Introduction
Unit 2 Managing Financial Resources Assignment Help Online
The practise of management involves overseeing operations inside an organisation. Their main duty is to oversee the available funds. Financial planning, budgeting, and other procedures are only a few of the tools and methods that are used to manage finances. An organisation can obtain funds from a variety of sources, both internal and external. The organisation has a number of stakeholders who are interested in how it operates. Organizations employ ratio analysis techniques to analyse their financial status both internally and externally, as well as investment evaluation techniques to select the best investment option for their business needs. All of these terms are succinctly and successfully covered in the report below.
Task 1
A. Identify the appropriate sources of finance available for the selected business for its operations and assess the implication of different sources. [P1.1 and P1.2, M1]
As they need to finish the lengthy contract of providing custom software to many firms throughout the UK, Radisson Plc is asking for a significant portion of the available funding. Therefore, there are numerous resources accessible that aid in generating money, including: –
Ordinary shares: Radisson Plc is able to issue ordinary shares to raise money for their new long-term contract because they are listed on the stock exchange. The advantage of using this method of funding is that Radisson Plc won’t have to pay back the share money until they’re liquidated. The drawback of this source is that they must pay out a sufficient amount in dividends, which are not tax efficient because they cannot be deducted from earnings as a cost.
Borrowings: Radisson Plc also arranges funds using borrowings since they borrow money from various sources secured by their assets, and if they are unable to return the money borrowed, their assets are taken. The advantage of borrowing money from this source is that Radisson Plc did not cede control of the borrowed money to anyone, and the interest payments are deductible from profits. However, the main drawback is that it must be paid back within the specified time period; else, Radisson Plc would file for bankruptcy (Bernstein, 2015).
Finance lease: Radisson Plc agrees to pay a suitable sum on a regular basis in the form of instalments or rentals in exchange for leasing the needed machinery or equipment. The advantage of this source is that Radisson Plc doesn’t have to make the entire payment at once. However, this source has a drawback in that when the lease expires, the equipment is returned to its original owner (Bernstein, 2015).
Bank overdraft: Radisson Plc also uses this option, spending more money from their current account than they actually have for a short while. The advantage of using this source is that Radisson Plc can swiftly arrange finances and it gives them flexibility.
B. Evaluate the appropriate sources of finance for the expansion plan of the above company. [P1.3, D1]
The following are relevant financial sources for Radisson plc’s expansion plan:
Ordinary shares: Radisson Plc issues ordinary shares because they enable the company build a solid financial foundation that doesn’t require repayment prior to collapse. Sharing their whole profits with shareholders makes them happy. The advantage of using this source is that you can get money for life and you don’t have to pay it back. However, this source has the drawback that they no longer have power over the corporation, and the Board of Directors now makes decisions instead (Serrasqueiro, et. al., 2011).
Radisson Plc uses the borrowing option since they receive funding from banks. The advantage of using this source is that it does not dilute their ownership; however, the disadvantage is that they must repay the loan amount within the specified time period (Serrasqueiro, et. al., 2011).
Leasing: With the aid of this source, Radisson plc is able to obtain the required capital equipment for nature. The advantage of using this source is that they won’t have to use all of their capital funds to buy equipment, but the drawback is that the asset will be returned to the owner after the lease is up (Serrasqueiro, et. al., 2011).
Retained earnings: Radisson plc uses its reserve money. The advantage of using this strategy is that it avoids introducing new liabilities.
Task 2
A. Analyse the cost of funding the project using equity versus debt finance and recommend your choice. [P2.1]
Unit 2 Managing Financial Resources Assignment Help Online
The sources chosen for sourcing the finances are related with three main sorts of charges, including: –
Cost of equity capital: This fee is incurred when shares are issued and paid out as dividends. Investors put money into the business in order to receive dividends (Baginski& Hinson, 2016). The following formula is used to determine the cost of equity capital: –
Ke = d/P0
Ke is the price of equity capital.
d stands for annual dividend per share.
P0 equals share price (Baginski& Hinson, 2016)
Debt capital costs This expense is related to the sum borrowed from the bank. Over and above the borrowing amount, they must pay interest. They also took out a finance lease, which is used to figure out the cost of loan capital.
Kd (1 – T)
Kd = The cost of borrowing money.
Tax rate is T. (Baginski& Hinson, 2016)
Opportunity cost is the price incurred when retained profits are used to fund a corporate expansion plan. Since they can invest their money elsewhere for a higher rate of return (Baginski& Hinson, 2016).
B. Explain the importance of financial planning and assess the information needs for financial decision making. [P2.2, P2.3]
Financial planning is the process of predicting future financial performance and figuring out how to best use a company’s financial resources. It aids in achieving both the short- and long-term goals of business. Both high levels of judgement and uncertainty were present. Different methods are used for financial planning, including budgeting, cash flow analysis, and ratio analysis. There are three different types of financial planning: short-term, medium-term, and long-term (Rehl, et. al., 2016). One year’s worth of planning is considered short term, and it takes the company’s demand for working capital into account. Medium-term planning spans one to five years as plans contain projects for R&D and the replacement or upkeep of assets.
The following are reasons why financial planning is crucial: –
It aids in calculating cash flow
It aids in figuring out whether collecting money is necessary and aids in keeping their overall costs under control.
It makes profit forecasting easier.
It ensures that the resources are available.
It aids in achieving predetermined organisational goals.
It aids in balancing the organization’s cash flow (Rehl, et. al., 2016).
There are three sorts of information required for the purpose of making financial decisions, which are explained below.
Strategic information: This information set is used to create goals and to determine whether those goals have been attained. The necessary data is gathered from both internal and external sources and is then higher level summarised. Regarding their long-term and
Unit 2 Managing Financial Resources Assignment Help Online
Tactical data: This information is gathered after strategic choices have been made since it helps managers allocate resources inside their companies and keep an eye on their operations. It includes information that is both internal and external in some measure, and it is summarised at a lower level. It is regularly prepared and concerned with departmental activities (Brounen, et. al., 2016).
Operational information: This data is used to make sure that certain operational tasks are carried out as intended. It aids in decision-making and assists in controlling their daily activities. Task-specific information that is presented is thorough and connected to the current team. It regularly prepares (Brounen, et. al., 2016).
Task 3
A. Analyse the importance of budgets for variation and make appropriate decisions for Radisson Plc. [P3.1]
Budget: A useful instrument for putting organisational strategies into practise. It is a suggested course of action by management for a predetermined time frame in order to coordinate the tasks required to carry out the plan. Prepare a variety of budgets, including a sales budget, a cash budget, a master budget, and others (Roper &Ruckes, 2012).
Following are some reasons why creating budgets is important: –
It aids in determining the corporate organization’s overall true performance.
It facilitates comparison of the departmental and periodic budgets.
It contrasts actual performance with planned outcomes.
If the comparison produces unfavourable findings, it aids in the implementation of corrective measures with the aim of efficient improvement.
It regulates the processes used to achieve the goals that have been specified.
Radisson Plc made the right judgments with the aid of the budget, including: –
They can effectively allocate their resources so that they receive acceptable rewards.
It aids in minimising loss.
It utilises their cash and currency equivalent resources wisely.
It lessens the likelihood of issues related to insolvency.
By analysing their past performance, it aids in predicting their future performance.
It aids in keeping track of and reining in the actions that have an impact on their growth (Gervais, et. al., 2011).
B. Explain how you would calculate unit cost and make pricing decisions based on appropriate information at the Radisson Plc. [P3.2]
Unit cost: This is the portion of the cost that the manufacturing facility incurs when producing a single unit of a product. It includes all direct costs, both fixed and variable (de Souza, &Lunkes, 2016).
There is a strong correlation between cost and pricing because if product prices are too high, customers won’t buy them, and if prices are too low, organisations won’t be able to recoup their overall manufacturing costs. Customers, rivals, and costs are a few variables that affect pricing decisions.
C. Assess the viability of the expansion project using investment appraisal techniques such as the NPV.. [P3.3, D2]
Radisson Plc uses a variety of investment assessment techniques, including the following, to determine whether the expansion project is financially feasible.
Net present value, or NPV, is the difference between the present value of all expected cash inflows and the initial investment. Profitable investments are referred to as positive balances, and vice versa (Adkins &Paxson, 2014).
Payback period: This is the amount of time, expressed in years, during which cash inflows and outflows are equal. But it disregards the returns on the investment after the payback period (Adkins &Paxson, 2014).
Task 4
A. Discuss the above mentioned financial statements of Radisson Plc. [P4.1, M3]
The three primary financial statements that Radisson Plc maintains are covered here.
Unit 2 Managing Financial Resources Assignment Help Online
Comprehensive income statement: Net income/loss is equal to net revenues. – Total outlays: This account is used by Radisson Plc to keep track of their regular income and expense-related activities, which are then used to calculate their net profit or loss for a given time frame. When compiling their income statement, they use a vertical format since it makes the statement more comprehensible and helps to provide specific information (Puri, 2014).
B. Select two different types of companies (one could be Radisson Plc) and compare the formats of financial statements. [P4.2, M3]
Evaluation and interpretation:
Gross profit: It is a useful indicator of how effectively businesses generate income from their sales. According to the findings, Radisson Plc. is generating revenues at a rate of 42.51%, which is less than ABC ltd., which generates sales at a rate of 44.89%. (Uechi, et. al., 2015).
Net profit: This figure is used to determine an organization’s profitability after deducting all costs. According to the findings, Radisson Plc. is making profits at a rate of 2.37 percent, which is less than ABC Ltd., which generates income at a rate of 3.64%.
All current assets and liabilities are used to calculate the organization’s current status. Current assets 2:1 is the best ratio. According to the analysis of the findings, Radisson Plc. has a ratio of 1.8:1, which is lower than ABC Ltd., whose ratio is 1.92:1. (Uechi, et. al., 2015).
Quick resources This ratio is used to determine how quickly assets can be converted into liquid funds. As a result, prepaid expenses and inventories are left out of the computation. According to the findings, Radisson Plc. has a ratio of 0.53:1, which is lower than ABC Ltd.’s ratio of 0.62:1 but higher than Radisson Plc .’s. They are both lacking necessary resources.
Receivables turnover: This ratio is used to determine how quickly accounts receivable are handed over. According to the results, Radisson Plc. has a ratio of 4.94 days, which is greater than ABC Ltd.’s ratio of 4.91 days but lower than Radisson Plc (Uechi, et. al., 2015).
Inventory turnover ratio: This ratio is used to assess how frequently inventory is consumed over the course of a year. Higher ratio indicates inventory is being liquidated by the company. According to the analysis of the findings, Radisson Plc. has a ratio of 81.72 days, which is higher than ABC Ltd.’s ratio of 81.40 days.
Conclusion
Given the variety of resources available for obtaining the desired quantity of funding and the analysis of their ramifications, all the topics are presented in an efficient manner. They come with an efficient set of costs in the shape of interest, dividends, etc. For better resource allocation and control, budgeting is used. Ratio analysis is used to compare their total performance to that of others, and investment appraisal techniques are used to evaluate the projects or investments that are currently being considered. Radisson plc makes use of all these strategies and resources for their financial planning.
References
Adkins, R. &Paxson, D. 2014, “Stochastic Equipment Capital Budgeting with Technological Progress”, European Financial Management, vol. 20, no. 5, pp. 1031-1049.
Ahrendsen, B.L. &Katchova, A.L. 2012, “Financial ratio analysis using ARMS data”,Agricultural Finance Review, vol. 72, no. 2, pp. 262-272.
Alin-Eliodor, T. 2014, “Financial Statements Analysis”, Journal of Knowledge Management,vol. 4, no. 5, pp. 62-73.
Baginski, S.P. & Hinson, L.A. 2016, “Cost of Capital Free-Riders”, The Accounting Review,vol. 91, no. 5, pp. 1291-1313.
Bernstein, A. 2015, “Show me the money: finding alternative sources of finance”, Nursing And Residential Care, vol. 17, no. 7, pp. 398-401.
Brounen, D., Koedijk, K.G. &Pownall, R.A.J. 2016, “Household financial planning and savings behavior”, Journal of International Money and Finance, .
Caglayan, M. &Demir, F. 2014, “Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation”, World Development, vol. 54, pp. 204-219.
Unit 2 Managing Financial Resources Assignment Help Online
Corsatea, T.D., Giaccaria, S. &Arántegui, R.L. 2014, “The role of sources of finance on the development of wind technology”, Renewable Energy, vol. 66, pp. 140-149.
de Souza, P. &Lunkes, R.J. 2016, “Capital budgeting practices by large Brazilian companies”, Contaduría y Administración, vol. 61, no. 3, pp. 514-534.
Puri, A.K. 2014, “Financial Statement Analysis and Security Valuation”, Abhigyan, vol. 32, no. 2, pp. 74.
Rehl, K.M., Moor, C.C., Leitz, L.Y. & Grable, J.E. 2016, “Widows’ voices: the value of financial planning”, Journal of Financial Service Professionals, vol. 70, no. 1, pp. 53.
