Home Solutions Answer - Briefly explain what are financial resources
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Task 1.1: Identify the sources of finance available to Harwood Ltd (AC1.1)
a) Briefly explain what are financial resources.
b) Identify sources of finance that are available to Hardwood Ltd:
i) Internal sources (Briefly explain each one of them)
ii) External sources(Briefly explain each one of them)
Task 1.2: Assess the implications of the sources of finance you have identified above in a business (AC1.2)
a) Assess (evaluate) the implications of sources of finance on a business.
The implications of sources of finance on a business can be assessed/evaluated in terms of the following:
1. Financial implications
2. Legal implications
3. Control implications
4. Risk implications
5. Leverage implications
Task 1.3:Evaluate and recommend appropriate sources of finance for a business (AC1.3)
a) Briefly explain the factors which a company may wish to consider when selecting appropriate sources of finance
- The purpose for funds
- The amount of money needed v The urgency of funds
- The cost of the source of finance v The risk involved
- The duration of finance
- The gearing ratio of the business
- The control of the business
b) At least evaluate Sixrsources of finance that you may consider to be appropriate to Hardwood. Justify you selection
Task 2.1: Analyse the costs of the different sources of finance identified in task 1.1 above (AC2.1)
- For every source of finance you have identified in task 1.1 analyse the costs associated with it. Deal with each source of finance seperately (on a seperate sub-heading)
- Every source of finance has costs associated with it. You need to identify these costs and briefly analyse them.
Task 2.2: Explain the importance of financial planning to a business (AC2.2)
a) Define and explain financial planning.
b) With specific examples, explain how financial planning can be useful to Hardwood Ltd. Explain with examples the application of financial planning.
Task 2.3: Assess the information needs of different decision makers. (AC2.3)
a) Assess (evaluate) the kind of information needed by different decision maker (stakeholders) of a company. The assessment should be assessed from the perspective following decision (stakeholders):
- Shareholders Suppliers
- Government Employees
- Banks (financial institutions)
Clearly assess the information required by the above mentioned stakeholders when making decisions.
Task 2.4: Explain the impacts of finance on the financial statements of a business (AC2.4)
a) Explain how different sources of finance can impact on financial statements:
- The balance sheet
- The profit and loss account
- The cash flow statement
b) Every source of finance will have some kind of impact on all the three financial statements. Explain how?
Task 3.1: Using the information in Section A prepare the cash budget for Hardwood for the 6 months April – Sep 2015. Analyse this budget and make appropriate decisions (AC3.1)
a) Define and explain cash budget
b) Briefly explain the usefulness of a cash budget.
c) Prepare a cash budget using the information section A.
d) Analyse the budget you have prepared by doing the following:
- Explain the net cash-flow for each month by identifying the reason for surplus or deficit.
- Explain how you can manage if there is a deficit in any month in your cash budget.
- Explain what should you do if you have surplus of cash.
Task 3,2: Explain the calculation of unit cost of furniture and make pricing decisions using the information in section "A" (AC3.2)
a) Define and explain cost.
b) Explain with examples the classification of costs in terms of :
Direct cost (Variable cost)
Indirect cost (Overheads)
c) Using the information provided in section A, calculate the unit cost.
d) Clearly explain the effects of cost on pricing decisions.
Task 3.3: assess the viability of a project using investment appraisal techniques (AC3.3)
a) Define and explain investment decision making.
b) Define and explain the following investment appraisal methods. Briefly state the advantages and disadvantages of these methods.
a) Pay-back period method
b) Accounting rate of return (ARR)
c) Net present value method (NPV)
d) Internal rate of return (IRR)
c) Using the information given in Section A, make calculations using the four methods. Make a decision under each method as to which machine is to be bought. Make an overall decision after you have made all the calculations.
Task 4.1: Discuss the main financial statements of a company by outlining the purpose, structure and main sections of the Income statement, Balance Sheet and cash flow statement (AC4.1)
a) Explain what are financial statement , objectives and limitations.
b) Clearly explain the usefulness of each of the financial statements- the balance sheet, the profit and loss account and the cash flow statement.
c) Clearly explain with examples the items which are recorded on each of these financial statements.
d) Where possible give a sample of each of these financial statements.
Task 4.2: Compare appropriate formats of financial statements for Unincorporated [Sole Trader and partnership] and Incorporated [Limited Company] businesses.
1. Clearly compare the financial statements of the following types of business:
- Sole trade
2. Clearly show the differences between the financial statements of these types of businesses.
Task 4.3: Interpret the Financial Statements of Hardwood Ltd [presented in Section C] by calculating and commenting on the nine ratios listed below for 2014 and 2013 and compare these with Industry averages shown (AC4.3)
- Briefly explain what are financial ratios. State the usefulness and limitations of financial ratios.
- Clearly explain the following ratios.
- Return of capital employed
- Net profit margin
- Gross profit margin
- Assets turnover ratio
- Current ratio
- Quick ratio
- Stock days
- Debtors days
- Gearing ratio(debt/equity ratio)
- Using the information in Section C , calculate the mentioned ratios. Clear analyse the performance of the company – make both internal and external comparisons. Internal comparison between the two years and external comparison using the industrial averages provided in the assignment brief..
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