Running head: MANAGING FINANCIAL RESOURCES AND DECISIONS Managing Financial Resources and Decisions Name of the Student: Name of the University: Author’s Note: Course ID:
1 MANAGING FINANCIAL RESOURCES AND DECISIONS Table of Contents Task 1: . 3 AC 1.1 Short and medium term sources of finance available to Marks & Spencer: . 3 AC 1.2 Implications of the different sources of finance identified in the above section: . 4 AC 1.3 Appropriate sources of finance for a long-term project and recommendation of the sources to be selected for Marks & Spencer: . 5 Task 2: . 7 AC 2.1 Costs of the different sources of finance identified in the above section: . 7 AC 2.2 Importance of financial planning to Marks & Spencer: . 8 AC 2.3 Information needs of different decision makers in Marks and Spencer: . 9 AC 2.4 Impact of the chosen sources of finance on the financial statements with reference to Marks & Spencer: . 10 Task 3: . 11 AC 3.1 Problem identification and remedies to eliminate the problems in cash budget while highlighting the importance of preparing cash budgets for decision-making in Croydon M&S Store: . 11 AC 3.2 Calculation of unit costs and making pricing decisions: . 13 AC 3.3 Assessment of the viability of the two projects using investment appraisal techniques in the context of Marks & Spencer: . 15 Task 4: . 16
2 MANAGING FINANCIAL RESOURCES AND DECISIONS AC 4.1 Main financial statements used in a business: . 16 AC 4.2 Comparison of financial statements of a sole trader with those of a Public Limited Company: . 17 AC 4.3 Financial performance of Marks & Spencer by evaluating various ratios: . 18 References: . 23 Appendices: . 27
3 MANAGING FINANCIAL RESOURCES AND DECISIONS Task 1: AC 1.1 Short and medium term sources of finance available to Marks & Spencer: The sources of finance are both medium term and short term and these are available to Marks & Spencer in the following: Trade credit: Trade credit is the fund received from the suppliers over the period between the delivery of products and the successive account settlement made on the part of the recipient (Balaban, Župljanin and Ivanović 2017). One method through which Marks & Spencer could express the credit term is “2/10: net 30”. This denotes that 2% discount would be provided on the part of the supplier; in case, the amount is paid back. In opposition, the organisation needs to make the entire payment within 30 days. The trade credit length is reliant on various influential dynamics such as industrial practices and customers, kind of products and relative bargaining power. Bank credit and overdrafts: The bank lending to the organisations is predominantly short-term; however, it is now available in the form of medium-term source of finance as well. On the other hand, overdrafts signify the amount that an organisation might withdraw as cash or cheques (Baños-Caballero, García-Teruel and Martínez-Solano 2014). The bank normally takes security in the form of fixed charge or floating charge. Fixed charge could be defined as the situation, in which there is security of overdraft against particular asset, while floating charge provides security on all the assets of the business. Hire purchase:
4 MANAGING FINANCIAL RESOURCES AND DECISIONS Hire purchase could be described as hiring with the alternative to buy. When the final instalment is paid, the asset ownership is transferred to the buyer. Thus, with the help of inland revenues, Marks & Spencer would be able to claim as well as retain capital allowances that the purchase fee option is lower in contrast to the market value after the expiry of the term contract. Leasing: In the words of Benedettini, Swink and Neely (2015), leasing transaction is a commercial contract, in which the owner of equipment has the right of using the same in exchange for payment on the part of the equipment user of a particular rental over a pre-agreed timeframe. AC 1.2 Implications of the different sources of finance identified in the above section: As assessed above, various sources of funding are available to Marks & Spencer. By listing each source of finance, the implications at the business cost could be evaluated. In the initial stage, all organisations need short-term funding for covering daily running cost. Short- term and medium-term sources of finance help in providing the primary working capital to Marks & Spencer. The implications of these sources of finance are discussed as follows: Trade credit: Trade credit is the credit allowed in relation to the raw materials that the manufacturers use in producing the products purchased for resale on the part of the retailer. When Marks & Spencer purchases products from its suppliers, payment is not made instantly. In this period, the purchaser owes an outstanding debt to the supplier before the payment is due. This outstanding debt is reported in the liability side of the balance sheet statement of the organisation under accounts receivable.
5 MANAGING FINANCIAL RESOURCES AND DECISIONS Bank credit and overdrafts: As an organisation could pass through liquidity shortage, it might borrow funds for a short time span of six months from the banks having surplus liquidity. Based on the amount and period of the borrowed amount, there is variation in the rate of interest, which Marks & Spencer need to bear for continuing its business operations. Hire purchase and leasing: The organisation could acquire the asset on lease from the lessor rather than procuring funds in order to buy equipments. For hire purchase, the acquisition of asset is made on credit and the payment is made on the terms and conditions, which are laid out in the agreement of hire purchase. AC 1.3 Appropriate sources of finance for a long-term project and recommendation of the sources to be selected for Marks & Spencer: The kind of finance selected relies on the size and nature of an organisation (Benson, Faff and Smith 2014). For selecting the kind of financing alternative, an effective source of finance is significant. The sources of finance could be internal as well as external sources. The internal sources of finance for the long-term project of Marks & Spencer include the following: Owner’s investment: It denotes the amount that is generated from the personal savings of the owner (Biddle 2015). This is a long-term source of finance, which is used as start-up capital for investing in the desired project. Sale of stock:
