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Managing Financial Resources Assignment The 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
£00
From the balance sheet as at
31 March 2003
31 M 200
Stocks
12482
118
Trade Debtors
32287
284
Trade Creditors
17048
135
Total Asset less current liabilities
47505
349
Creditors Due after more than one year
13388
687
Share Capital ( 25p share)
6782
428
From the profit and loss account for the year ended
31 March 2003
31 M 200
Turnover
205157
182
Cost f goods sold
172065
153
Expenses
27342
222
Interest Payable
1925
122
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 Compo Dec 2008
JAN
FEB
MAR
£00 0
£00 0
£00 £000 0
£00 £000 0
£00 £00 0
's
's
's
's
's
's
0's
300
300
300
250
260
300 260
Brought Fwd.
40
Sales
200
APR
MAY
JUN
JUL
AUG
's
Total Income
240
300
300
300
250
260
30 0
Purchases
150
140
135
135
140
130
135 145
Wages
55
55
55
55
55
55
55
Rent & Rates
56
56
Light & Heat 2
Insurance
55
Equipment
50
2
2
55 2
2
2
52 10
55
56
55
Advertising
260
10
10
2
2
Vehicles
20
Directors Salaries
22
22
22
22
22
22
22
22
Motor Expenses
11
11
11
11
11
11
11
11
Sundry Expenses
11
11
11
11
11
11
11
11
246
14
Total Expenditure
432
251
291
302
293
296
29 2
Monthly
192
49
9
-2
-43
-36
8
Deficit/Surplus
Accumulative Deficit/Surplus Gross Stock Debtors
19 2
14 3
13 4
profit Collection
period
(
13 6
17 9
21 5
margin Turnover Debtors Days)
20 7
19 3
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 Compo 2008
JAN
Brought Fwd.
FEB MAR APR MAY
JUN
JUL
£00 £00 £00 0 0 0
£00 £00 0 0
£00 £0 0 0
's
's
's
's
's
's
0's
40
Sales
200 300 300
300 250
30 260 0
Total Income
24 0
30 0
26 0
30 0
300
250
30 0
Purchases
150 140 135
135 140
13 130 5
Wages
55
55
55
Rent & Rates
56
55
55
55
56
Light & Heat
56
55
Advertising
2
Insurance
55
Equipment
50
Vehicles
20
2
2
55 2
2
2
52 10
55
10
10
2
Directors Salaries
22
22
22
22
22
22
22
Motor Expenses
11
11
11
11
11
11
11
Sundry Expenses
11
11
11
11
11
11
11
Expenditure
43 2
25 1
291
30 2
293
29 6
29 2
Monthly
19 2
49
9
-2
-43
-36
8
19 2
14 3
134
13 6
179
21 5
20 7
Total
Deficit/Surplus
Accumulative Deficit/Surplus 
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
From
Best
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 ? 180,000 Year 2 ? 230,000 Year 3 ? 280,000 Year 4 ? 120,000 Project ‘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 ? 60,000 Year 2 ? 120,000 Year 3 ? 250,000 Year 4 ? 250,000 As 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
£650
-
£280
Selling
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 available to a business
sources
of
finance
1.1 Identify thesources of finance available to a business 1.2 Assess the implications of the different sources 1.3 Evaluate appropriate sources of finance for a business project
LO2 Understand the implications of finance as a resource within a business 2.1 2.2 2.3 2.4
Analyse the costs of different sources of finance Explain the importance of financial planning Assess the information needs of different decision makers Explain the impact of finance on the financial statements
LO3 Be able to decisions based information
make on
financial financial
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 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.