Unit 2 Managing Financial Resources and Decisions
CONTENTS
1. Understanding the Sources of Finance Available to a Business
Identify the sources of finance available to a business.
Assess the implications of the different sources
Evaluate appropriate sources of finance for a business project
2. Understanding the Implications of Finance as Resource within a Business
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
3. Making Financial Decisions Based on Financial Information
Analyse budgets and make appropriate decisions
Explain the calculation of unit costs and making pricing decisions
Assess the viability of a project using investment appraisal techniques
4. Evaluate the Financial Performance of a Business
Discuss the main financial statements
Compare appropriate formats of financial statements from different types of business
Interpret financial statements using appropriate ratios and comparisons, both internal and external.
Internal Sources:
Working Capital – Money available for day-to-day running of the business. Retained profit, reducing inventory and tighter credit control all fall under this heading
Retained profit - the profit kept in the company rather than paid out to shareholders as a dividend.
(http://beta.tutor2u.net/business/blog/qa-what-are-retained-profits - visited 11 March 2015)
Advantages:
Cheap form of finance
No interest and readily available
No risk of ownership dilution due to shares issue.
Disadvantages:
Shareholders may require a dividend be paid
If no profit, then no expansion
Cost:
To the shareholders who will not get the dividend payout they expected.
Pressure cost for the Manager/owners to ensure that the money they reinvest in the company pays a higher dividend in the long term.
Tighter Credit Control – Chasing debtors and offering discounts for early payment. Paying suppliers at the end
1. Understanding the Sources of Finance Available to a Business
Identify the sources of finance available to a business.
Assess the implications of the different sources
Evaluate appropriate sources of finance for a business project
2. Understanding the Implications of Finance as Resource within a Business
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
3. Making Financial Decisions Based on Financial Information
Analyse budgets and make appropriate decisions
Explain the calculation of unit costs and making pricing decisions
Assess the viability of a project using investment appraisal techniques
4. Evaluate the Financial Performance of a Business
Discuss the main financial statements
Compare appropriate formats of financial statements from different types of business
Interpret financial statements using appropriate ratios and comparisons, both internal and external.
Internal Sources:
Working Capital – Money available for day-to-day running of the business. Retained profit, reducing inventory and tighter credit control all fall under this heading
Retained profit - the profit kept in the company rather than paid out to shareholders as a dividend.
(http://beta.tutor2u.net/business/blog/qa-what-are-retained-profits - visited 11 March 2015)
Advantages:
Cheap form of finance
No interest and readily available
No risk of ownership dilution due to shares issue.
Disadvantages:
Shareholders may require a dividend be paid
If no profit, then no expansion
Cost:
To the shareholders who will not get the dividend payout they expected.
Pressure cost for the Manager/owners to ensure that the money they reinvest in the company pays a higher dividend in the long term.
Tighter Credit Control – Chasing debtors and offering discounts for early payment. Paying suppliers at the end
References: Brigham, E. F., & Ehrhardt, M. C. eds. 2005, Financial Management Theory and Practice. Ohio: South-Western. Brealy, Richard A., & Stewart C. M., eds. 2003. Principles of Corporate Finance. Boston: McGraw-Hill/Irwin. Banerjee, S. (2015). An analysis of profitability trend in Indian Cement Industry. Economic Affairs, 60(1),171-179. Michael, R. (2015). Ratios Overview. In Financial Ratios for Executives (pp. 1-5). Apress. Whyte, R., & Lohmann, G. (2015). The carrier-within-a-carrier strategy: An analysis of Jetstar. Journal of Air Transport Management, 42, 141-148.