Managing Financial Resources and Decisions

MFRD-UNIT2 Date Issued16/09/2019Student NameStudent IDDate: Received16/09/2019Team LeaderOmwenga Mwambi Internal Verifier NameABU TIMBOLecturerRules and regulations:Plagiarism is presenting somebody else’s work as your own. It includes: copying information directly from the Web or books withoutreferencing the material; submitting joint coursework as an individual effort; copying another student’s coursework; stealingcoursework from another student and submitting it as your own work. Suspected plagiarism will be investigated and if found to haveoccurred will be dealt with according to the procedures set down by the College. Please see your student handbook for further detailsof what is / isn’t plagiarism.Coursework Regulations1 Submission of coursework must be undertaken according to the relevant procedure. Lecturers will give information as to whichprocedure must be followed, and details of submission procedures and penalty fees can be obtained from Academic Administration or thegeneral student handbook.2 Late coursework will be accepted by Academic Admin Office and marked according to the guidelines given in your Student Handbookfor this year.3 If you need an extension (even for one day) for a valid reason, you must request one. Collect a coursework extension requestform from the Academic Admin Office. Then take the form to your lecturer, along with evidence to back up your request. The completedform must be accompanied by evidence such as a medical certificate in the event of you being sick. The completed form must then bereturned to Academic Admin for processing. This is the only way to get an extension.Learning Outcomes and assessment requirementsLearning Outcomes Assessment Requirements1 Understand the sources of finance available to a business 1.1 identify the sources of finance available to a business1.2 assess the implications of the difference sources.1.3 evaluate appropriate sources of finance for a business project2 Understand the implications of finance as a resource within a business 2.1 analyse costs of different sources of finance2.2 explain the importance of financial planning2.3 assess the information needs of different decision makers2.4 explain the impact of finance on the financial statements3. Be able to make financial decisions based on financial information 3.1 analyse budgets and make appropriate decisions3.2 explain the calculation of unit costs and make pricing decisions using relevant information.3.3 assess the viability of a project using investment appraisal techniques4. Be able to evaluate the financial performance of a business4.1 discuss the main financial statements4.2 compare appropriate formats of financial statements for different types of business4.3 interpret financial statements using appropriate ratios and comparisons, both internal and externalIn addition to the above PASS criteria, this assignment gives you the opportunity to submit evidence in order to achieve the followingMERIT and DISTINCTION gradesGrade Descriptor Indicative characteristic/sContextualisationM1Identify and apply strategies to find appropriate solutions • effective judgements have been made• complex problems with more than one variable have been explored• Demonstrate that effective judgements made to recommend appropriate sources of finance to Hardwood ltd & to understandthe implications of Finance as a resource within a business which is effective and sensible in the given business context.• Task 1.1 – 1.3 & Task 2.1 – 2.4M2 Select / design and apply appropriate methods / techniques • the selection of methods and techniques/sources has beenjustified• complex information/data has been synthesised and processed • Use a range of appropriate methods to deal withproblems and ability to justify methods used; eg, ability to evaluate the case study and use appropriate financial tools likeinvestment appraisal tools, ratio analysis, budgeting to assess and compare the projects and evaluate performances effectively.Task 3.1 – 3.3 & Task 4.3M3 Present and communicate appropriate findings • the appropriate structure and approach has been used• coherent, logical development of principles/concepts for the intended audience • Appropriate findings have beencoherently & logically presented using an appropriate structure & approach eg in explaining the implications of finance as a resourcesand in evaluating financial statements. Task 2.1 – 2.4 & Task 4.1 – 4.3D1 Use critical reflection to evaluate own work and justify valid conclusions • conclusions have been arrived at throughsynthesis of ideas and have been justified• the validity of results has been evaluated using defined criteria • Decisions on budgeting, costing, capitalinvestment or external sourcing are made through in-depth analysis of the information, merits of the tools used and well justified onthe context of the businessesTask 1.1 – 3.3 & Task 3.1 – 3.3D2 Take responsibility for managing and organising activities • the importance of interdependence has been recognised andachieved • The importance of interdependence has been recognised and achieved for example clearly identified how someelements impact different financial parameters and analysed the relations of different ratios with each other. Task 2.1 – 2.4& Task 4.1– 4.3D3 Demonstrate convergent /lateral / creative thinking • ideas have been generated and decisions taken• convergent and lateral thinking have been applied • Convergent and lateral thinking has been applied to generateideas & decisions. For example, combinations of a range of finances recommended to cater to different business needs or a reasonablebusiness conclusion made through interpretation of financial statements and effective business recommendation made based on theconclusion.Task 1.1 – 1.3 & B Task 4.1 – 4.3Assignment title Managing financial resources for a businessPurpose of this assignmentThis assignment is designed to give learners an opportunity to demonstrate achievement of all the module learning outcomes. In doingthis learners will identify sources of finance available to a business, assess implications, analyse costs, evaluate appropriatesources, and explain their impact on the financial statements.They will assess information needs, analyse and explain the importance of budgets, explain cost calculations and use investmentappraisal techniques. Learners will also have an opportunity to show understanding of financial statements, and evaluate financialperformance of a business.ScenarioCase Study: Hardwood LtdHardwood Ltd is a medium-sized private limited liability company producing furniture for the retail sector and private homes for thelast 6 years, mainly catering for the domestic market.The business was initially set up by 3 young carpenters. They have shown an exceptional understanding with each other as a result thebusiness has been growing steadily over the years. Given the past business successes, growing brand name and the loyal customer basethe promoters think that now is a good time to expand the business. Their intention to expand is also backed by a growing enquiry fortheir furniture from some overseas buyers. Their main ability and skills are in design and production of furniture; however, otherbusiness functions such as marketing, administration and sourcing materials at the best prices are poorly developed as none of thethree are skilled in these business processes.Recently, they have appointed a young and energetic John Mathew as the Managing Director (MD) to study and manage the business as itexpands. He has several year experience managing a fast moving consumer goods manufacturing business.Their preliminary study has suggested that for the proposed expansion they need increased production capacity and functionality, sowill need additional investment in machinery and tools.John was excited to learn the range of finance available in the market to his company which has a good track record. Hehas already hada preliminary talk with a bank manager who was encouragingand even suggested to prepare adetailed financial plan and forecast in orderto apply for a bank loan. John was also aware that Hardwood Ltd. could also explore for other sources of finance. For example manyequipment suppliers have tie ups with financing companies offering financing options like lease, hire purchase etc. As such, eachsource of finances have different implications and bear different borrowing costs.Section AAs part of the expansion plan of Hardwood Ltd included setting up a separateproduction unit for contemporary designed furnitureexpectedto start production in 2015. John wanted to ensure sufficient funds were available to finance the expansion based on currentassumptions. The following information is availableForecast of income and expenses for Feb – Sep 2015 are as follows:Feb Mar Apr May Jun Jul Aug SepSales 270 270 270 270 270 275 280 300Purchase 80 80 80 80 95 95 100 105Labour 75 75 85 85 85 85 85 85Other variableExpenses 25 25 25 26 27 28 29 30(Note all the figures in the table above are in £ 000)1. Customers are given 2 months credit.2. Purchases are paid after 1 month.3. Labour costs are paid in the month incurred.4. Other variable expenses are paid in the following month.5. Fixed expenses of £35,000 per month are paid in the following month.6. Purchase of new machinery costing £700,000 is scheduled for July.7. Other financial information are:a. Budgeted Cash balance on 1st April is £15,000.b. Manufacturing output for the period 1st April to 30th Sep is budgeted at 10,000 units.c. Depreciation from 1st April – 30th Sep of£80,000 is not included in the Fixed Expenses above.Section BThe proposed expansion required the purchase of new machinery. Two machines were identified as suitable from an operational viewpoint,with outlay and other relevant cashflows over the expected 5 year life of the two machines is as follows:Machine A- Cost of machine is£700, 000 and the scrap value at the end of 5th year is estimated at £100,000.Machine B- Cost of machine is £700, 000 but the scrap value at the end of 5th year is estimated at £10,000.Cost of finance is estimated at 10% p.a. The life of machines is 5 years in both cases.Years Operating cashflowsMachine A Operating cashflowsMachine B1 200 2252 200 2103 200 2004 200 1705 200 100Section CAnalysis of historic financial statements gives an insight into the company’s financial standing by revealing information about recentprofitability, liquidity and gearing [financial leverage]. This will be highly relevant to prospective investors in the business, inaddition to any budget that may be available. The most recent two years income statement and balance sheet are summarised belowIncome Statements 2014£000 2013SalesCost of salesGross profitOperating expensesProfit before interest and taxInterestNet profit before taxIncome taxProfit after taxRetained profit brought forwardRetained profit carried forward 2,590(1,310)1,280(901)379(115)264(90)174608782 2,217(1,201)1016(732)284(86)198(88)110498608Balance Sheet 2014£ 000 2013 £ 000Non Current Assets:Freehold property – costEquipment – costDepreciationCurrent Assets:Inventory (stock)Trade receivables (debtors)BankLess: Current LiabilitiesTrade Payables(creditors)OverdraftNet Working CapitalOperating AssetsLess: Long Term Liabilities9% Long term LoanNet Assets1,1701,015(450)5651,735390226601020400104102652,000(798)1,2021,170675(210)4651,6353751902808453211064274182,053(1,025)1,028Equity420,000 ordinary £1 sharesRetained ProfitShareholders Funds420782_1,202420608_1,028Task 11.1. Identify the sources of finance available to Hardwood Ltd. (AC1.1)1.2. Assess the implications of the sources of finance you have identified above in a business.(AC1.2)1.3. Evaluate and recommend appropriate sources of finance for the proposed purchase of plant and machinery by Hardwood Ltd. (AC1.3)To achieve M1 demonstrate that personal judgements are made to recommend appropriate sources of finance to Hardwood Ltd which iseffective and sensible in the given business context.To achieve D2demonstrate that the importance of interdependence has been recognised and achieved. For example, combinations of a rangeof finances recommended recognising their inter-dependence and impacts on the business.Task 22.1. Analyse the costs of the different sources of finance identified in task 1.1 above.(AC 2.1)2.2. Explain the importance of financial planning to Hardwood Ltd.(AC2.2)2.3. Assess the information needs of different decision makers of Hardwood Ltd.(AC2.3)2.4. Explain the impacts of finance on the financial statements of Hardwood Ltd. AC2.4)To achieve M3present business information coherently and logically in a professional way using financial terminology.To achieve D3 provide evidence of original thinking and presentation of a decision that is appropriately applied in the case studyscenario.Task 33.1 Using the information in Section A prepare the cash budget for Hardwood for the 6 months April – Sep 2015. Analyse this budget andmake appropriate decisions.(AC 3.1)3.2 Explain the calculation of unit cost of furniture and make pricing decisions using the information inSection A(AC3.2)3.3 Assess the viability of the project identified in Section B using the Investment Appraisal techniques of Payback [P/B], Net PresentValue [NPV], Internal Rate of Return [IRR] and Accounting Rate of Return [ARR]. To do this you should perform the relevant calculationsand explain the results.(AC3.3)To achieve M2 demonstrate the use of a range of appropriate methods and techniques like investment appraisal tools, cost and pricingand budgeting to deal with the problems and get appropriate solutions.To achieve D1demonstrate that decisions on capital investment, pricing and cash management are made through in-depth analysis of theinformation, merits of the tools used and well justified on the context of the businesses.Task 44.1. Discuss the main financial statements of a company by outlining the purpose, structure and main sections of the Income statement,Balance Sheet and cash flow statement.(AC4.1)4.2. Compare appropriate formats of financial statements for Unincorporated [e.g. Sole Trader] and Incorporated [e.g. Private LimitedCompany] businesses.(AC4.2)4.3. Interpret the Financial Statements of Hardwood Ltd [presented in Section C] by calculating and commenting on the nine ratioslisted below for 2014 and 2013 and compare these with Industry averages shown below.(AC4.3)Industry Averagesi) Return on Capital Employed 15%ii) Operating Profit % 13.6%iii)Gross Profit 40%iv) Operating Asset Turnover Ratio 1.1v) Current Ratio 2vi) Quick Asset Ratio 1.5vii) Stock Days 75viii) Debtors Days 30ix) Gearing Ratio. 1.0To achieve M3 present the financial statements and their interpretations coherently and logically in a professional way using financialterminology.To achieve D3 present reasonable business conclusion made thorough interpretation of financial statements and effective businessrecommendation made based on the conclusion.Evidence checklist Summary of evidence required by studentTask 1 Anessay identifying internal and external sources of finance, their implication to the business and recommend the most suitableones evaluating all the available sources to Hardwood Ltd.Task 2 Anessay explaining the significances of financial planning to Hardwood Ltd and the information required for decision making.The report should also include the impact of finance to financial statements.fffinance to theTask 3 Preparation of cash budget, calculation of unit cost and applications of investment appraisal tools and analyse the results tomake the appropriate business decisions.Task 4 A report describing key financial statements and interpreting their results with the help of the suggested ratios in theassignment brief.Achievement SummaryQualification Pearson BTEC Level 5 HND Diploma in Business Assessor nameUnit Number and title Unit 2 Managing Financial Resources & Decisions Student nameCriteria Ref To achieve the criteria the evidence must show that the student is able to: Achieved?(tick)LO 1 Understand the sources of finance available to a business1.1 identify the sources of finance available to a business1.2 assess the implications of the difference sources.1.3 evaluate appropriate sources of finance for a business projectLO 2 Understand the implications of finance as a resource within a business2.1 analyse costs of different sources of finance2.2 explain the importance of financial planning2.3 assess the information needs of different decision makers2.4 explain the impact of finance on the financial statementsLO3 Be able to make financial decisions based on financial information3.1 analyse budgets and make appropriate decisions3.2 explain the calculation of unit costs & make pricing decisions using relevant information3.3 assess the viability of a project using investment appraisal techniquesLO 4 Be able to evaluate the financial performance of a business4.1 discuss the main financial statements4.2 compare appropriate formats of financial statements for different types of business4.3 interpret financial statements using appropriate ratios & comparisons, internal &externalHigher Grade achievements (where applicable)Grade descriptor Achieved?(tick) Grade descriptor Achieved?(tick)M1: D1:M2: D2:M3: D3:Assignment FeedbackFormative Feedback: Assessor to StudentAction PlanSummative feedbackAssessor Signature Date