Managing Finance Recourse and Decisions - Assignment Example

MANAGING FINANCE RE AND DECISIONS of Task one Finance is important to the development, expansion and operation of the business. Finance is the fundamental limiting factor for many businesses making it crucial for businesses to manage all of their financial resources. There are plentiful ways in which a business can raise its finance. However, the type of finance used depends highly on the nature of the business. This means that large businesses use a wider variety of finance sources as compared to the smaller businesses (Paramasivan and Subramanian, 2009). It is imperative that a business chooses the finance source that is appropriate. However, no matter the type of business, the business managers should ensure that the business is adequately financed. There are two major forms of finance which are internal and external finance. Internal finance is the type of finance that has been raised from within the company. The businessman will have to retain profit earned by the company or invest the owner’s capital (Paramasivan and Subramanian, 2009). Internal finance is cost efficient source for capital, but it does have its limitations. For that reason, the business has to use the other internal sources of finance so as to meet the needs of the company. Other internal sources of finance include; delayed payments to creditors, a tight credit control, and reduction of the inventory level. There are different external sources from which a business can get its finance. Some of the examples of external sources are Capital markets, producers, financial institutions, manufacturers, money lenders, foreign financial institutions, Banks, and agencies (Paramasivan and Subramanian, 2009). However, during the period of raising the funds, the form of business organization has to be considered. However, there are three types of external sources of finance. They include short term, medium term and long term. The duration of repayment in short term financing is less than one year. On the other hand, duration for repayment for both medium and long term financing is more than one year. Short term finance is mainly for money that is needed for financing the activities that are going to last for less than a year. Major sources of short term finance include bank overcharge, trade credit, retained profit, credit cards (Paramasivan and Subramanian, 2009). Medium term finance usually falls either short or long term source. This may depend on the nature of the finance. Major sources of medium-term finance include factoring, debentures, leasing out, and back loans. Long-term finance is mainly used for financing the expansion of the business, setting up of new business or for launching a new product in the business. Major sources of long-term finance in the business include Share Capital, Venture Capital, Share Capital, Government, local authority or EU grants, and Workforce restructuring (Paramasivan and Subramanian, 2009). However, the method of financing used in the long term is complex and involves a large sum of money. In conclusion, a business needs to evaluate the different types of finance based on amount of money required, the cheapest option available, how quickly the money is needed, and the period of time of the requirement for finance. Type of financing chosen highly depends on the type of the business. However, small firms and startups are well-thought-out to be high risk, and they do find it very difficult to use external finance as a source of financing. Below is a chart showing the sources of finance in a business. Chat 1: The sources of finance in a business. Task two Part one The major key sources of companies finance impact the company’s financial statements. Notably, each source impacts the financial statement differently. Internal sources of finance impact the financial statement in numerous ways. For instance, the internal sources affect the income statement of the company. The income statement reveals the revenue that is generated by the business. The internal sources will affect the income statement in that revenue being generated in the business is being used by the business for growth and projects that will take a period of less than one year (Paramasivan and Subramanian, 2009). Additionally, within the income statement, the revenue, cost of goods sold, general, selling, administrative expenses will also be affected. Apart from the income statement, internal finance sources have an impact on the statement of cash flows. The statement of cash flows reveals all of the company’s activities that have an impact on the cash position of the business at a particular time (Stevens, 2011). This document gives a detailed reconciliation of how cash in the business is being used. Due to delayed payments to creditors and a tight credit control, the statement cash flow will be impacted. On the other hand, the external sources of finance ranging from short term, medium term, and long term affect the balance sheet statement. The balance sheet statement is used by a business to show the outstanding balance that is in specific accounts at a given point in time. The main purpose of the balance statement is to show the financial health of the business (Paramasivan and Subramanian, 2009). This is done through the process of enumeration of the assets owned by the business. The external sources of finance affect the balance sheet statement in that some sources such as bank loans mainly depend on the assets of the business. Some of these assets are used as collateral for any loans borrowed by the business. Part two The financial planning has numerous advantages, as the foreseen knowledge of the entire utilizations plan and ventures for the accompanying period, permitting establishment ahead of time, the vital formula to acquire the lucre looked for in the period to that is alluded in the arranging, which serves to alter objectives and to secure more solid administration rules. Its practice, permits even, the distinguishing proof for the benefit of the endeavor, of necessities, for example, the illuminating or the extension probability, the reasonability of its financial plan for the business sector, the assessment of conceivable outcomes in executing new tasks and their expenses, and the arranging of stores for future investments. An alternate critical financial planning viewpoint is the likelihood of distinguishing misrepresented expenses, or even waste, qualifying the specialists or the executives to survey and to change such costs to the truth of the helpful and the business, abandoning them further far from induction, permitting them to settle on more dependable choices, improving in this way benefits (Culp, 2011). Financial planning makes the route in which financial plans can be attained to. A financial planning is, in this manner, a statement of what ought to be carried out later on. In a circumstance of uncertainty, it ought to be dissected with incredible anticipations. Financial planning is an imperative piece of the administrators work (Stevens, 2011). Other than that, these plans offer a structure to organize the various exercises of the organization, and they go about as control components, creating execution model with which it is conceivable to assess the genuine occasions. In the elaboration of a plan, it will be important to adjust to the financial reality in which that organization is. At a short term, the financial planning considers, for the most part, the investigation of choices that influence the benefits and uninvolved which are coursing (Culp, 2011). The unlucky deficiency of long haul compelling financial planning is regularly a reason said when financial challenges, in the organization, occur. The financial planning permits deciding the sort and the way of the financing necessities. Task 3 Part one A budget system contains elements that reveal how money is spent in a business for the short and long terms. Businesses use budget systems to achieve the goals for sustainability and growth of the finances at hand. However, the major objectives of the budget in relation to small and medium size enterprises include allocation of resources, coordination, and general planning for the enterprises’ operations. Small and medium size enterprises use budgeting systems to plan for the growth and development of the enterprise over a given period of time (Russ-Eft and Preskill, 2009). Notably, the individual responsible for handling the budgeting system in the enterprise uses the document to specify the Capital investments needed and the opportunities present as well as the cost. Small and medium size enterprises use the budgeting systems for encouraging the executives and the managers within the enterprise to coordinate and keep the costs controllable thought out the financial year. Without the presence of the budget in the enterprise, the managers, and the executives will not know the financial restrictions on the actions of the co-workers or even their own actions. Small and medium size enterprises use budgeting for resource allocation. Effectual resource allocation is a major objective that small and medium enterprises have when developing their budgeting systems (Russ-Eft and Preskill, 2009). The budget is responsible for allocating the resources present in the enterprise across the entire enterprise and setting up of capital for the unexpected problem. Lastly, Small and medium size enterprises use budgeting for performance reviews. The budget is used by managers to determine if the enterprise operates proficiently and within the limits of the allocated resources. However, if there are many occasions where a department in the enterprise runs over budget, investigation can be done through the use of internal auditors. In conclusion, the main objective of budgeting in Small and medium size enterprises is to make an excess of revenue over expenses so as to maximize the profit. However, this is not a matter of chance or dream. There are no existing magic formulas that can be used to boost the profit overnight. For this reason, Small and medium size enterprises uses budgeting for increasing their chances of making profit. This means that the main objective of budgeting to Small and medium size enterprises is to make profit. Part two Capital investments are long-term investments whereby assets involved in the Capital investment have useful lives of multiple years. A good example is constructing a new production facility and investing in equipment and machinery as capital investments. However, in order to determine the best capital investment business can invest in, Net Present Value can be used. The Net Present Value method of measure involves discounting a system of future cash flows back to the present value. However, the cash flow can either be negative (cash paid) or it can be positive (cash received) (Jordão and Sousa, 2010). The present value of the beginning investment is its full face esteem on the grounds that the venture is made toward the start of the time period. The consummation money flow incorporates any financial deal esteem or remaining value of the capital resource toward the end of the examination period, if any. The money inflows and outflows over the life of the venture are then marked down once again to their present qualities. The Net Present Value is the sum by which the present value of the money inflows surpasses the present value of the money outflows. Alternately, if the present value of the money outflows surpasses the present value of the money inflows, the Net Present Value is negative. From an alternate point of view, a positive (negative) Net Present Value implies that the rate of profit for the capital venture is more prominent (less) than the discount rate utilized as a part of the investigation (Jordão and Sousa, 2010). The discount rate is a vital piece of the investigation. The rebate rate can speak to a few diverse methodologies for the organization. For instance, it may speak to the expense of capital, for example, the expense of obtaining cash to finance the capital consumption or the expense of utilizing the organizations inward finances. It may speak of the rate of return expected to pull in outside Capital investment for the capital task (Jordão and Sousa, 2010). On the other hand, it may speak to the rate of give back where its due can get from an option Capital investment. The discount rate might likewise reflect the Threshold Rate of Return (TRR) needed by the organization before it will make headway with a capital venture. The Threshold Rate of Return may speak to an adequate rate of return at the expense of cash flow to allure the organization to make the Capital investment. It might reflect the danger level of the capital venture. Then again, it might reflect different variables critical to the organization. Picking the best possible rebate rate is imperative for an exact Net Present Value. Task 4 The year 2012/2013 under survey kept on bringing challenges one for British Airways Company because of drowsy financial situation coming about into slump in demand by around 5%. In the first 50% of the budgetary year, local industry was experiencing a turbulent time because of high expenses and abundance limit environment which was an overflow from the earlier year. This brought on monetary strain on aerial shuttles bringing about household limit diminishing in the second a large portion of the year. Limit affectation in the second half backed off, helping the aerial shuttles to keep up higher yields. On the other hand, aerial shuttles were not ready to pass on expansion in expenses completely to the travelers. All these have come about into industry posting misfortunes by and by in not long from now. During the year slowdown in demand has brought about limit diminishment, which has brought about airplane on the ground. Few of them were redeployed to productive courses in universal segments. The effect of flying machine on the ground for the year was ` 1,889 Million (US$ 34.8 Million). English Airways Company, on its part, has taken different activities to enhance its working productivity and income acquiring potential to cut down the breakeven burden variable. Activities, for example, ending misfortune making courses, Sale/ Sale and rent over of airship/ spaces, renegotiation of real contracts including airplane support, ground taking care of, offering and dispersion costs, and so forth have been either actualized or at present being executed. English Airways were certain that these measures will help them to cut down the breakeven burden component. English Airways Company began concentrating on expanding different parkways of subordinate incomes. So as to help fortify its monetary record and strategize supported beneficial development, British Airways Company inked an arrangement with Etihad Airways PJSC which will bring prompt income development and expense collaboration open doors for both the aerial transports. Sales at the Airline Catering division climbed by € 50.42m in the business year of 2012/2013, developing from € 349.81m to € 400.23m disregarding the market is managed instability. The division contributes 69.5% (PY: 75.0%) to the Group sales. Sales development for the Airline Catering division was especially solid in the worldwide areas. Turkish DO & CO kept on growing its business exercises in the 2012/2013 business year, both with Turkish Airlines and with outsider clients. The "Flying Chefs" idea on flights worked by Turkish Airlines was further extended so that travelers on some global short-separation flights can now appreciate the same administrations as those on the whole deal flights. Outsider clients now incorporate Etihad Airways and additionally replenished contracts with Air France, Iberia, and Royal Jordanian Airlines. Sales figures became significantly at New Yorks John F. Kennedy Airport, driven primarily by the procurement of British Airways as a deliberately imperative client and a day by day long-separation flight for Etihad Airways to Abu Dhabi. Brilliant development rates can likewise be accounted for with existing clients, for example, Asiana Airlines, Emirates Airline, and Turkish Airlines. At London Heathrow, DO & COs client portfolio has included Egypt Air since April 2012 and China Southern Airlines since June 2012. DO & CO expanded sales with its different clients and further extended its market position at this deliberately critical area. In a comparable vein, sales figures for 2012/2013 were expanded in Milan and the German areas. Two acquisitions were effectively finished in 2012/2013: DO & CO obtained 51% of the biggest carrier food provider in Ukraine, which was incorporated in the United budgetary articulations from 1 June 2012. In December 2012, DO & CO obtained all the shares of LOT Catering Sp. Z o.o. Situated in Warsaw and renamed DO & CO Poland Sp. Z o.o., the organization is the business sector pioneer for aerial shuttle catering in Poland, utilizing through and through more than 500 staff in its areas in Warsaw, Poznán, Krakow, Gdansk, and Katowice. It was initially merged to be determined sheet is starting 31 December 2012, and initially included in the DO & COs solidified money related articulations in the final quarter of the 2012/2013 business. Chat 2: the passage number in millions References Culp, C. (2011). Structured Finance and Insurance. Hoboken: Wiley. Fitz-enz, J. (2010). The new HR analytics. New York: AMACOM. Jordão, B. and Sousa, E. (2010). Risk management. New York: Nova Science Publishers. Paramasivan, C. and Subramanian, T. (2009). Financial management. New Delhi: New Age International (P) Ltd., Publishers. Russ-Eft, D. and Preskill, H. (2009). Evaluation in organizations. New York: Basic Books. Stevens, M. (2011). Taxation of financial products and transactions, 2011. New York, NY: Practising Law Institute. Read More