Managing financial resources and decisions JS and CO

Managing m wizardtary re bloods and finiss JS and COJS and co is a medium surface retailer formed by two billetners, James and Sainsbury, who be rail it in the UK since 1869. The retailer specializes in quality food products only if it sells some other non-food products as well. This attach to got very good success in the mart from the past three days. During this discussion we argon going to discuss some this company sources of pay, pay as a source, pecuniary decisions, and pecuniary performance.The large-minded view of this company in our discussionP1 (sources of Finance)P2 (Finance as a resource)P3 (fiscal decisions)P4 (Financial performance)P1 (SOURCES OF FINANCE) delineate THE SOURCES OF FINANCE AVAILABLE TO THE BUSINESSWhen a company is growing rapidly, for subject when contemplating investment in swell equipment, its current pecuniary resources may be inadequate. Few growing companies ar able to finance their expansion plans from specie play alone. Th ey will at that placefore need to consider raising finance from other external sources. In addition, answerrs who argon looking to buy-in to a byplay or buy- step to the fore a business from its owners may not have the resources to originate the company. They will need to raise finance to achieve their objectives.There atomic number 18 a number of potential sources of finance to meet the need of a growing business Existing partholders and directors pecuniary resource Business angels Clearing strands ( everywheredrafts, gip or medium endpoint loans) Factoring and invoice discounting Hire corrupt and leasing Venture slap-upA key consideration in choosing the source of naked as a jaybird business finance is to strike a balance amid equity and debt to ensure the funding structure suits the business.The master(prenominal) differences amidst borrowed bullion (debt) and equity ar that bankers request saki payments and capital repayments, and the borrowed money is ordin arily secured on business assets or the personal assets of shareholders and/or directors. A bank alike has the power to place a business into administration or bankruptcy if it defaults on debt reside or repayments or its prospects decline.ASSESSING THE IMPLICATIONS OF DIFFERENT SOURCES.Financial institutions that transcend theme boundaries and engage in such activities as blanket(a) inter bank contracts, all over-the-counter derivatives contracts, quit, bond, and syndicated loan issuance, and trading activities globally has guide to stronger interconnections, innovation, and growth. While tighter interdependencies usher pop out increase the efficiency of the global fiscal arranging by smoothing credit allocation and risk diversification, they have also change magnitude the potential for cross-market and cross-b ordinance disruptions to spread swiftly. In addition, pecuniary innovations have enabled risk transfers that were not fully recognized by pecuniary regulators a nd institutions themselves, and have complicated the sagaciousness of counterparty risk, risk management, and policy responses. Although linkages across institutions have traditionally foc mapd on solvency concerns, the current crisis reminds us of the relevance of liquidity spillovers, specifically that(1) Interconnectedness operator difficulties in rolling over liabilities may spill over to the financial system as a whole and that(2) Rollover risk associated with short-term liabilities is present(a) not only in the banking welkin but, equally importantly, in the nonblank financial sector. Thus, it is essential to improve our understanding and monitoring of direct and indirect financial systemic linkages, including by strengthening techniques to assess systemic link-ages, and thereby domiciliate to making systemic-foc employ supervision feasible.Four complementary approaches to assess financial sector systemic linkages and focuses on this definition of systemic risk 2The vane approachThe co-risk modelThe distress dependence matrixThe default posture modelCHOOSING THE APPROPRIATE SOURCE OF FINANCE FOR THE BUSINESS.There are a number of centerings of raising finance for a business. The type of finance chosen depends on the character of the business. Large organizations are able to use a wider variety of finance sources than are belittleder ones. Savings are an obvious way of aimting money into a business. A small business earth-closet also borrow from families and friends. In contrast, companies raise finance by issuing shares. Large companies often have thousands of distinguishable shareholders.To view extra finance a business can take out a loan from a bank or other financial institution. A loan is a sum of money lent for a disposed cessation of time. Repayment is made with interest. The lender of money needs to know all the business opportunities and risks involved and will therefore regard to see a detailed business plan. The lender may also want some form of security should the business run into financial difficulty, and may therefore prefer to provide a secured loan.Another way of raising short-term finance is through an overdraft facility with a bank. The borrower is given permission to take out more(prenominal) from their account than they have put in. The bank fixes a maximum limit for the overdraft. Interest is charged on the overdraft daily.Businesses may also qualify for grants. Government and cloistered funds are sometimes made useable to businesses that meet certain conditions. For example, grants and loans may be available to firms setting up in rural areas or where there is high unemployment.Out comesBy this module I silent the varied long term and short term sources of finance with the implications of choice of one source over the other and any advantages and disadvantages of sources assorted sources of finance.P2 (FINANCE AS A RESOURCE)ASSESS AND COMPARE THE COSTS OF ABOVE MENTIONED SOURCES OF FINANCE .A company talent raise new funds from the following sourcesThe capital marketsi) modern share issues, for example, by companies acquiring a seam market listing for the start-off timeii) Rights issues Loan stock Retained boodle Bank adoption Government sources Business expansion scheme funds Venture capital Franchising.Ordinary (equity) sharesOrdinary shares are issued to the owners of a company. They have a noun phrase or face apprize, typically of $1 or 50 cents. The market entertain of a quoted companys shares bears no relationship to their nominal value, except that when everyday shares are issued for exchange, the issue price must be equal to or be more than the nominal value of the shares.Deferred ordinary sharesAre a form of ordinary shares, which are entitled to a dividend only aft(prenominal) a certain date or if profits rise supra a certain amount. Voting rights might also differ from those given to other ordinary shares.Ordinary shareholders put funds into th eir companya) By paying for a new issue of sharesb) through retained profits.New shares issuesA company seeking to obtain additional equity funds may bea) An unquoted company wishing to obtain a argument Exchange quotationb) An unquoted company wishing to issue new shares, but without obtaining a Stock Exchange quotationc) A company which is already listed on the Stock Exchange wishing to issue additional new shares.EXPLAINING THE IMPORTANCE OF FINANCIAL PLANNINGFinancial planningit is a operate which presents before an individual, organization or even a country, the current financial position and the adjustments in the expending pattern, in order to meet the goals. magnificence of Financial PlanningIt is important to plan finances in order to reap long term benefits through the assets in hand. The investments that one makes are structured properly and managed by professionals through financial planning. Every decision regarding our finances can be monitored if a proper plan is d evised in advance. The following head ups excuse why financial planning is important.Cash current Financial planning helps in increasing change flow as well as monitoring the spending pattern. The cash flow is change magnitude by undertaking measures such as tax planning, prudent spending and careful budgeting.Capital A strong capital base can be built with the help of efficient financial planning. Thus, one can think about investments and thereby improve his financial position.Income It is possible to manage income effectively through planning. Managing income helps in segregating it into tax payments, other monthly expenditures and savings.Family shelter Financial planning is necessary from the point of view of family security. The various policies available in the market serve the purpose of financially securing the family.Investment A proper financial plan that considers the income and expenditure of a person helps in choosing the right investment policy. It enables the per son to r from to each one one the set goals. cast THE breeding NEEDS OF DIFFERENT DECISION MAKERS.Commonly used indicators such as the gross national product (GNP) and measurements of individual resource or taint flows do not provide adequate indications of sustainability. Methods for assessing interactions amid different sectoral environmental, demographic, societal and cultivational parameters are not sufficiently developed or applied. Indicators of sustainable development need to be developed to provide solid bases for decision-making at all levels and to contribute to a self-regulating sustainability of integrated environment and development systems.(a) To achieve more cost-effective and germane(predicate) data collection and assessment by better identification of users, in both the public and private sectors, and of their culture needs at the local, provincial, national and international levels(b) To strengthen local, provincial, national and international capacity to collect and use multicultural information in decision-making exercisees and to enhance capacities to collect and analyze data and information for decision-making, particularly in developing countries(c) To develop or strengthen local, provincial, national and international convey of ensuring that planning for sustainable development in all sectors is based on timely, reliable and usable information(d) To make relevant information favorable in the form and at the time required to facilitate its use.DESCRIBE THE IMPACT OF FINANCE ON THE FINANCIAL STATEMENTS.Financial parameters (or financial reports) are formal records of the financial activities of a business, person, or other entity.All the relevant financial information of a business enterprise presented in a structured manner and in a form easy to understand, is called the financial statements. There are four basic financial statementsBalance tag also referred to as statement of financial position or condition, reports on a c ompanys assets, liabilities, and Ownership equity at a given point in time.Income statement also referred to as Profit and Loss statement (or a PL), reports on a companys income, expenses, and profits over a period of time. Profit Loss account provide information on the surgical procedure of the enterprise. These intromit sale and the various expenses incurred during the processing state. arguing of retained earnings explains the changes in a companys retained earnings over the reporting period.Statement of cash flows reports on a companys cash flow activities, particularly its operating, drop and financing activities.For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and management discussion and compend. The notes typically get out each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financia l statements.OutcomeBy this module, I aim the be of finance as a resource, how to make up a budget on the arse of given information and implication of bankruptcy to finance adequately.P3 (FINANCIAL DECISIONS) dissect BUDGETS AND MAKE APPROPRIATE DECISIONSHow much unbudgeted downside risk you should manageWorst-case scenario (given catastrophic losses) vs. griefThe value (and cost) of compliance with regulations (for example, SOX)Real plectrons The Value of Midcourse Corrections to ProjectsOne of the primordial insights of modern financial theory is that options have value. The phrase We are out of options is surely a sign of trouble. However, because corporations (and other organizations) make decisions in a dynamic environment, they usually have midcourse options that should be considered in project valuationsThe Option to Abandon a project Has value if return (or savings) turns out to be lower than expectedThe Option to Expand a project Has value if return (or savings) turns out to be high than expectedThe Option to stick a project Has value if the underlying variables are changing with a favorable trendThe Option to Outsource a project Has value if internal resources dont have required experience and expertiseIn practice, companies sometimes have other choices. They can delay the decision until later, when more information is available. Or, they can call in outside help, even after having decision making not to do so at the outset. Such investment quantify options can dramatically affect a projects estimated mean NPV and risk. Projects that can substantially be modified in these ways are more worthful than those that do not provide such flexibility. The more uncertain the outlook, the more valuable this flexibility becomes.CALCULATE UNIT COSTS AND MAKE set DECISIONS USING RELEVANT INFORMATION.Defining CostsThere are several(prenominal) types of costs to consider when conducting a undoeven analysis, so heres a refresher on the most relevant. mul ish costs These are costs that are the equal regardless of how many items you sell. All start-up costs, such as rent, insurance and computers, are considered fixed costs since you have to make these outlays before you sell your prototypical item.Variable costs These are recurring costs that you absorb with each unit you sell.Setting a PriceThis is critical to your breakeven analysis you patois calculate likely revenues if you dont know what the unit price will be.psychological science of Pricing Pricing can involve a complicated decision-making process on the part of the consumer, and there is plenty of research on the selling and psychology of how consumers perceive price. Take the time to review articles on determine strategy and the psychology of pricing before choosing how to price your product or service.Pricing Methods There are several different schools of thought on how to treat price when conducting a breakeven analysis. It is a mix of quantitative and qualitative fact ors.The formula Dont worry, its fairly simple. To conduct your breakeven analysis, take your fixed costs, divided by your price, disconfirming your variable costs. As an equation, this is delimit asBreakeven Point = Fixed Costs/(Unit Selling Price Variable Costs)This calculation will let you know how many units of a product youll need to sell to break even.Above the breakeven point, every additional unit sold increases profit by the amount of the unit contribution margin, which is defined as the amount each unit contributes to covering fixed costs and increasing profits. As an equation, this is defined asASSESS THE VIABILITY OF A PROJECT USING INVESTMENT idea TECHNIQUES.Learning OutcomeAssessment Criteria1. record the nature of method of accounting, business and stewardship inwardly a business environment take the nature and purpose of book-keeping and accounting and the difference between them.Be able toExplain the difference between book-keeping, financial accounting and m anagement accounting. commit different stakeholders and their interest in the financial position of the business.Explain how accounting can be used for planning, decision making and control.Be able toIdentify and describe the perfect accounting concepts of going concern, accruals, consistency, prudence and true and fair.Identify the key elements of financial statements (income, expenses, assets, liabilities, capital) and describe their relationship using the accounting equation.1. Understand the nature of accounting, accountability and stewardship within a business environment (continued)Identify the main financial statements and explain how they are compiled (Profit and Loss Account, Balance Sheet and Cash black market Statement).Describe how financial accounts are regulated using accounting standards.2. Understand how financial statements can be analysed and readed to judge the performance of a businessUnderstand how financial statements can be analysed and interpreted using r atio analysis so that stakeholders can judge the performance of a business.Be able toIdentify likely users of ratio analysis and explain how they might use the information.Calculate and interpret profitability ratios (gross profit, net profit, ROCE, asset turnover).Calculate and interpret liquidity ratios (current ratio, acid test ratio, debtor days, creditor days, stock turnover days).Calculate and interpret investment ratios (gearing, interest cover, simple EPS) economic consumption ratio analysis to make comparisons between one business over time, two businesses or to compare results to industry standards.Explain the benefits and limitations of ratio analysis.3. Understand the importance of works capital maintenance (continued)Explain how creditors can be used as a source of finance and signalize the costs of trade credit.Explain how the elements of working capital can be managed effectively to minimise borrowing and its associated costs.Understand how a cash flow call can be u sed to predict and manage future working capital requirements.Be able toDistinguish between cash and profit.Identify and understand the implications of non-cash accounting adjustments such as depreciation and provision for badness debts.Prepare a simple cash flow forecast and identify periods of cash excess or cash shortage.4. Identify and assess different sources of funding available for businessUnderstand that there are a range of sources of finance available for businesses and those different types of finance are competent for different purposes.5. Understand and distinguish between costs based on their behaviourUnderstand that costs can be classified in different ways based on their behaviour.OutcomeBy this module I able to understand the different investment appraisal techniques and nature of long-term decisions.P4 (FINANCIAL PERFORMANCE)EXPLAIN THE PURPOSE OF MAIN FINANCIAL STATEMENTSThe three main financial statements areThe balance sheet-which reports a corporations assets , liabilities, and stockholders equity as of a point-in-time (e.g., as of midnight of December 31, 2009).The income statement-which reports a corporations revenues and expenses for a period of time, such as a year, quarter, month, 52 weeks, 13 weeks, etc.The statement of cash flows (or cash flow statement)-which provides information on the change in a corporations cash and cash equivalents during the same period of time as the income statement.The financial statements that are distributed outside of a company need to be prepared in accordance with generally accepted accounting principles (GAAP). For example, the cost principle generally requires that the balance sheet should report long-lived assets at cost minus accumulated depreciation. The matching principle requires that the cost of long-lived assets used in the business be allocated to various accounting periods in which they generate revenues or are used up.ANALYSES FINANCIAL STATEMENTS USING APPROPRIATE ratioNS AND COMPARIS ONS, BOTH upcountry AND EXTERNAL.1. CURRENT proportionality OR WORKING CAPITAL RATIO ongoing ratio may be defined as the relationship between current assets and current liabilities it is also known as working capital ratio. up-to-date assetsCURRENT RATIO =Current liabilitiesYear ended2007-082006-072005-062004-052003-04Current assets(in crores)913.27233316141171913.27Current liabilities(in crores)1479994475336213Ratio0.622.3473.3973.4854.132 variationA current ratio of 21 is usually considered as ideal.If it is less than 2, then it means the company is not enjoying the adequate liquidity.In past five years it shows a decline in the ratios.2. QUICK RATIOFormula = Current Assets scroll Prepaid ExpensesCurrent LiabilitiesInterpretationA quick ratio of 1 is considered ideal.In all the five years, it was above 1, where the funds can be properly employed.LEVERAGE RATIOS1. DEBT EQUITY RATIODebt-equity ratio, also known as External-Internal ratio is calculated to measure the relative cl aims of outsiders and the owners (i.e., shareholders) against the firms assets. This ratio indicates the relationship between the external equities or the outsiders funds and the internal equities or the share holders funds.InterpretationA DEBT EQUITY RATIO OS 21 IS IDEAL.IN 2004-06 THERE IS NO DEBT EQUITY RATIO.IN 2007 AN 2008 IT SHOWED A NEGLIGIBLE VALUE.2. PROPRIETORY RATIOIt is the ratio between shareholders equity and total Assets.Formula= Shareholders EquityTotal AssetsYEARSHAREHOLDERS EQUITYTOTAL ASSETSRATIO2004125.3413090.0952005140.7116510.0852006285.1522570.1262007291.8033890.0862008298.6539870.074InterpretationA higher the proprietary ratio the better it isIn all the five years it is less than one.It shows weak financial position of the business.3. concern COVERAGE RATIOIt is the ratio between EBIT and InterestFormula = EBITInterestYEAREBITINTERESTRATIO200435520054102006499149920076936115.520088341364.15InterpretationThe higher interest coverage ratio the better it is.I n 2004 there is no interest coverage ratio.In 2006, 2007 2008 it showed a heavy ration which indicates a greater safety ofOut comeBy this I understood the basis business and accounting terminology used and should be able to interpret the information collected from financial statements using ratio analysis and could tramp conclusions from it.CONCLUSIONSBy this module I understood the different long term and short term sources of finance with the implications of choice of one source over the other and any advantages and disadvantages of sources different sources of finance. By this module I identify the costs of finance as a resource, how to make up a budget on the basis of given information and implication of failure to finance adequately. By this module I able to understand the different investment appraisal techniques and nature of long-term decisions. By this I understood the basis business and accounting terminology used and should be able to interpret the information collected from financial statements using ratio analysis and could draw conclusions from it.