Year 1 £35,000 £30,000 2 £35,000 £45,000 3 £40,000 £75,000 4 £50,000 £75,000 The estimated cost of capital is 10% per annum. Assuming that will not have any residual value at the end of the 4 years. Note –The discount factor are as follows: Year 1 = 0.909 Year 2 = 0.826 Year 3 = 0.751 Year 4 = 0.683 To assist Italian Ice Creams to make a decision, you are to calculate the following for both projects: • Payback period • The Accounting Rate of Return(ARR) • The Net Present Value (NPV) In your opinion which project should Italian Ice Creams undertake, and why. Guidelines: In order to complete this task, your answer should: a) Calculate the NPV, Payback method and the ARR using the above figures for both projects b) Select the most suitable project and explain why you’ve selected it. Completion Dates: |
| Task 4 This tasks offers you an opportunity to achieve LO4: 4.1, 4.2, 4.3 Tasks 4.1 & 4.2 Discuss the purpose of the main types of financial statements produced by businesses, and discuss the main differences in the formats of financial statements of different business organisations. Guidelines:In order to complete this task, your answer should: a) Explain the purpose of the Trading Profit and Loss Account (or Income Statement) and the Balance Sheet.(4.1) b) Explain how similar information can be presented differently in different business organisations. (4.2) |
| Tasks 4.3 Your business XYZ Ltd runs a chain of small shops and you have just received the following extracts from the audited accounts for the period ended 30thSeptember. PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30th SEPT £ 000 £000 Sales 1,200 Cost of goods sold (450) Gross Profit 750 Wages 300 Other Expenses 70 (370) Net Profit 380 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPT (Balance Sheet) £000 £000 Fixed Assets 1050 Current Assets Stock 350 Debtors 140 Bank 260 750 Total Assets 1,750 Financed by: Equity an Learning Outcome LO1 Be able to use a variety of sources for the collection of data, both primary and secondary. 1.1 Create a plan for the collection of primary and secondary data for a given business problem. 1 d Liabilities Share Capital 900 Retained Profits 250 Total 1,150 Non-Current Liabilities 150
Current Liabilities: Creditors 450 Total Liabilities 600 Total Equity and Liabilities 1,750
Required: (a) Calculate the following accounting ratios for XYZ Ltd: • Current ratio • Acid test ratio • Return on capital employed (ROCE) • Gross profit margin • Net profit margin
For each ratio, include the formula in words and show your workings. In addition, explain what each ratio measures. Guidelines: In order to complete the task you should: a) Calculate and interpret the relevant financial ratios based on the information given in the financial statements. |
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