Managing Financial Resources And Decisions
Factors Affecting Financial Planning
Finance planning is a useful tool of decision making. It provides information regarding sources of finance and availability of money for a business organization. This study helps to evaluate these different sources and identifies the ways through which these can be used to fulfill expansion need of Fort Sport Ltd. Company will also understand that how financial information is recorded and how to use this information to make decisions regarding budgeting and other financial planning. It also gives opinion related to pricing decision and investment decision of the unit. To find out the performance of the Fort Sport Ltd. there are lot of techniques which can be helpful.
Raising money through investors: There are many firms, company and individual investors in market. It has ability to fulfill expansion requirement of the Fort Sport Ltd. In the given situation Bannatyne Group is interested in investing in Fort Sport. So company can think about the proposal given by the Group. It will be the great source of money from investors (Bludluv, 2010).
The capital market: It is also a big source of funding for Fort Sport. Company can issue more shares in the capital market to generate the money from individual or institutional investors of the country. It will be very useful tools to arrange money for expansion.
Bank loans: Banks are the very important player of the economy of the country. They provide investment proposal to the industry for running economy of the country. Fort Sport can use this source for finance. They can take loans from bank at fixed rate for long time easily.
Every source of finance has some risk of bankruptcy etc. There are kind of problem to implication the source in the company. They must follow many legal rules and regulation to implement the resource in the organization (Bryans, 2005). Fort Sport Ltd. has option of arranging money from Bannatyne Group company has to give some right to firm. It will reduce the control of the company from business activities. Group gives proposal on the basis of legal agreement, so company must fulfill the rules and regulation of the proposal.
To arrange money from capital Market Company must register itself in the Stock Exchange of the country otherwise it cannot issue share in the capital market. If company is registered in the Stock Exchange and it issues the extra shares in the market to arrange money for expansion, it has to divide percentage ownership into new shareholders. Company also fulfills the rules and regulation of the capital market authority and the central bank of the country (Clark, 2004).
Banks are the suitable option in today's economy. They provide customers services in today's competitive era. But in the bank financing there are many rules and regulation which company has to fulfill according to central bank of the country. Many a time company must give some control of management to banks. Banks also has power to recover loans by selling the assets of the company. Company can face bankruptcy situation in this condition.
At the time of choosing best resource of finance for Fort Sport Ltd. managers must find out the benefits to using the sources. Company has one investor who wants to invest money in the company. So company can easily get fund from investors. Investors can provide special suitable term and condition of the proposal which may be suitable for Fort Sport Ltd. They do not need to give control to their investor. Company can also get funds easily from capital market if company is registered in Stock Exchange. They can find their investors easily from market. Bank is also a beneficial option for the Fort Sport Ltd. because it can provide money at minimum cost and it has easy systems to get money (Enz, 2009).
Making decision regarding source of finance company has to find out the time period for which money is required and also it need to find out amount of money required. After deciding time and amount of money managers can make decision regarding selection of available resources easily. Money through investors may be effective choice for Fort Sport Ltd. because company already has one investor Bannatyne Group which wants to invest money in the Fort Sport Ltd. It will be the suitable option for the unit because it is the easy way to arrange lot of money for long term in minimum time.
Each resource of the finance has some cost which Fort Sport Ltd. has to pay for using money. Managers can call these costs by different names like Interest, Dividend, and Interest on loans, Profit of Investors etc. For the using of banks Loans Company must pay some money in the form of interest at the pre decided rate for the pre decided time period. Interest is the big cost of money from banks. Company can get money from personal source like family members; employees etc. in that case enterprise also pay some interest (Hawthorn, 2014).
Capital market is the easy and fast way of arranging money but company has to pay dividend to their share holders at the end of financial year from profit. It is the big cost of money from shares which reduces the profit of the organization. Many a time another company or firm invest money in the unit in this situation organization must pay some profit to their investors from overall profit. All the source of the funding has different type of cost which company has to pay. At the time of choosing the appropriate option for Fort Sport Ltd. Financial managers must think about the cost of the resources of money.
Financial planning is the important part of financial management. It provides the strategies through which Fort Sport Ltd. can achieve their objective. It is the way of dividing whole planning into some small strategies which can be effective regarding situation of the organization. Financial planning plays very important role for the success of fort sport Ltd. Economic planning provides a clear image of assets and saving of the organization. It will help to increase financial understanding which increases the expertise in the field of finance (Khan and Hildreth,2004).
To manage the income of the company economic plans are needed. Fort Sport Ltd. must manage their tax liabilities to minimize the legal risk. Proper income management provides expansion opportunities to enterprise. Organization has lot of expenditures in the unit to arrange money for payment they require proper cash planning for their business. If company wants to make some unique decisions regarding investment, it needs best financial planning to achieve investment objectives with profitability. Economic planning is play very important role to identify the position of the company by using the analytical techniques such as ratio analysis.
Fort Sport Ltd. has kind of decision makers who needs the different information regarding the company. Shareholders of the company, customers, debenture holders, suppliers, competitors, banks, Government, management teams etc. are the main stakeholders of Fort Sport Ltd. Each stakeholder needs special data of the company for making effective decisions. They use data to identify the current position of the unit and future growth of the organization (Melo, 2012).
Shareholders require financial data to compare their dividend to other available investment options. They wants to make sure them self regarding future growth of the organization. Customers require data of price, cost, quality of the products and services provided by the unit. They need to make aware themselves regarding the pricing policy and element uses to make product by unit. Govt. needs information for economic purpose.
Management teams of the company decide the position of the company and the future opportunities of growth, for this they required financial data of company. They need information from balance sheet and income statement for financial planning. Many a time competitors of the unit also requires some financial as well as policy related data of the company to be successful in the competitive era. Banks and debenture holders want data related to interest payment policy of the company and also need financial data to find out the position of the organization (Roxas and Chadee, 2012).
In the given example recent loan of 7000 and charge of 1500 were not included in the balance sheet. Company should include it in the balance sheet to match assets side and liabilities side of balance sheet. It will increase the liabilities of loan from 2000 to 9000 and same time bank balance of asset side will be increased from 12500 to 23500. Company should include their capital and retained profit in to liabilities side of the balance sheet. After including the fixed charge of loan 1500 both part of balance sheet will be matched. Loan of the company makes big impact the balance sheet of the organization. It will reduce the profit of the company (Schwehr, 2005).
Share of the company increases the capital side of the balance sheet and it reduces the profit of the organization. Unit must pay some dividend to their shareholder on their investments. It will make affect on balance sheet as well as income statement of the enterprise.
The given cash budget of Fort Sport Ltd. shows the surplus amount. It can utilize its cash in marketing and advertising strategies to target new customers. Through this way they can increase their sales and can increase their market share. It will give them the new opportunities to create best relationship with the new and existing customers. It will increase the goodwill of the organization and also increase the reputation of the organization.
Fort Sport Ltd. has more money to expand their business unit. They can use this money to overcome the loan and credit purchases. Company should pay loan amount and credit amount in systematic way to decrease the liabilities of the enterprise. It will be the best way to use their surplus in proper manor (Smit, 2007).
The above method of calculation prices of the product is cost plus pricing. It is the method in which company includes some percentage of profit in the cost of the product to calculate the price of the product. Here are two method of calculating price. Profit of first method is the fixed percentage amount of the total cost and profit of the second method is the fixed percentage amount of the capital employed.
In the given example, first method gives price of the product is 80 which is the very higher than second price of the product 64. The first method will be the perfect in the given situation because it provides higher profit than other one. It will be the most effective and most profitable price of the product (Sofat and Hiro, 2011).Net present value of project B is more than other two projects. So project B is more effective than others. Fort Sport Ltd should adopt this product for productivity. The overall performance of the project C seems very good.
Fort Sport Ltd is using two types of financial statement balance sheet and income statement/ trading and profit or loss account. Balance sheet is the statement which shows the financial position of the company. It provides the valuable information regarding assets and liabilities of the organization. It will provide the separate information regarding current and fixed assets, current and fixed liabilities and others. The main purpose of preparing the balance sheet is to find out the exact position at the end of the financial year (South, 2006).
Income statement is the account which provides information regarding sales, purchases, expenditures and receives of the company of one financial year. it provide the data of profit or loss of one year. Both statements are used to compare the company with other enterprises.
The format of balance sheet and income statement vary business to business. Generally economy has three types of business sole proprietors, partnership and limited company. Normally a sole proprietor does not use any kind of the economic statement because they does not have enough capacity to maintain it and they does not need it. Partnership firms prepare it to identify the profit and position of the firm but they use the different format for capital. They also use the current and capital account for capital management for partners. A limited company requires maintaining all kind of statement with the standard format provided by the company low of country. it is the compulsory to prepare financial statement for company (Swart, 2004).
For measure the gross profit earned on the sales managers' use the gross profit ratio and for measure the net profit earned on the sales they use the net profit ratio. To find out the position of current assets to cover current liabilities they use the current ratio. But in the acid test ratio company use only the cash equivalent current asset. They do not use the inventory to find out the exact cash equivalent current assets to cover current liabilities (Zhou, 2013). Return on capital employed is the primary ratio which calculates the return the business has made on the resources available to it. It is the measures of effective use of total resources of the business.
The present study provides knowledge of financial planning and financial resources related to Fort Sport Ltd. There are lot of opportunities and threats of the financial sources of the company which can affect the decision regarding expansion activities. Company must understand the cost of the economical resources to make effective decision regarding selection of suitable option. The impotence of the financial data of the economical reports is provided through this study. It is known fact that without effective planning of finance no business can be achieve their objective. There are kind of techniques of financial management. Company can use ratio analysis to find out the current position of the organization.
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