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Managing financial resources and

decisions

Contents
Introduction................................................................................................................ 3
Task-1 Different source of finance.............................................................................. 4
P1.1 sources of finance........................................................................................... 4
P1.2 Implication of sources of finance.....................................................................4
P1.3 Evaluation of appropriate source of finance for expansion strategy................7
P1.4 Impact of finance in financial statements........................................................7
Task-2 Implication of finance as a resource................................................................9
P2.1 Analysis of cost of different sources of business.............................................9
P2.2 Importance of financial planning...................................................................10
P2.3 Financial planning and decision making of City hotel Plc..............................11
Task-3....................................................................................................................... 11

P3.1 Importance of budgeting............................................................................... 11


P3.2 Unit price and pricing decision......................................................................12
P3.3 Assessment of the viability of the extension project by using the investment
appraisal techniques............................................................................................. 13
Task-4....................................................................................................................... 14
P4.1 Main financial statements of firm..................................................................14
4.2 different formats of financial statements of different types of business..........15
4.3 interpretation of financial statements by using the ratios...............................15
Conclusion................................................................................................................ 18
References................................................................................................................ 18

Introduction
Companies need money or cash. We also look at financial commitment and see what businesses
should be looking at to help them assess whether a financial commitment is beneficial. They
need cash in the short-term to pay their expenses and to pay their employees, but they also need
cash in the long-term to be able to get and create the business
Clearly, financial institutions are one of the key resources of fund and we look in this area at how
the financial institutions can help to offer fund and also at some of the other resources available.
City hotel Plc. is a large residential hotel chain based on the London. The company needs a
strategic direction regarding the source of finance and the use of it. In this report various sources
of finance will be identified as well as the implication of the financial decision will be discussed.

Task-1 Different source of finance


P1.1 sources of finance
There are two types of activities of a firm
1. Financial commitment - in this area we look at investment evaluation. A company can
select between different investment suggestions.
2. Sources of fund - in this area we look at where companies can get their cash from. How
can the financial institutions help with the different needs of companies and what other
resources of fund may be available?
Arnold (2008) states Companies basically need fund for the short-term and the long-term.
Requirements should use and techniques.
Two key sources of fund are

inner sources and


Exterior sources.

'Internal sources' represents cash they can increase from within the company. In many situations
this will mean switching to the financial institutions, but it may also be that the company tries to
problem more stocks on the inventory exchange or perhaps offers debentures to increase cash
(Andres, 2008).
The way in which they may increase these resources will vary a lot and in this place we start to
look at the different sources and what place of business action they may be suitable for. This may
involve benefit, or perhaps better control of current sources. External sources mean increasing
cash from outside the company.
P1.2 Implication of sources of finance
A typical discuss gives the right to its proprietor to discuss in the earnings of the organization
(dividends) and to elect at typical conferences of the firm. Long lasting tangibles assets such as
discuss capital- Ordinary stocks are also known as value stocks and they are the most typical way
of discussed in the UK (Apte, 2009).
Advantages:

Considered less dangerous when you have rather than debt

Dividends are only pay if organization getting profit

Disadvantages:

Organization is getting great benefit so have to pay great benefits.

Retained profit:
When a company creates a benefit and it does not invest it, it keeps it - and accounting firms
contact earnings that are kept and not invested maintained earnings. This is often a very
challenging concept to comprehend but, actually, it is very easy thats all. City Hotel Plc
Maintained benefit is $28954 in 2008 and $26462 in 2007. Retained income reduced in 2007
than 2008.
Advantages:

Dont reduction management,


Ownership doesnt diminish.
No responsibility to pay,
Dividends repay

Disadvantages:

Have to pay greater quantity of results because maintain benefit is possessed by


shareholders.

Loans:
A loan is for a set amount with a set pay back schedule and may appear on a balance sheet with a
specific name informing your reader exactly what the loan is and its main details.
The phrase debenture is a totally legal phrase but there are other forms of loan or loan stock.

Have to pay the attention.


Short-terms loans, long-term loans.
Need to offer resources or property for the security purpose.

Management the interval interest of financial loan can be high when company getting benefit but
when company is not getting benefit, itll be extensive.

Working investment stock control: - invitations need, staff incomes and salaries, rent, energy
bills, payments for supplies and so on. This is the short-term investment or fund that a company
keeps. Funds are the cash used to pay for the everyday trading activities carried out by the
company Funds is determined as:
Working investment = present resources - present liabilities
Where:
The company has at any once. Funds make the most hand and remain due on demand (e.g.
present accounts). Present resources are temporary sources of fund such as stocks, borrowers
and funds - the sum of cash and funds counterparts - the cash the company owes to other
people/groups/businesses at any once that needs to be paid back within the next month or so.
Cash counterparts are temporary and highly liquid investment strategies which are easily and
immediately sports convertible into cash.
Current obligations are temporary requirements for cash including trade lenders, expense
lenders, tax due, benefits owing.
Financial institution overdraft: An organization might have small income issues every now and
then but such issues don't contact for the need for a official long-term loan. City Hotel Plc. has
the need for exterior fund but not actually on a long-term foundation. Under these conditions, an
organization will often go to its bank and organize an overdraft account.

Comparison the

consequences of an overdraft account with the consequences of a loan:


Advantages:
Pre-arrangement contract that take out in accessibility of what you have and available instantly.
Disadvantages:
Amount is not great, if need large quantities not enough and get great attention and interval of
time is short.

P1.3 Evaluation of appropriate source of finance for expansion strategy


In comparison, organizations increase fund by providing stocks. Huge organizations often have a
large number of different investors. A small company can also lend from family members and
friends (Cheng, 2008). There are various ways of increasing fund for a company. Huge
organizations are able to use a broader variety of fund sources than are smaller sized ones.
Benefits are an apparent way of putting money into a company. The type of fund selected relies
on the characteristics of the company. For the expansion strategy of City hotel Plc:Sources of fund

Uses of finance

Uses Shareholders

Finance to set up and increase a business

Bank
To handle cash flow.
Loans to fund capital tasks.
Bank account borrowing
Creditors
Temporary credit until products have been sold
Leasing: Source of finance can be use when you want to use set sources or purchase

Financing lease: in Financial lease lessee gets ownership, have responsibility to

maintain, and can promoting whenever you want.


operation lease: dont need of ownership and its consistently have to pay payment

Another way of increasing short-term fund is through an overdraft consideration service with a
financial institution. The loan provider may also want some way of protection should the
business run into financial problems, and may therefore want to provide a properly secured loan.
The client is given authorization to take out more from their consideration than they have put in.
The lending company repairs a highest possible restrict for the overdraft consideration. Interest is
billed on the overdraft consideration everyday (Frank and Keith, 2007).
P1.4 Impact of finance in financial statements
The impact of finance on the financial statement of City Hotel Plc is given below:

Consolidated Balance sheet


City Hotel Plc

Task-2 Implication of finance as a resource


P2.1 Analysis of cost of different sources of business
Tangible cost of finance:
Interest: Attention expense for 2007 increased primarily due to higher regular rates and partly
offset, stronger foreign currencies, by lower regular debt levels.
Interest expense for 2008 increased primarily due to higher regular debt levels, and to a lesser
extent, higher regular rates.
In millions
Interest income
Translation and hedging activity
Other expense
Total

2008
$(85)
(5)
12
$(78)

2007
$(124)
1
20
$(103)

Translation and hedging activity mainly relates to net benefits or failures on certain hedges that
reduce the exposure to variability on certain inter-company foreign income streams. Other
expense mainly includes benefits or failures on early extinguish of debt and minority attention.
Interest income comprises mainly of attention earned on short-term money investments. Interest
income reduced for 2008 mainly due to lower regular attention levels and regular money levels
out, while 2007 reduced mainly due to lower regular money levels out.
Dividends: The 2008 twelve month results of $1.625 per discuss shows the every one fourth
results compensated for each of the first 75 percent of $0.375 per discuss, with an improvement
to $0.50 per discuss compensated in it all one fourth. This 33% improve in the every one fourth
results means a $2.00 per discuss yearly results rate and shows the Companys assurance in the
continuous strength and stability of its income (Telegraph.co.uk, 2015). Future results amounts
will be considered, as in the past, after examining productivity objectives and funding needs. The
Company has compensated benefits on its common stock for 33 successive years and has
improved the results amount every season. The Companys Board of Administrators decided that
beginning in 2008, benefits announced will be compensated on an every one fourth basis, at the
Boards attention.
P2.2 Importance of financial planning
According to Francis, (2010) Some individuals dislike preparing but it is always good to get
prepared yourself economically. Economical preparing is essential because it guarantees that you
have an operating strategy for your upcoming. The surprising happens all the time so being
economically prepared for it creates like much simpler. As we age, costs usually improve from
children who want toys and games, to teenagers who want to back up the celebration way of life
to being a mature, purchasing a home, a car, planning a wedding up until the day we die by
preparing our memorials. Programs involved everything from set and varying cost to preserving
for holidays etc. Those who don't economically strategy often find themselves residing from
income to income or having difficulties to come up with money when something does suddenly
occur. Not to fear though, usually those who don't have financial plans can quickly make one
even to get them out of financial debt.

P2.3 Financial planning and decision making of City hotel Plc.


The price range helps control keep money levels out in affordable connection to its needs.
Companys Provide money planning and control that provides predicted money influx and output
for a specific time frame. It helps in preventing nonproductive money and possible money
shortages.

In Invoices area, the beginning money stability is $1981.3, money selections from clients,

and other receipts.


Cash lack area displaying the distinction between money receipts and money expenses

i.e. Net increase in Cash and Cash Counterparts is $82.1 in 2008.


Financing area offering a specific account of the net short-term borrowings is $266.7 and
installments of Net long-term debt are $2698.5 predicted during 2008.

Disbursement area consists of all money expenses made by Net Cash Offered by Working
Actions is $59170.2, so money in making an investment is getting but money in operating is
keeping loss so administrator must consider in money in operating. Net Cash Used in Funding
Actions is $4114.5 obtained, so company must go on. Net money used in making investment
activities is $1624.7 gain (Hotelnewsnow.com, 2015).

Task-3
P3.1 Importance of budgeting
Budget research is then conducted on these claims to provide control with a more specific
understanding of the numbers Company requires fiscal reviews to create important company
choices that affect its ongoing functions.
Financial organizations (banks and other loaning companies) use them to decide whether to
allow a company with fresh funds or increase debt investments (such as a long-term loan from
the bank or debentures) to finance development and other significant expenses.
Prospective traders create use of fiscal reviews to evaluate the stability of investing in a
company. Economical studies are often used by traders and are prepared by professionals
(financial analysts), thus providing them with the basis to create investment choices (Gitman,
2006).

Employees also need these reviews to create combined negotiating contracts with the control, in
the case of work unions or for individuals in talking about their settlement, marketing and
positions.

Variation between the budget and decision making of City Hotel Plc (2007 and
2008

In 2008, money offered by functions improved $1.0 billion dollars or 21% in comparison to 2007
mainly due to improved working outcomes and changes in funds, partially due to low earnings
tax expenses and the receipt of $143 thousand related to an IRS examination completed in 2007.
In 2007, money offered by functions improved $535 thousand in comparison to 2006 mainly due
to improved working outcomes and low earnings tax expenses (Winters, 2008).
In addition, investment expenses improved $189 thousand in 2008, mainly driven by increases
in Europe and APMEA, partially offset by the elimination of investment expenses as a result of
the Latam transaction.
Cash used for investing activities destroyed $1.6 billion dollars in 2008, an increase of $475
thousand in contrast to 2007. Proceeds from certain asset sales were reduced in 2008 (Pret A
Manger) than 2007 (Latam and Boston Market). The Company generates significant money
from its functions and has substantial credit availability and capacity to fund working and
optional spending such as investment expenses, debt repayments, benefits and share repurchases.
Cash offered by functions destroyed $5.9 billion dollars and surpassed investment expenses by
$3.8 billion dollars in 2008, while money offered by functions expenses by $2.9 billion dollars in
2007.
P3.2 Unit price and pricing decision
Jan to June, 2009
Administrative cost
Fixed cost
Total Fixed cost=3000000
Variable cost

Salaries and wages, Trade payables, sales and distribution cost, variable overheads.
Total Variable cost=23965, 000
Number of units= 590,000
Total cost =fixed cost +variable cost
Fixed cost per unit= fixed cost/units.
Variable cost per unit=variable cost/units.
Fixed cost
3000, 000/590,000 =5.084 per unit.
Variable cost
23965000/590000= 40.61 per unit.
Total cost per unit =fixed cost + variable cost / units
Total cost per unit =3000, 000 +23965000/590,000 = 45.70 per unit
P3.3 Assessment of the viability of the extension project by using the
investment appraisal techniques
I will be evaluating venture A and venture C
There are two techniques will be used stability of the above two tasks
According to Kevin (2008) Two methods will be followed these are,
1. Net present value
2. Discounted payback period

Y
0
1
2
3
4
5
e6

Cash inflow

(2000,000)
400,000
700,000
900,000
600,000
400,000
300,000

PV Factor15%

Total inflows= 2141,000


NPV= 2141000-200000= 141000

0.870
0.756
0.658
0.572
0.497
0.432

PV of cash flow

(2000,000)
348,000
529,200
592,200
343,200
198,800
129,600

The decision rule of NPV is when the NPV is positive for exclusively mutual project higher NPV
project is taken and the lower NPV project is rejected.
Calculation of Payback period:

Cash Inflow

0
1
2
3
4
5
6

(2000,000)
400,000
700,000
900,000e
600,000
400,000
300,000

PV
factor PV
@15%
0.870
0.756
0.658
0.572
0.497
0.432

348,000
529,200
592,200
343,200
198,800
129,600

C. NPV
(2000,000)
(165,2000)
(1122,800)
(530,600)
(187,400)
11,400
141,000

Task-4
P4.1 Main financial statements of firm
These four kinds of economical reviews are given below. There are four kinds of fiscal reports.
Bookkeeping and verifying framework needs 4 economical reviews offered by the mixed
inventory organizations (Meredith, 2003). These are given below:
1.

Balance sheet

2.

Income statement

3.

Cash flow statement

4.

Statement of changes in equity

Income statement account contains the earnings obtained in a cost-effective period. The costs
occurred in the cost-effective period is charged against the earnings under relevant idea of
accounting. Balance part provides the price range of the company at certain aspect of time.
Balance sheet: Balance part is the place of the business offered by detailed desk. It contains all
the companies responsibilities and sources and its net sources.

Cash flow statement:


Cash circulation statement describes the cash position of the firm by including the cash increase
and outcome for a certain time frame.
4.2 different formats of financial statements of different types of business
Sole proprietorship
Partnership
Joint stock company
Single access for guide
Dual access program is used
A complete incorporated
maintaining objective and get

to keep the information and

bookkeeping confirming

ready the accounts

consideration in the guide.

structure is managed to keep

Only GAAP is followed

the quality of the records


Not only GAAP but also IFRS

Only GAAP is followed


properly

regulating guidelines and


confirming structure is

There are no extensive

No outcomes is paid,

followed
Tax and outcomes paid to the

earnings or reduction products

advantage is allocated by

traders and to the government.

for this enterprise.

amount of financial

As a personal company

commitment which also

features of the business

changes the value of

(Mikes, 2009).

Loss and Benefit concern,

associates
Benefit and changes in

Income declaration, Stability

Stability piece are the main

investment loss account,

piece, declaration of changes

financial statements

Stability piece and records are

in value and income claims

the main fiscal reports

are the main financial


statements

4.3 interpretation of financial statements by using the ratios


Current ratio:
Here two years economical details is given on two organizations now the present rate can be
calculated and in comparison It is the evaluate of the resources place of the control which reveals
how much present responsibility can be noticed by the present resources of the company
(AccountingCoach.com, 2015).

Current asset
Current ratio= Current liability
Regent Hotel = 2008= .39:1

City Hotel Plc= 2008= 0.85:1

Details reveal that City hotel Plc has greater assets than Regent hotel so assets control of
Regent Hotel is better.
Quick test ratio:
According to Peter and Frank (2004) it is another resources rate statistic which limits the
stock as the present resources and actions how easily the company is able to pay off the debt
responsibility.
Quick ratio=

Current asset Inventory


Current Liability

City Hotel = 2008= 1694-838/4389= .20:1

Regent Hotel = 2008= 3710-763/4325= .

68:1
It indicates Regent has greater Fast resource than City and the company is effective in stock
control and quick resources.
Total asset Ratio
It actions the financial debt position of the company that means the part of financial debt over
its complete resources because resource is consisting of owners finance and obtained finance
it actions the financial balance or soundness.
TAR=

Total debt
Total asset

City Hotel = 2008= 6316/12732= 49.6%

Regent Hotel= 2008= 5325/10367= 51.4%

It reveals that Regent has more economical soundness than City hotel.
Total asset turnover ratio

It measures the performance of the company in making product sales through its working
resources.
TAT=

net sales
Total assets

City = 2008=20998/12732= 1.65 times Regent= 2008= 17244/10367= 1.66 times


Information shows that the efficiency of Regent and City is almost similar.
Gross margin= Total profit/sales
It measures the productivity of the business. How the company is able to produce gross
benefit from its revenue is the primary goals of the ratio
City = 2008= 1588/20998= 7.5% Regent= 2008= 1162/17244= 6.7%
The average total benefit rate reveals that City Hotel is more effective in making total
benefit.
Net profit margin
=

Net profit /sales

It calculates the efficiency of the company like complete benefit advantage.


City = 2008= 722/20998= 3.4%

Regent = 2008= 276/17244= 1.6%

It reveals that the productivity of City is more than Regent it indicates City Hotel is more
effective in tracking the working costs.

Return on asset Net profit /total asset


It actions the come coming back the resource of the company is able to produce.
City = 2008= 722/12732= 5.6%

Regent = 2008 =276/10367= 2.6%

It indicates the sources of City hotel are more efficient in generating come returning than
Regents. The come returning on source of City Hotel is much more than Regent.

Conclusion
The success of any organization depends on the efficiency in getting cost-effective and
dedication. Managing finance is very important function of organization needs particular
information and preciseness in identifying the activities. In this evaluation the given sources and
techniques as well ideas will help to view the process how the options are designed and how the
options can be taken efficiently.

References
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