Management of Financial Resources and Decision Making
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Table of Contents INTRODUCTION ..........................................................................................................................3 TASK 1............................................................................................................................................3 1.1 Identification of the sources of finance available ................................................................3 1.2 Implications of sources of finance.........................................................................................4 1.3 Appropriate source of finance for Sweet menu restaurant.....................................................5 TASK 2............................................................................................................................................5 2.1 Cost of sources of finance......................................................................................................5 2.2 Importance of financial planning...........................................................................................6 2.3 Assessment of the information needs of the different decision maker of Sweet menu.........6 2.4 Impact of the sources of finance upon the financial statements of Sweet menu which are undertaken by them to meet their financial needs.......................................................................7 TASK 3............................................................................................................................................7 3.1 Analysis of the budget and appropriate business decision based upon it..............................7 3.2 Unit cost to determine the pricing of the product and services offered by Blue Island restaurant......................................................................................................................................8 3.3 Investment appraisal tools to assess viability of projects .....................................................9 TASK 4..........................................................................................................................................10 4.1 Financial statements.............................................................................................................10 4.2 Comparing the formats of financial statements for the different types of business organization................................................................................................................................10 4.3 Interpretation of the financial statements by making analysis of the ratios of both the restaurants..................................................................................................................................15 CONCLUSION .............................................................................................................................17
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INTRODUCTION In modern era, managing finance resources is considered as one of the most important aspect of every business. Further, it is only because of the effective decision regrading utilization of financial resources which helps a company to grow and developed. This report demonstrate various sources of finances which are available with Sweet menu restaurant. Along with this, the report also highlights the cost and implications of all the available sources of finance.
TASK 1 1.1 Identification of the sources of finance available Every company is required to determine various sources of finances at the time of growth and expansion. Sweet Menu Restaurant Ltd. is planning to open two new stores in Central London and Crovdon. For this purpose there are various long term and short terms sources available with the company. One of the major difference between short and long term sources is that short terms sources provides finance for short span of time whereas long terms sources provides money for long time period. The sources are mentioned below as: 
Bank loans- It is considered as one of the best and trustful sources from which Sweet Menu can raise finance for opening two new stores. Bank can provide amount to the restaurant in the form of loan. Further interest will be charged by the bank regarding the same. There are two types of interest rates on which banks provides loans and the rates are fixed and floating (Sources of finance. 2012).

Venture capital- According to this sources of finance, other companies or parties invest money in projects of a firm. Sweet Menu Restaurant Ltd. Can also use this sources of finance and it will be required to provide shareholding to the party which has provided the funds. In addition to this, the party will also have right in day to day activities and decision making process of the restaurant.

Retained earnings- This is also termed as an internal sources of finance in which the restaurant can use its own earnings in order to open two new stores. The earning which will the one which remains after deducting expense form the revenue. Toll Free No. 44 203 3555 345 Mail Us: help@globalassignmenthelp.com Website: www.globalassignmenthelp.com

Debentures- The restaurant can also issue debentures in general public in order to raise finance for its new project. Further Sweet Menu Restaurant Ltd. will be required to pay interest to all the debentures holders.

Hire purchasing: This is the most important external sources of finance in which company purchases assets on instalment. A significant amount of down payment is paid first and rest amount is paid through instalments. However, the ownership of assets is transferred after payment of last instalment.
1.2 Implications of sources of finance Sources
of Advantages
Disadvantages
Legal
Cost
finance Bank loan
The company is Loan at floating The restaurant is The interest paid not required to interest rate will required to preset on control
the results
dilution
in the
increasing overall
cost
loan
will
complete termed as the cost
the document which of finance of are required by
finance.
the bank
Retained
There is no cost If the earnings are There is no legal Opportunity cost
earnings
of
finance
on not
used
in requirements
in is considered as
retained earnings effective manner case of retained the then opportunity
cost
of
retained earnings
the earnings cost
as a source of financing
will directly gets increased Venture capital The
cost
of Organizations
As per law, a The
finance cannot be have control on contract
signed
of
is venture capital is
adjusted which is dilution (Gibson, required one of the major 2012)
cost
to
be return provided to
between firm which has
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advantage of this
venture
source
firm
capital given
venture
and capital.
organization which is issuing it Debentures
The control do The interest paid Companies not gets diluted
to
debenture strictly
holders financial
become to
are The cost of this
required source of finance
adhere
and is
the
interest
burden follow the rules which is required
to organization
and
regulations to be paid by the
regarding issue of firm to debenture debentures
holder (Brigham, 2013.)
1.3 Appropriate source of finance for Sweet menu restaurant The size of Sweet menu restaurant is small and thus it can be stated that sources such as debentures and ventures capital are not appropriate for the restaurant. Such sources are more suitable for large organizations and multinational companies. After assessment of all the sources, it can be stated that retained earnings and bank loans are the two common and appropriate sources which can be used by the restaurant. It is also required by Sweet menu restaurant to take bank loan on fixed interest rates rather than taking them on floating interest rates. Along with this, source such as retained earning can be also taken into consideration in order to raise finances for opening two new branches (Sabău, 2013). Further the restaurant is required to make use of its retained earning in best possible and effective manner. If the best possible use is not made than the restaurant will be required to bear opportunity cost which is a loss. Thus, it can be stated that bank loans and retained earnings are the two suitable sources from which finance can be raised by Sweet menu restaurant. In addition to this, some part of the total investment can be issued as bank loan and other can be issues as retained earning. Toll Free No. 44 203 3555 345 Mail Us: help@globalassignmenthelp.com Website: www.globalassignmenthelp.com
TASK 2 2.1 Cost of sources of finance The appropriate sources of finance for Sweet menu restaurant are Bank and Retained earnings, however such sources of finance put significant impact on business and company has to pay specific cost for acquiring such sources of finance. The cost of acquiring bank loan and retained earnings are stated below : 
Cost for acquiring bank loan- In case the company takes loan from the bank, it has to pay significant interest on a fixed rate or floating rate. In this manner the interest cost is to be bear by the company for acquiring bank loan. It can be witnessed that the interest rate of banks is going to be changed as per the changes held in economy situation. On the other hand company has to put some securities with bank (Hayre, 2015).

Cost for acquiring retained earnings- Retained earning is the part of profits that is acquired by the company in previous years. On the use of retained earning for opening new outlets the company has to bear the opportunity cost. However , there is no such financial cost associated with using this source of finance. The company can loss the opportunity to invest the saving in more profitable option (Broadbent and Cullen, 2012).
2.2 Importance of financial planning Financial planning is the most important aspect of a business that is used to attain organizational success. The use of financial planning is must for Sweet menu restaurant so as to access the most suitable sources of finance. Making use of financial planning the company can use its available sources of finance in the most optimal manner to earn profits. Budgeting is the most appropriate aspect of financial planing in which company can determine how to use fund to project future courses of actions (Paramasivan, 2009). As per the present case the hospitality organization is planning to open new restaurants in different areas of UK so financial planning will be helpful in deciding the expenditures on building, land and other assets and preparing a Toll Free No. 44 203 3555 345 Mail Us: help@globalassignmenthelp.com Website: www.globalassignmenthelp.com
plan an estimated investment. Furthermore, financial planning is important in allocating funds to different activities which allows for making the best use of funds for operations (Kung, Huang and Cheng, 2013). Financial planning is important in making the best use of available resources and plan to acquire the external sources while conducting specific cost and value analysis of using such sources. Financial planing is also important in conducting financial forecasting for the business and making viable investing decisions.
2.3 Assessment of the information needs of the different decision maker of Sweet menu Financial information is acquired from different financial statement such as balance sheet, income statement and cash flow statements. Such information is needed by different stakeholder for supporting their decision making. The points below represent the information and its use for various stakeholders: 
Shareholders: These are the people who invest their funds in the organization with expecting good returns. These stakeholders are interested in acquiring the information of profits gained by the company and dividend paid in previous years so they can make investment decisions. In case of Sweet Menu Restaurant, those stakeholders are willing to know about divided that are acquired from their investment.

Managers-The information of finance available in the business is required by the managers of Sweet Menu Restaurant so as to prepare financial strategies and making decision for investing funds. The information available in financial statement is used to find out a feasibility of making investments into new outlets (Shahrokhi, 2008).

Fund providers: The find providers such as financial institutions require the information regarding the creditworthiness of business or the interested knowing about the financial position of the company so they can make decisions for providing loans to the company. As Sweet Menu Restaurant is planning to take loan from bank hence, it has to meet the expectations of fund providers regarding information need.
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Investors: Investors are the people who require the information in respect with the profitability of company so that they can investor in profitable firm to gain higher interest and returns.
Government- Government looks over the information pertains to financial statements so as to identify if company is paying accurate amount of tax or not. The evaluation of financial statements allows government to identify other operations of firms (Sabău, 2013).
2.4 Impact of the sources of finance upon the financial statements of Sweet menu which are undertaken by them to meet their financial needs From the case study, it is seen that Sweet menu restaurant is taking loan from Bank of €5000 so that the amount in liabilities side of business will increase in the balance sheet and interest amount paid against loan will decrease in income statement. However in case flow the amount of cash inflow will increase. The interest paid to bank loan will decrease the amount of profits for business. In case the company will use retained earnings, the amount in reserves and surplus will be declined however, there will be no such financial impact of using such source.
TASK 3 3.1 Analysis of the budget and appropriate business decision based upon it The budget is showing that the case sales of company is increasing continuously, hence, the growth percentage in increasing simultaneously. In September and October salaries amount paid was contract but in upcoming years it is increased to a significant rate. Purchase in the month of November and December is growing rapidly. The case budgets shows that products offered by cited restaurant are able of generate demand. The outflow made during the month of September, represents that company was not able to meet the expenditure through the cash sales due to increased expenses such as Van, furniture and fittings etc. it represents the clear deficit in entire month. However, in the month of October restaurant earned good sales which led to positive closing balance of £3870. In addition the month of November, demand increased in Toll Free No. 44 203 3555 345 Mail Us: help@globalassignmenthelp.com Website: www.globalassignmenthelp.com
respect with food thus, maintaining the positive closing balance. However, acute fluctuations are seen in case sales. The improved sales in November is proved to a positive cash balance however at the end expenses are sharply increasing and cash balance becomes negative even sales increase by 20%. The company has to control the cash within business and should overcome the expenses. 3.2 Unit cost to determine the pricing of the product and services offered by Blue Island restaurant
Items
Costs £
Steak
3
Vegetables and other ingredients
1.5
labour
3.5
Overheads
2
Total Costs
10
Mark Up (40%)
4
VAT
2
Selling Price
16
Food Cost Percentage = Total Costs of Ingredients/ Selling Price * 100 Food Cost Percentage = 10/16*100 Food Cost Percentage = 62.50% From the calculation, it has been seen that the company has to bear 62.50% of the costs for carrying out its operations in successful manner Nonetheless, this could be said that £16/meal selling price on which the restaurant will generate a profit of £6.. 3.3 Investment appraisal tools to assess viability of projects Table 1: Payback period Year
Proposal 1
Proposal 2
Cash flows
Cash flows
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0 1 2 3 4 5 Residual Value
(£1,200) (£400) £200 £600 £800 £850 £850
£800 £600 £400 £200 £50 £0
(£1,200) (£900) (£500) £0 £600 £1,100 £1,150
£300 £400 £500 £600 £500 £50
Payback period: result of payback period shows that investment in Proposal 1 is favorable option for the business in compare to investment in Proposal 2. This method helps to determine that amount of investment will be covered in which year and on calculating the payback period of Proposal 1, it was assess that it will be recovered in Year-2 only whereas investment in Proposal will be recovered in Year-3. Table 2: Net Present Value Method Present Proposal 1 DF @10% Present value
Proposal 2 DF@10%
value
Initial investment 1 2 3 4 5 Residual Value NPV
£800 £600 £400 £200 £50 £0
0.909 0.826 0.751 0.683 0.621 0.621
(£1200) £727.2 £495.6 £300.4 £136.6 £31.1 £0 £491
£300 £400 £500 £600 £500 £50
0.909 0.826 0.751 0.683 0.621 0.621
(£1200) £272.7 £330.4 £375.5 £409.8 £310.5 £31.1 £530
Net Present Value Method: This method calculates the cash inflow of the project by considering the rate of discounting factor and on the basis of which yearly cash inflows are determined. In the given two different proposals, Net Present Value of Proposals were positive and investment in this projects is favorable option. But the NPV of Proposal 1 is £491, which is lower in compare to NPV of Proposal 2 that is £530. Investment in Proposal 2 will give better return to the organization and also one of the feasible option(Chan and et.al., 2001).
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TASK 4 4.1 Financial statements Income Statement: It also stated as Profit & loss account of the organization. This financial statement shows the expenses and income received by the organization during the year. All the expenses are debited and incomes are credited in this account and on the basis of which profit or loss is determined for the business. Balance Sheet: Balance sheet of the organization shows the financial position of the business as it includes the amount of owner’s capital, liabilities and assets owned by the organization. This financial statement is prepared at the end of the financial year and shows the financial position of the business that performance of the company is improved or not (Butters, 2004) Cash flow statement: It includes three different activities which are operating activities, investment activities and financial activities of the business. This records only the cash and bank transactions of the organization which are incurred during the year to assess all the cash inflow and outflows (Shahrokhi, 2008).
4.2 Comparing the formats of financial statements for the different types of business organization There are three kinds of business such as Sole trader, Limited Company and Partnership firm. There are various similarities in financial statements of all business firms but all have to faced difference in terms of preparation of financial statements, the companies have to prepare statement while concerning IFRS and GAAP guidelines Sole trader
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I llustration 1: Balance sheet for sole trader
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Illustration 2: Income statement of sole trader
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Partnership
Illustration 3: Income statement of partnership
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Company
Illustration 4: Company balance sheet
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4.3 Interpretation of the financial statements by making analysis of the ratios of both the restaurants Table 3: Ratio analysis Ratios
Sweet Menu Restaurant
Blue Island Restaurant
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Gross profit Net sales
£222,500 £350,000
£198,000 £299,000
Gross profit ratio
63.57%
66.22%
Net profit Net sales
£85,000 £350,000
£94,800 £299,000
Net profit ratio
24.28%
31.70%
Current assets Current liability
£68,000 £195,000
£41,000 £123,000
Current ratio
0.35
0.33
Liquid assets Current liability
£24,000 £195,000
£10,000 £123,000
Quick ratio
0.12
0.081
Sales Stock
£350,000 £44,000
£299,000 £31,000
Stock turnover ratio
0.12
0.10
Debt Equity
£31,000 £164,000
£5,000 £118,000
Debt equity ratio
0.19
0.04
Debt Assets
£31,000 £233,000
£5,000 £188,000
Debt to assets ratio
0.13
0.02
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Gross Profit Ratio: On analyzing the gross profit ratio of Sweet Menu restaurant and Blue Island restaurant, it was assess that gross margin of Blue Island restaurant was 66.22% which was higher in compare to Sweet Menu, 63.57%. Reason behind higher gross profit of the restaurant was due to low cost of production in their business. Net Profit Ratio: It shows the relationship between the sales and final profit achieved by the restaurant after incurring all its costs and expenses. Net profit of Sweet Menu was 24.28% which is lower in compare to Net profit of Blue Island that is 31.70%. It states that Blue Island is effectively managing its operational costs and also the cost of production in their restaurant business. This has made direct impact on profitability of the business. Current Ratio: Current ratio of the organization depicts about the liquidity position. This ratio of Sweet Menu was 0.35 times which shows that capability of restaurant to meet its short term obligations is better in compare to the current ratio of Blue Island as its current ratio is 0.33. It also indicates that proportion of current liability is higher in compare to current assets of the business. Quick Ratio: These ratio determines the liquidity of the organization by considering only the liquid assets and liability excluding the stocks (White, 2006). Quick ratio of Sweet menu was higher when it’s matched with the Blue Island, it shows that Sweet Menu is effectively managing its short term obligations. Stock Turnover Ratio: Stock Turnover Ratio shows the efficiency of the company to turn its stocks into sales and on assessing the performance of both restaurant it was evaluated that efficiency of Sweet Menu was higher that is 0.12 times. Debt Equity Ratio: Sweet menu has dent equity ratio of 0.19 which indicates that debt of Sweet menu was lower and higher investment of owner capital. On the other side the proportion of Blue Island restaurant in debt is much lower in contrast to owner’s capital. Debt assets ratio: This ratios shows the proportion of debts over the total assets of the restaurant and on assessing the performance of both restaurant, it was examine that Sweet menu has 13% and Blue Island has 2% of Debt on the total assets of the company.
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CONCLUSION From the above report it can be concluded that it is very essential for organizations to chose the source of finance available. Before selecting any of the sources, companies are required to evaluate their fundamental and liquidity positions. It can be also concluded that with the help of project evaluation technique best and most appropriate project can be selected by organizations.
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REFERENCES Brigham, E. ,2013. Financial Management: Theory and Practice. Cengage Learning. Broadbent, M. and Cullen, J. 2012. Managing Financial Resources. Routledge. Butters, J. 2004 .Managing finances for a fulfilled Canadian retirement. Leadership in Health Services .17 (1). pp.12 – 18. Chan, S. T. F. and et.al., 2001. Investment appraisal techniques for advanced manufacturing technology (AMT): a literature review. Integrated Manufacturing Systems. 12(1). pp.35 – 47. Gibson, C., 2012. Financial reporting and analysis. Cengage Learning. Hayre, A. 2015. Managing Financial Resources and Decisions. GRIN Verlag.
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