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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 companys
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

30
260 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

55
2

52
10

55

56

55

Advertising

260

10

10

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

29
296 2

Monthly

192

49

-2

-43

-36

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

Insurance

55

Equipment

50

Vehicles

20

55
2

52
10

55

10

10

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

-2

-43

-36

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 companys 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 companys marketing
activities. The Directors would employ one of the regions 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.