MANAGING FINANCIAL RESOURCES AND DECISIONS

30-08-16 cheapnisha 0 comment

MANAGING FINANCIAL RESOURCES AND DECISIONS

Introduction

Financial is the bloodline for every company that supports business activities of the business. This report is prepared on such basis i.e. effective management of financial resources in different business organisations.This report is divided into four major parts; first task is related to different sources of finance available to Green Supplies ltd for the business expansion.Sources of finance can be internal or it can be external.Different implication of sources of finance and how financial planning will help business organisation were evaluated in this report. Debt and equity will make impact on financial statements and how they impact was discussed in this report. Next task is related to Health limited who is cindered about its cash management. Therefore cash budget is made for them and measures that help Health limited from recovering from deficit closing balance of cash budget. Then cost-volume and profit analyse were conducted on Paracha ltd that includes calculation of selling price, cost of production and other aspects. Capital budgeting decision was also taken for Day choice ltd in terms of its capital projects undertaken for the evaluation.In last section, ratio analysis and different financial statements were discussed. 

Task 1

(a) Identify different sources of finance available to Green Supplies Ltd. this should include raising funds through combination of internal and external sources of finance.

Internal sources of finance are as follows:

Retained Earnings– These are funds available to business organisation that is in business operations and hasaccumulated funds by not distributing it to equity shareholders in past years.Retained earnings are own funds of the company. In this case, Green Supplies ltd can use its accumulated profits i.e. retained earnings for business expansion.

Sales of Division– Another important internal source of finance is sales of division or fixed asset of the company so that they will be available with adequate funds for expansion. Green Supplies ltd can also use these sources of finance for raising funds for its business expansion.

Introduction of Capital– Another internal source of finance can be own capital that can be used in business operations or for the expansion of business operations(Andy, 2010). Capital does not involve any cost of capital with it therefore it is cheapest source of finance for Green Supplies ltd.

External sources of finance are as follows:

Bank loan- Green Supplies ltd. can take bank loan as its source of finance that can be used in the business expansion plan of management. Bank loan are provided by banks against some security or shares or debentures of Green Supplies ltdas collateral securities. Bank loan can be for long terms orfor medium term(Andy, 2010).

Equity shears– These are shares that can be issued by the Green Supplies ltdfor raising funds from the market i.e. from general public, financial institutions, etc.and Green Supplies ltd can raise huge amount of funds of the business expansion.Equity isissue for perpetuity i.e. not required toberepaid and equity shareholders of Green Supplies ltd will become owner of the company.

Preference Shares- These are sharesthat can be issued by the Green Supplies ltd to the investors of the company. They carry preferential right of payment of dividend over equity shares(Andy, 2010). They are long term sources of finance that is redeemable after20 or more years.

Venture capital- In this source of finance, venture capital company or individuals will be interested in investing their funds in the company, in this case in Green Supplies ltd, so that they are available with funds and in exchange they need interest on amount that is landed to Green Supplies ltd.

Debenture- These are debt acknowledge by the company as long terms debt that Green Supplies ltd will be issuing to the public and to institutional investors. These are long term source of finance i.e. issuedfor 10 or years. Fixed rate of interest is charged over amount borrowed(Andy, 2010).

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