Managing Financial

Resources

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Table of Contents
INTRODUCTION........................................................................................................................................4
LO1 UNDERSTAND THE SOURCES OF FINANCE AVAILABLE TO A BUSINESS................... 4
1.1.............................................................................................................................................................4
1.2.............................................................................................................................................................5
1.3.............................................................................................................................................................6
LO2 UNDERSTAND THEM IMPLICATIONS OF FINANCE AS A RESOURCE WITHIN A
BUSINESS................................................................................................................................................... 7
2.1.............................................................................................................................................................7
2.2.............................................................................................................................................................8
2.3.............................................................................................................................................................9
2.4.............................................................................................................................................................9
LO3 BE ABLE TO MAKE FINANCIAL DECISIONS BASED ON FINANCIAL INFORMATION
.................................................................................................................................................................... 10
3.1.......................................................................................................................................................... 10
3.2.......................................................................................................................................................... 11
3.3.......................................................................................................................................................... 12
LO4 BE ABLE TO EVALUATE THE FINANCIAL PERFORMANCE OF A BUSINESS.............. 13
4.1.......................................................................................................................................................... 13
4.2.......................................................................................................................................................... 14
4.3.......................................................................................................................................................... 15
CONCLUSION..........................................................................................................................................16
REFERENCES.......................................................................................................................................... 17

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LIST OF TABLES
Table 1: NPV for project A...................................................................................................12
Table 2: NPV for project B...................................................................................................12
Table 3: Ratio of Northfield components Ltd.............................................................. 15

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INTRODUCTION
Money is very important factor of any organization which decides the
whole position of the company. Companies must manage their finance
effectively to minimize the cost and maximizing the profit. For better
administration business should understand source of finance and availability
of funds. Financial data are recorded in the statements which play very crucial
role in decision making regarding expansion and other valuable decisions.
Firms will learn regarding pricing strategies and investment appraisal
techniques through this report. They can evaluate financial performance of
the Northfield components Ltd. after understanding of all financial statements.
Mangers can make decision regarding future expectation of business through
budgeting tools and techniques.

LO1 UNDERSTAND THE SOURCES OF FINANCE
AVAILABLE TO A BUSINESS
1.1
In today's market Northfield components Ltd. has many option to increase
their funds from internal and external sources(Bludluv, 2010). Basically
following may be valuable resource of funding for any associates.
❖ Bank loan: Banks are the financial institutions which provides short term,
mid term and long term loan to a firms. Any type of business (new and
old, large and small and those wishing to expand) can take advantage of
bank loan. Many people calls that banks are supermarket of debt.
❖ Retained earnings: Profit retained by entity for reinvestment purpose
are also a big resource of money for any organization. Company can
invest it in new project easily because they can get funds from this

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option in very minimum time(Managing financial resources and
decisions. 2010).
❖ Venture capital: This techniques is useful to start a new unit or bring a
new product to market. It is the techniques of generating money from
private equity stakes in small and medium size enterprises with high
growth opportunities.
❖ Franchising: when business want to expand their market share,
franchising may be a good option for them. It is a arrangement tools in
which franchisee pays a franchiser for getting right to operate a local
business with the name of franchise's trade(McDonnell and Burgess,
2013).
❖ Hire purchase: It is a form of credit which provides installments facility to
a person. Industry needs a fixed assets like machinery, computers,
vehicles etc, for running the business. Hire purchase provide them
special facility to pay in installment.
❖ Sales of assets: Fixed assets are big property of any organization. They
can sell their unused assets, scrap and damaged equipment's to arrange
money in very short time. It is very easiest way of arranging funds
without having any big cost.
❖ Borrowing money from market: Many a time our friends and family
members may be the most lenient investors of the business. Managers
can borrow money from open market activities or their individual
sources(Narayanan and Nanda, 2014).

1.2
Better implementation of financial resources is the need of today decision
maker they have to use available option in effective manor to ensure
profitability. All source play very important role for business according to
situation and position of the business. For a Northfield components Ltd.
industry capital market and bank borrowings may be valuable than other

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resources. But for a small enterprises its may be less helpful and individual
source like credit from markets may be important. Implications of each source
depends on the volume of business, current requirement, amount of
investment and purpose of the investment(Price, 2004).
If a small firm want to start need new business then it will go with banks
loan and personal sources of finance. The sources which can be getable easily
are more important than others which has many difficulties. For getting money,
company must fulfill some formalities or legal document. it is also a creates
big problems to analyzing any resource. Managers has to find out best option
which fulfills all financial requirement in easy way(South, 2006).

1.3
Money needed for Northfield components Ltd. depends on the lot of factors
which can affect the decision regarding selection of option. Factors like
amount of money required, cost of resources, how quickly the money is
needed, availability of option and the length of time of the requirement are
affect the decision of managers. They must analyze all feature carefully for
profitability. Manager has to decide that what type of sources they wish to
use for their company(Winand, Zintz and Scheerder, 2012). They must choose
suitable option for business which reduces the cost of the company.
Ease of availability also a big factor which can change mind of the
administrator regarding selection. They always use the option which can be
easy in use. Many source of funds needs some legal formalities which
company must fulfill. so it will also create big gap. It is also affect the decision
that why enterprises requires money, purpose of money should be very clear.
If company wants to expand market share they need source which provides
big amounts. But if they wants to buy fixed asset then they can use hire
purchasing and leasing option(Bludluv, 2010).

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LO2 UNDERSTAND THEM IMPLICATIONS OF FINANCE
AS A RESOURCE WITHIN A BUSINESS
2.1
Different types of funding sources has special variety of cost. The decision
regarding selection of them depend on the cost of the financial resources
which company has to pay. If associate want to get money through capital
market. It will generate more share holder and it must pay some amount of
dividend on shares. Dividend is the liabilities of the company which reduces
the profit of the organization. In the case of retained earning cost of the
company will be also same as capital market(Managing financial resources
and decisions. 2010). They must pay extra amount of dividend to their
shareholders.

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Resources,
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Interest is the another cost of the bank loans. Mangers must pay some rate of
interest from profits for bank loans. Loans from financial institutions also a big
liabilities of the company which increase responsibilities to pay loans. Firms
has to pay fixed interest quarterly or yearly with predefined interest rate. In

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case of borrowing money from individual sources cost of the company will be
interest which they must pay.
In the case of hire purchase, company pay money in installment to buy
asset. But installments includes some interest which increase cost of the
enterprises. In this situation company will be owner after making payment of
last installment. Another option for managers is sales of assets. This resource
minimizes the property of assets(McDonnell and Burgess, 2013).

2.2
Financial planning play valuable role for Northfield components Ltd.. It is
very important in effective decision making. It provides a ways through which
managers can reduce cost by managing money systematically. It is very
important to generates expertise in the field of fund administration. If a
company wants to be successful it must make some plans regarding
economical activities otherwise they can not reach to their
objectives(Narayanan and Nanda, 2014).
Taxes also a big item which may affect the profit of the firms so there
should be very excellent arrangement for tax. Associates has many
expenditures at work place. To control them they must plan very well.
Financial planning also play very crucial role for managing savings. They
required some special preparation for arrangement of activities of the
business.
Northfield components Ltd. can monitor their spending patterns and
expenses with the help of proper financial planning. It will increase cash flows
of the company. It has many expenditure to manage day to day work, for that
managers can make plan regarding working capital of the company. Money is
looking like a heart of the company(Price, 2004).

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2.3
Northfield components Ltd. has many decision makers who needs
information regarding organization for making effective decision. There are
kind of stakeholders who require all economical data of the enterprises.
Corporation has many information which affect the thinking point of internal
players like management team, CEO of the associates etc. There are many
external groups who wants data like customers, shareholders, suppliers,
public and government departments etc.
Many a time government needs economical information for policy making.
Tax department may demand some information to set the tax liability of the
groups. Generally management team requires money information to find out
the current position of the company and to decide future plans regarding
expansion. Enterprises compare itself with other competitors to making
strategies to fight them(South, 2006).
Decision making regarding investment of the shareholders depend on the
data of the company. They require some information to find out the ratios of
the company for getting knowledge regarding actual position of the company.
Suppliers of the organization demands data to make decisions regarding
continuous supply of raw material to a company or not(Winand, Zintz and
Scheerder, 2012).

2.4
Financial statement includes information regarding all financial data of the
enterprises. It has many sources to generate money from market but this
resources can make big impact on the financial report of the associates.
Capital of the group may be increased by new share issue but same time
liabilities to pay dividend will be also increase. It will decrease the profit of the
groups(Bludluv, 2010).
Loans can fulfill the requirement of the Northfield components Ltd. but it
will reduce profit and increase the price of the product which will also affect

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the sales. If they will borrow funds from relative then they should pay interest
to them. so it will increase expenditures and same time it will reduce the
profits.

LO3 BE ABLE TO MAKE FINANCIAL DECISIONS BASED
ON FINANCIAL INFORMATION

3.1
Cash budget represents the economical position of Northfield components
Ltd. The main problems of the company is mismanagement. They requires to
control their expenses very well because it will affect the overall profit. Sales
of the unit also has big variation in all month. Consistency is not there.
Northfield face big problems of high level of expenditures which increases the
price of the product and also reduce the quantity of the sales(Managing
financial resources and decisions. 2010).
Deficit is the position where expenses are more then sales. it reduces the
revenue generated by the company. Management team of Northfield
components Ltd. is very weak. They does not supervise the activities of the
unit properly. It increases the expenses of the firms. They does not maintain
the volume of sales properly that make pressure on revenue. They purchases
the row material in proper manor but they does not use it in effective way.
Company can improve their cash budget by increase the marketing
expenditure. It will generate more sales which reduces deficit. They should
make proper control strategies for expenses of the unit. Cost control is the
tools of achieving organization goal in effective manor. Enterprise should
make strategies regarding cost controlling. Management should be very
effective to coordinate the work of the associate(McDonnell and Burgess,
2013). Northfield components Ltd. should adopt modern tools for their
management which can reduce the per unit cost of the product and give
maximum profit. Utilization of resources is also important factor which reduce

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the expenses. company should use their resource of production in effective
way.

3.2
Firms can calculate per unit cost for making pricing decision. Total cost
incurred by a unit divided to total quantity produced by unit is called per unit
cost. There are two type of cost fixed cost and variable cost. Fixed expenses
are the expenditures which company must expend to make product. It can not
be reduced. Variable cost are the expenditures which may be changed by
condition. It can be minimized(Narayanan and Nanda, 2014).

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Price of the products decided by adding some profits into cost of the product.
So company should control their unit cost to make best pricing strategies.
Management must declare high price if per unit cost of the manufactured
goods is high. They can not overcome the fixed expenses but they can control
variable expenses through effective management tools and techniques. If
company wants to compete their competitors they must make efficient pricing
plan. It will minimize sales and maximizes the overall market share and
profit(Price, 2004).

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3.3
There are many project appraisal techniques which gives idea about
deciding the best way of completing the project. Net present value is one of
them. It is the technique of selecting best project from available all options. It
is the tools of project management for effective use of resource for increasing
productivity. Following is the practical scenario to find out the net present
value for decision making(South, 2006).

Net present value of project A & B

Table 1: NPV for project A
Year Project A PV Factor @ 6% Present Value
(£) (£)

1 180000 0.94 169200

2 230000 0.89 204700

3 280000 0.84 235200

4 120000 0.79 94800

Total Present 703900
Value (£)

Initial Investment 450000
(£)

Net Present Value 253900
(£)

Table 2: NPV for project B
Year Project B PV Factor @ 6% Present Value

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(£) (£)

1 60000 0.94 56400

2 120000 0.89 106800

3 250000 0.84 210000

4 250000 0.79 197500

Total Present 570700
Value (£)

Initial Investment 450000
(£)

Net Present Value 120700
(£)

Above analysis of project A and project B with the use of net present value
techniques shows the condition of both projects. Project A gives higher NPV
than B. it means project A is more effective than B.

LO4 BE ABLE TO EVALUATE THE FINANCIAL
PERFORMANCE OF A BUSINESS
4.1
Basically there are three types of financial statement for different type of
organization. Economical statements are the reports of the enterprises which
provides data regarding firms. Followings are the three statements which
businesses are used for recording information's.
❖ Balance sheet: It is the basic economic report of the group which
provides position of the company. There are two side of balance sheet
asset and liabilities. Asset side includes fixed assets, current assets,
cash, cash in bank etc. Liabilities side includes loans, capital and all

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other liabilities. It prepares at the end of financial year(Winand, Zintz
and Scheerder, 2012).
❖ Income statement: This report is important to find out revenue position
of the groups. it shows profit or loss of the associates. It has two side DR.
and CR. accountant of the unit includes monetary information regarding
expenses and income for the financial year. it also prepares at the end of
financial year. It provides valuable data to analyze the profitability of the
group.
❖ Cash flow statement: The last and most valuable declaration of the
enterprise is cash flow. It includes data regarding sources of cash , uses
of cash and change in cash balance. It ensure the capacity of the firms to
pay its liabilities. A company has many expenses and income but it
requires some idea regarding ability to pay bills of the unit(Bludluv,
2010).

4.2
There are three type of business which use different type of formats to
prepare financial statements for their organizations. It are as follows:
❖ Sole proprietor: It makes reports on basis of volume of the business. If a
sole proprietor runs a small business than he does not need to prepare
any financial report because the position and profit of business may be
calculated by general entries in simple note books. but a big associates
make all required statement for their organization(Managing financial
resources and decisions. 2010).
❖ Partnership: Partnership is the form of business in which two or more
then two people comes together for trade. there are legal agreement
which called dead. It makes Firms for doing particular work for particular
time period. They also makes all document to find out the position and
profit or loss of the trade. They also makes capital account to find out
the position of the partners for firms.

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❖ Public limited company: It is the popular type of business which needs to
prepare financial statement to follow the companies act 1956. Company
must prepare balance sheet and income statement in this kind of
business. They also prepares cash flow to manage the financial
requirement of enterprises(McDonnell and Burgess, 2013).

4.3
Managers has kind of ratios through which they can analyze the position of
the organizations. It play very crucial role to compare firms with other firms.
Following table shows the ratio calculation of Northfield components Ltd. for
year 2003 and 2004.

Table 3: Ratio of Northfield components Ltd.

Name of Ratio Formula 2003 2004
Gross profit Ratio Sales- cost of goods sold/sales 0.61 0.16
Return on capital Net income/shareholders equity 30.25 42.62
employed
Stock turnover ratio Cost of goods sold/average stock 13.78 12.95
Debtors collection Average debtors/credit sales*365 25.45 27.93
period
Creditors payment Creditors *365/sales 30.33 27.16
period

❖ Gross profit Ratio: It is the ratio of gross profit earned on total sales. Only
cost of goods sold in included to find out this ratio(Narayanan and Nanda,
2014). Other expenses does not included to find out this.
❖ Return on capital employed: This ratio shows the position of the share
holders. they can find there returns from investment. It measures
profitability and efficient of the organization. company has good position
in 2004 because it has high ROCE in that year.

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❖ Stock turnover ratio: It finds out the position of stocks in the organization
for particular time period. It shows number of times inventory is sold in
year(Price, 2004).
❖ Debtors collection period: It is the time in which business can collect
money from debtors. It play very important role to analyze the time of
getting money from market. In 2003 company has minimum collection
time then 2004. It shows good position of money payment.
❖ Creditors payment period: It is the opposite condition of debtors
collection period. It is the time in which business must pay money to
their creditors. company has maximum time in 2003 it means it was in
good position on that year(South, 2006).

CONCLUSION
This report represents the strategies to manage financial resources of the
company with high level of productivity, effectiveness and efficiency. No
business can be possible without money, there should be lot of money to
operate any company. Mangers has to make some plans to control cost for
making decision regarding pricing. There should be proper management
regarding economy of the organization. The study shows the importance of
financial statement, with the help of these statement administrators can
analyze all ratio to find out the real financial position of the businesses.

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REFERENCES

● Narayanan, M.P. and Nanda V.K., 2014. Finance for Strategic
Decision-Making: What Non-Financial Managers Need to Know. John Wiley
& Sons.

● Price, B., 2004. Managing Financial Resources and Decisions: Course Book.
BPP Professional Education.

● South, L., 2006. Local Financial Management: An Overview. International
Journal of Educational Management.

● Winand, A., Zintz, T. and Scheerder, J., 2012. A financial management tool
for sport federations. Sport, Business and Management: An International
Journal.

● Khan, A. and Hildreth, W. B., 2004. Financial Management Theory in the
Public Sector. Greenwood Publishing Group.

● Enz, C.A., 2009. Hospitality Strategic Management: Concepts and Cases.
John Wiley and Sons.

● Smit, P.J., 2007. Management Principles: A Contemporary Edition for Africa.
Juta and Company Ltd.

● Bryans, W., 2005. Resource Management in Health and Social Care:
Essential Checklists Radcliffe Series. Radcliffe Publishing.

● Weiss, H.B., Brevis, T. and Cant, M.,2008. Business Management: A
Contemporary Approach. Juta and Company Ltd.

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