Financial Management Assignment Sample

Assignment

Financial Management

Type of Documents No of Words

: Assignment : 1500

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Financial Management

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Table of Contents

INTRODUCTION .......................................................................................................................... 3

TASK 1:.......................................................................................................................................... 3

1.1: Sources of finance available to London Woods Ltd............................................................ 3

1.2: Impact of different sources of finance on London Woods Ltd............................................ 3

1.3: Appropriateness of different sources of finance for London Woods Ltd............................ 4

TASK 2........................................................................................................................................... 4

2.1: Cost associate with different sources and its impact on London Woods Ltd. ..................... 4

2.2: Importance of financial planning for London Woods Ltd................................................... 4

TASK 4........................................................................................................................................... 7

4.1: Financial Statements of the company.................................................................................. 7

4.2: Financial statement of a company and a sole trader ............................................................ 7

4.3: Ratio calculation .................................................................................................................. 7

CONCLUSION............................................................................................................................... 8

REFERENCES ............................................................................................................................... 9

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List of Tables

Table 1: PV of Machine A.............................................................................................................. 5

Table 2: PV of Machine B .............................................................................................................. 5





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INTRODUCTION

The existing business environment is very turbulent so corporate houses find it very

difficult in managing their financial statement. In such scenario, financial management plays

significant role for the companies for managing and organizing their financial data and

statements. In the following study different financial tools and techniques will be applied on the

London Woods company to analyze its financial performance which will help it in decision

making (Tektas, Gunay and Gunay, 2005).

TASK 1:

1.1: Sources of finance available to London Woods Ltd.

Different sources available to London Woods are:

The company can approach any bank for raising funds. Secondly, it can apply for

overdraft facility. Apart from bank, it can generate cash by issuing shares through stakeholder in

the market. Another source of funds is retained earnings. Trade creditors can also be a good

source of raising funds. Finally, the firm can generate funds through friends and family and angel

investors (Fairchild, 2002).

1.2: Impact of different sources of finance on London Woods Ltd.

Different sources of finances impacts any business in different ways. Suppose London

Woods Ltd. takes bank loan, it will be beneficial for the company as it is most safe and secure

source of raising funds, and in addition, cost of raising fund is also not very high as banks

charges nominal rate of interest. Moreover, the firm can take advantage of bank’s overdraft

facility. Apart from bank loan, retained earning can also proved to be a good source, as firm do

not have pay any kind of cost for this fund and it can be utilized at the time of emergency.

On the other hand, if organization goes for trade credit, it can tarnish the reputation of the

company as its suppliers and creditors will fell that the company is not having enough funds to

meet its short term obligations. But it has advantage also, it delays the repayment time. Finally,

although funds from friends and family do not carry any interest charges, but can affect the

relations if payments are not made on time (Carey, 2001).





1.3: Appropriateness of different sources of finance for London Woods Ltd.

Before raising finance from any source, the company must evaluate all the options

available to it. In case of London Woods Ltd, hire purchase can be the best option as; initially it

does not have to pay big sum. In this, the user can use the machine by paying regular small

installments to the owner of the machine. Once the contract period is over, the user can either

return the machine back to the owner or he can purchase it at discounted cost. To secure the

rights of both the side, a financial house is involved as mediator.

Apart from hire purchase, company can also go for lease agreement. Under this type of

agreement, the lessee, that is, the user can use the machine or other asset for a decided period by

paying regular installments against the use of the asset. In such agreement, ownership is not

transferred to the user; it remains with the owner only. Once the contract period is expired, user

has to return the asset back to the owner. The company can consider the above two methods

(Hussain and Gunasekaran, 2002).

TASK 2

2.1: Cost associate with different sources and its impact on London Woods Ltd.

Different kind of cost is associated with different sources of finance. If London Woods

Ltd. goes for bank loan, interest cost is associated with it. Whereas, if the company opts for hire

purchase or leasing, it will have to pay installments. On the other hand, if it issues shares in the

market, it will have to distribute dividends to its shareholders. Finally, for installation of the

machine also, it will have to pay some cost, it may be either fixed or variable (Squire and

Snyman, 2004).

2.2: Importance of financial planning for London Woods Ltd.

Financial planning is very important for all the business as it helps the company to

identify how much capital will be required by the firm to meet out the operational and other

expenses. By using financial planning tools and techniques London Woods Ltd. can take

decisions regarding deployment of funds and can also make investment decisions. Further, this

will help the organization to determine its short term and long term requirements of funds.

Moreover, the firm can come up with appropriate capital structure. The organization can manage

its cash flows by implementing some financial planning so as to make sure the company is





= ℎ 5

= ℎ

The cost of capital in the study is given between 10 – 12%. Let’s assume it to be 12%.

Table 1: PV of Machine A

Year Cash flows (000) £ PV factor @ 12% PV

1 800

800

800

400

100

0.893

0.797

0.712

0.636

0.567

7144000

6376000

5696000

2544000

567000

22,327,000

2

3

4

5

Total

NPV = = 22327000-2000000

= £ 20,327,000

As NPV is coming positive, company can put money on machine A.

Table 2: PV of Machine B

Year Cash Flow £ PV factor at 12% PV

1 5000000

5000000

5000000

5000000

1000000

0.893

0.797

0.712

0.636

0.567

4465000

3985000

3560000

3180000

567000

15,757,000

2

3

4

5

Total

NPV = 15757000-2000000

= £13,757,000

As NPV of this is also coming positive, company can purchase machine B also.





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TASK 4

4.1: Financial Statements of the company

There are three main kind of financial statement for any company. These are cash flow,

income statement and balance sheet. Cash flow shows the flow of cash, both inwards and

outwards. Income statement shows the net profit or loss made by the company. It has two

elements; income and expenses. Finally balance sheet is very important statement and tells about

the company’s financial position. All the assets and liabilities are shown in the balance sheet

(Shim and Siegel, 2008).

4.2: Financial statement of a company and a sole trader

Company is formed when there are at least two or more person, whereas, sole trader is

the business owned and controlled by a single person. In company, all liabilities of the business

are on the name of company, whereas for sole trader, all the liabilities are owned by single

person. It is must for all the companies to follow GAAP for preparing financial sheet as it is used

by many person, on the other hand, the case is not same for the sole trader (Brigham and

Ehrhardt, 2011).

4.3: Ratio calculation

Net profit margin:

=

37 = 7.4%

499

It tells how much profit a company is making by spending a unit of money

Current Ratio:

=

154 = 79 = 1.94





CONCLUSION

After working on the above case, it can be concluded that it is very important for London

Woods Ltd. to have good knowledge of market and its customer and further it can manage its

funds properly by using financial management techniques.





REFERENCES th

Brigham, E. F. and Ehrhardt, M. C. 2011. Financial Management: Theory and Practice. 13 ed.

Cengage Learning. Carey, A. 2001. Effective risk management in financial institutions: the turnbull approach.

Balance Sheet. 9(3). pp.24-27.

Fairchild, R. 2002. Financial risk management: is it a value-adding activity?. Balance Sheet. 10(4). pp.22-25.

Flynn, D. K. Uliana, E. and Wordmald, M. 2012. Financial Management. 6 th

ed. Juta and Company Ltd.

Hussain, M. M. and Gunasekaran, A. 2002. Non-financial management accounting measures in Finnish financial institutions. European Business Review. 14(3). pp.210-229.

Jonathan, B. 2010. Financial Management. Pearson Education India.

Shim, J. K. and Siegel, J. G. 2008. Financial Management. 3 ed. Barron's Educational Series. rd

Squire, M. M. and Snyman, R. 2004. Knowledge management in three financial organisations: a case study. Aslib Proceedings. 56(4). pp.234–242.

Tektas, A. Gunay, E. N. O. and Gunay, G. 2005. Asset and liability management in financial crisis. The Journal of Risk Finance. 6(2). pp.135-149.

Webster, L. A. H. and et. al. 2007. Financial Management. Medical Group Management Assn.




Financial Management Assignment Sample

Economy & Finance

Transcript of Financial Management Assignment Sample