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Managing Financial Resources AssignmentThe purpose of this assignment is to give the learners a broad understanding of the sources and availability of managing financial 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

Scenario (Task 1)

Since embarking upon your HNC in Business you have been looking for a new job in finance or accountancy. You have had a number of years of experience working in industry and you would be particularly interested in a role which involved working with and advising local businesses. Eventually you secure a post with a large firm of accountants as a Finance and Business Advisor. This is a new departure for the company who have, traditionally, concentrated upon accountancy and auditing services.

Task 1A

As a starting point, the senior partner in the company suggests that you put together:

A detailed information pack for new and existing businesses which:

Identifies the sources of finance currently available. The pack should be aimed at the full range of business types – new and old, large and small – and for new business start-ups and those wishing to expand.

Assesses the implications of each source including the relative advantages and disadvantages to the business, the legal aspects, the costs and the suitability for purpose.

Provides three case-study examples for businesses. These should include a small business start-up, a large business expansion and small group of people who are looking to buy up an existing medium-sized company. Finance sources should be carefully matched to needs.(This provides evidence for outcome 1 – assessment criteria 1.1, 1.2 , 1.3 and for outcome 2 – assessment criteria 2.1)

Task 1 B

You are given the following information from the company’s financial statement.

  £000 £000

From the balance sheet as at31 March 2003

31 March 2002

Stocks 12482 11862

Trade Debtors 32287 28410

Trade Creditors 17048 13585

Total Asset less current liabilities 47505 34912

Creditors Due after more than one year 13388 6870

Share Capital ( 25p share) 6782 4282

From the profit and loss account for the year ended

31 March 2003

31 March 2002

Turnover 205157 182530

Cost f goods sold 172065 153730

Expenses 27342 22285

Interest Payable 1925 1220

The above information contains information from both the Income Statement of the company and the statement of the financial position. Discuss the purpose of these financial statements.

Analysis of the above information reveals that the company is financed by both debt capital and equity capital. You have been asked by the directors to prepare a short report on the costs of these different sources of finance. You are expected to discuss what factors should be considered by directors when taking decisions regarding the mode of financing.

Selecting suitable sources of finance as 1.1 is an example of financial planning. Discuss other instances of financial planning and analyse the importance of financial planning to the company.

The above information contains extracts from both the Income Statement and Statement of Financial position. Discuss how these statements meet the information needs of various stakeholders of the company.

Discuss how different forms of financing affects the format of the financial statements.

Calculate the following ratios and comment on the performance of the business over the two years;

Cash Flow Forecast for a new business - Northfield Components Ltd: Jan 2008 - Dec 2008

  JAN FEB MAR APR MAY JUN JUL AUG

 

£000

's

£000

's

£000

's

£000

's

£000

's

£000

's

£00

0's

£000

's

Brought Fwd. 40              Sales 200 300 300 300 250 260 300 260

Total Income 240 300 300 300 250 260300 260

Purchases 150 140 135 135 140 130 135 145Wages 55 55 55 55 55 55 55 55Rent & Rates 56     56     56  Light & Heat     55     55    Advertising 2 2 2 2 2 2 2 2

Insurance 55       52      Equipment 50 10   10   10    Vehicles 20              Directors Salaries 22 22 22 22 22 22 22 22Motor Expenses 11 11 11 11 11 11 11 11Sundry Expenses 11 11 11 11 11 11 11 11

Total

Expenditure 432 251 291 302 293 296292 246

Monthly-192 49 9 -2 -43 -36 8 14

Deficit/Surplus                

Accumulative Deficit/Surplus

-192

-143

-134

-136

-179

-215

-207

-193

Gross profit marginStock TurnoverDebtors Collection period ( Debtors Days)Creditors payment period ( creditors days(This provides evidence for outcome 2 – assessment criteria 2.1, 2.2 , 2.3 and 2.4 for outcome 4 – assessment criteria 4.1,4.2 and 4.3)

Scenario (Task 2)

The Financial Accountant of Northfield Components has recently resigned and left his post with immediate effect. The Directors decide to advertise for a replacement but realize that the recruitment process may take up to three months. In the short term they decide to bring in a financial consultant to tide them over until a permanent appointment is made. You are asked by your line manager to take on this role – initially for three months

Task 2A

On your first morning in early January 2008 the Directors present you with the cash budgets prepared by the departed financial accountant. You are given the budgetfor the twelve months from January 2008. The directors are concerned about the likely cash deficits shown in the cash budget.

Cash Flow Forecast for a new business - Northfield Components Ltd: Jan 2008 - Dec 2008

  JAN FEB MAR APR MAY JUN JUL

 

£000

's

£000

's

£000

's

£000

's

£000

's

£000

's

£00

0's

Brought Fwd. 40            

Sales 200 300 300 300 250 260300

Total Income240

300 300

300 250

260

300

Purchases 150 140 135 135 140 130135

Wages 55 55 55 55 55 55 55Rent & Rates 56     56     56Light & Heat     55     55  Advertising 2 2 2 2 2 2 2Insurance 55       52    

Equipment 50 10   10   10  Vehicles 20            Directors Salaries 22 22 22 22 22 22 22Motor Expenses 11 11 11 11 11 11 11Sundry Expenses 11 11 11 11 11 11 11

Total

Expenditure432

251 291

302 293

296

292

Monthly

-192 49 9 -2 -43 -36 8

Deficit/Surplus              

Accumulative Deficit/Surplus

-192

-143

-134

-136

-179

-215

-207

Using the information given in the cash budget identify the main problems that Northfield Components are faced with.

Identify the likely causes of the problems and how they might be remedied and avoided in the future.

Make recommendations for improving the cash budget with a view to minimizing the cash deficit or, possibly, generating a cash surplus.

You are required to present your findings and recommendations in a formal written report to the Directors of Northfield Components Ltd.(This provides evidence for outcome 3 – assessment criteria 3.1)

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Task 2B

The Directors of North Seaton Engineering Company are considering two alternative business projects each of which involve an initial investment of ? 450,000. In your role as financial consultant you are asked to advise the Directors which of the two projects would be the more financially viable.Project ‘A’ involves the introduction of modern, hi-tech machinery into the company’s main production unit. This will result in significant increases in output and substantial savings in production and maintenance costs. This in turn will result in a net increase in turnover to the company of:Year 1 - ? 180,000Year 2 - ? 230,000Year 3 - ? 280,000Year 4 - ? 120,000Project ‘B’ involves an increase in the company’s marketing activities. The Directors would employ one of the region’s most prestigious marketing companies to manage a massive national campaign. They feel that business could be increased without, necessarily, updating production processes. In is anticipated that the net effect of their campaign would bring in additional annual turnovers of:Year 1 - ? 60,000Year 2 - ? 120,000Year 3 - ? 250,000Year 4 - ? 250,000As financial consultant, you are asked to carry out a full investment appraisal of the two projects. In order

to fully assess the pros and cons of the two alternatives you decide to employ a number of appraisal techniques:Net present value.For calculation purposes, you assume that the cost of capital will remain fairly static at around 6% per annum over the four year period.Your appraisal should be presented in the form of a written report to the Directors and include all financial computations and a summary of the conclusions which can be drawn from the results of the appraisal – including recommendations as to which project should be taken on board.

Task 2C

A company producing puppets produce the following cost information:

Per Puppet  

  £

Direct Materials 3.00

Direct Labour 1.10

Variable Overheads 0.70

Fixed costs ( for year)- production £65000

-                 Selling £28000

If the company produces 40000 puppets calculate the cost per puppet using full costing method. If the company adds up 15% on cost as the cost plus mark-up, calculate the price at which the puppets will be sold for.

LO1 Understand the sources of finance available to a business

1.1     Identify thesources of finance available to a business1.2     Assess the implications of the different sources1.3     Evaluate appropriate sources of finance for a business project

LO2  Understand the implications of finance as a resource within a business

2.1     Analyse the costs of different sources of finance2.2     Explain the importance of financial planning2.3     Assess the information needs of different decision makers2.4     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 decisions3.2     Explain the calculation of unit costs and make pricing decisions using relevant information3.3     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 statements4.2     Compare appropriate formats of financial statements for different types of business4.3     Interpret financial statements using appropriate ratios and comparisons, both internal and external.