Athika Ali

1211

Maldives Business School

Cover Page
ASSIGNMENT BRIEF

BTEC HND/Associate Degree in Business (Management/HR/Marketing)

The student must fill the relevant parts of the following table.
Student Task
Date
Student First Name
Student Last Name
ID
No.
submitted
Date issued
Athika
Ali
1211
31 May 2015
Statement of authenticity
I, the above named student, hereby confirm that this assignment is my own work and not copied or plagiarized. It
has not previously been submitted as part of any assessment. All the sources, from which information has been
obtained for this assignment, have been referenced in the Harvard format. I further confirm that I have read and
understood the Maldives Business School rules and regulations about plagiarism and copying and agree to be bound
by them.
Assignment summary information
Unit
Unit 2 Managing financial resources and decisions
Assignment type
This is an individual assignment.
Tasks
Task 1 : LO1; LO2; M1, M2, M3; D1, D2 : Report
Task 2: LO3;LO4; M1,M2,M3;D1,D2,D3: Case Study Analysis in
Excel Sheet

Assignment reference
Submit on
1st July 2015

Do on
NA
NA

Part A: Cost & Capital Budgeting: Goodyear Tire and Rubber Co.

25th July 2015

Part B: Cash Budget Analysis

25th July 2015

Part C: Final Accounts: Pine Sole Trader

25th July 2015

Part D: Ratio Analysis: UBS AG

25th July 2015
An extension must be applied for in writing by individual students and will only be granted for
Extensions
valid reasons.
Late submissions
Late submissions will be marked for all grades but will incur a fine of MVR 500.
Assessor(s):
Prof. Aniruddha Ghosh
Internal verifier:
Adam Umar
Assessor(s) please fill the table below AFTER the evaluation.
Assessment
Feedback
Assessors
IV Comments
criteria
Decision
P1.1
P1.2
P1.3
P2.1
P2.2
P2.3
P3.1
P3.2
P3.3
P4.1
P4.2
P4.3
M1
M2
M3
D1
D2
D3
This is the cover page for your assignments. Your assignment will be rejected if it does not have this cover page. Read
the document titled Additional Guidance on Assignments for help on the general report format, general
presentation format, referencing general instructions.

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EXECUTIVE SUMMARY
This report is based on a real estate company; giving details about the sources of
finance available to the company to help them on the best source. The company
looked over was Pine Construction PLC. Sources of finance can be defined as funds
that are necessitate in investing a business. The purpose of the report is to evaluate
the problems and identify the possible causes and appropriate solutions for the
problems so that the issues involved in this company can be set up to raise financing
totaling 500 million.

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TABLE OF CONTENTS
1. Executive Summary ........3
2. Introduction .......5
3. Sources of Finance Available (P1.1) .....5
3.1 Long Term Sources of Finance .......5
3.2 Short Term Sources of Finance ...6
4. Implications of the Different Sources (P1.2) .8
5. Appropriate Sources of Finance (P1.3) .9
6. Costs of Different Sources of Finance (P2.1) 10
7. Importance of Financial Planning (P2.2) ....11
8. Information Needs of Different Decision Makers (P2.3) ..12
9. Impact of Finance on Financial Statements (P2.4) ...15
10. References ..18

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INTRODUCTION
Pine Construction PLC is a real estate company, where it provides apartments for
housing and office space mostly. This report is based after some analysis on this
company. Looking into some more detailed account of the investigations, it is
analyzed on the available sources of finance, costs of different sources of finance,
importance of financial planning and impact of finance on financial statements. As
this report is based on sources of finance, it can be defined as funds that are needed
to invest a business.
SOURCES OF FINANCE AVAILABLE (P1.1)
As finance is crucial for a businesss operation, development and expansion, it is the
core limiting factor for most businesses. Hence, it is essential for businesses to
manage their financial resources appropriately. Also, it is vital for businesses to opt
for the most suitable source of finance for its needs and wants as different sources
have its own benefits and expenses. Sources of finance can be classified as long
term and short term.
LONG TERM SOURCES OF FINANCE
Long term sources of finance are funds which are required to be invested in a
business for a long period of time, generally over a year or more than five years.
Some of the long term sources of finance are as follows:
Equity Share Capital represents ownership capital as equity shareholders
collectively own the company. They enjoy rewards and bear the risk of
ownership as they are the primary risk bearers of the company. Also,
shareholders have voting rights. However, liability is restricted to their
contribution in the company.
Preference Share Capital shares which get preference over equity shares
in respect to the payment of dividend and repayment during winding up. A
fixed rate of dividend with no security. But have normal voting rights and
helps to collect large sum of funds.
Retained Earnings undistributed earnings of a company which is not
distributed as dividend to shareholder or remnants of the earnings after all
payments are made for a trading year. This remainder of finance is usually
saved by the company as back-up in times of financial crisis and used for
development or expansion later.
Debt generally existing in 3 types
i. Debentures can be defined as a document or a certificate issued by
the company under its seal as an acknowledgement of its debt. In
simple terms it is classified as borrowed fund capital or a loan by the
company. Debenture holders receive a fixed rate of interest and issued
for a time period. Company must pay back the amount to them at the
end of the agreed time period.
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Loan amount of money borrowed from banks or other financial

institutions for short or long term financing. Banks keep the information
of borrower confidential as this is flexible source of loan and financial
institutions provide loan guarantee while offering financial as well as
managerial counsel.
iii. Bond usually very large fixed interest loans. A continuous source of
fund and are freely negotiable instruments. Company can also invest
their money in discounting the bond.
Third Party Investments Investors who finances a company in its inception
period or expansion of business or wants to make some investments in the
concerned company. Available in three forms.
i.
Venture Capitalists groups of individuals or companies specifically
set up to invest in developing companies. They look out for companies
with potential and are prepared to offer capital to help the business
grow for in return; they get some stakes in the running of the company
as well as a share in the profit.
ii.
Angel Investors investors who introduce finance to small companies
usually taking the company under its wings and lifting up to the next
level of growth. Also, the average investments tend to be smaller than
venture capitalists.
iii.
Strategic Investor investor partners in position of venture capital
investment. This could be a vendor, customer or other business partner
the firm is currently working with, who might be interested in investing
the company for a specific reason.
ii.

SHORT TERM SOURCES OF FINANCE

Finance required for a short term of period, generally up to one year is known as
short term sources of finance. Different types of short term sources of finance are
Hire Purchase allows a business to use an asset without paying the full
amount to purchase the asset. The hire purchase firm buys the asset on
behalf of the business giving it the sole usage of the asset where on its part,
the business have to pay monthly payments to the hire purchase firm
amounting to the total value of the asset and charges of the hire purchase
firm. At the end of the payment period the business has the option of
purchasing the asset for a nominal value.
Leasing leasing company buys the asset on behalf of the business and
asset is provided for the business to its use but the ownership of the asset
remains with the leasing company unlike the hire purchase. The leasing firm
is known as the lessor and the customer as lessee. Leasing is of two types,
namely Finance Lease and Operating Lease.
i.
Finance Lease lessees monthly payments add up to around 90% of
the total value of the asset.

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Operating Lease does not run for the full life of the asset and the
lessee is not liable for the full value of the asset.
Working capital refers to the sum of money that a business uses for its
daily activities. It is the difference of current assets and current liabilities. The
two concepts of working capital are Gross Concept and Net Concept.
i.
Gross Concept summation of all current assets.
ii.
Net Concept differentiation of current assets and current liabilities.
ii.

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IMPLICATIONS OF THE DIFFERENT SOURCES (P1.2)

Figure 1

According to my views, the most useful sources are hire purchase, leasing and loan.
This is because in cases of bankruptcy, recovery is from sales of assets. And this
would be an added advantage to a starting business.
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APPROPRIATE SOURCES OF FINANCE (P1.3)

Several sources of finance are available to a business. Finance is required by
businesses for different purposes and these purposes need finances which are most
suitable to them. Factors that need to be considered when deciding appropriate
sources of finance are as follows

Amount of money required

Urgency of funds
Cost of the sources of finance
Risk involved
Duration of finance
Gearing ratio of the business
Control of the business

Based on the above points and investigation, the appropriate sources of finance for
the business of Pine Construction PLC chosen are leasing, hire purchase and loan.
Looking at the consequences of these sources, the table below summarizes this.
Figure 2

Above mentioned sources are chosen for Pine Construction PLC as, cost of the
investments are low compared to other sources and assets can be acquired in both
leasing and hire purchase. Also, loans are suitable for long run ventures and a large
sum can be borrowed. In addition, cash flow of the business can be minimized. I will
recommend these sources based on the consequences which have been discussed
above.
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COSTS OF DIFFERENT SOURCES OF FINANCE (P2.1)

Various sources of finance have different costs, where it is at all times more
profitable to a business to seek and obtain cheaper sources.
Figure 3

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IMPORTANCE OF FINANCIAL PLANNING (P2.2)

Financial planning can be defined as the process of estimating the capital required
and determining its competition. It is very important for the business as it helps the
company to identify how much capital will be required to meet out the operational
and other expenses. Also, by using the financial planning tools and techniques, the
business can take decisions regarding deployment of funds and make investment
decisions. In addition, this will help the company to determine its short term and long
term requirements. The importance of financial planning can be explained in the
following points.
1. The need to identify shortages and surpluses in the business
Market Shortages can be identified as the quantity demand that is greater than the
quantity supplied. If a situation like this occurs, customers would not be able to buy
goods as they would like or want. To the demand of consumers, in response the
producers will raise both the price of their product and quantity they are willing to
supply, But for some consumers the increase in price would be too much and no
longer will demand the product. In the meantime the increased quantity of existing
product will satisfy other consumers. The quantity supplied greater than quantity
demanded is defined as Market Surplus. In this situation, some producers would not
be able to sell all of their goods. This induces to lower the prices and consumers will
increase their quantity demanded, buying more products. For this reason, Cash
Budgeting can be used as it allows the company to determine whether the entity has
sufficient capital to fulfill regular operations or whether too much capital is being left
unproductive capacities.
2. What can be the results of failure to finance adequately?
If adequate finance is lacking in a company, it will not be able to operate smoothly.
This results in retrenchment of staff, loss of customer and bankruptcy. This can also
be called as Overtrading, meaning the company tries to engage in more business
than the investment in working capital will allow it to. This can happen when Pine
Construction PLC repays a loan, if it is replacing the old loan with a new loan. Also, if
customers are making late payments it will impact the business in many different
ways. In addition, unapproved loans also will be a loss to the business.

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INFORMATION NEEDS OF DIFFERENT DECISION MAKERS (P2.3)

Different information is required by different decision makers about the company
regarding their interests. Usually, a long-term decision maker wants to know about
the gearing ratio of the company while the short-term decision maker wants to know
about the liquidity ratio of the company. Information for different decision makes are
taken from financial reports, cash flow and profit and loss account and balance
sheets. This information is used by interested parties to make decisions regarding
the business.
External users and internal users are as follows

EXTERNAL USERS

Government
Shareholders
Customers
Investors
Credit Rating Agencies
Banks
Suppliers

INTERNAL USERS

Employees
Top Management
Various Departments
Top Management
Auditors

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The major decision making levels and process in Pine Construction PLC are shown
below.
Figure 4.0 Levels of decision-making
(http://tutor2u.net/business/organisation/decisionmaking.htm)

Strategic Decisions- influence the long term run of the business. Eg: when
whether to take over Company Y or Company Z
Tactical Decisions- medium term decisions about how to apply plans and
policies. Eg: what type of marketing to publicize and how many additional
employees to hire
Operational Decisions- short term decisions mainly known as administrative
decisions, about how to implement the tactics. Eg: for deliveries which firm to
make use of

Figure 4.1The Decision-making Process

(http://tutor2u.net/business/organisation/decisionmaking.htm)

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Some of the external users and internal users with costs involved are as follows
EXTERNAL
USERS

COST

Government

Infrastructure Cost
Legal & Documentation Cost

Suppliers
Banks

Transportation Cost
Raw Material Cost
Bank Commission
Guarantee Commission

INTERNAL
USERS

COST

Employees

Salaries
Training Programs

Auditors

Audit Fee

As different decision makers require different information regarding the business to

make decisions, information received should be precise and uncertainty of this
information should be minimized. Also, this information is needed to receive on a
timely basis as it plays a huge role in the decisions made. By this, in my view the role
of decision makers has a big impact on making decision related to the business.

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IMPACT OF FINANCE ON FINANCIAL STATEMENTS (P2.4)

Financial activities of a business or other entity are recorded in formal way known as
financial statements or financial reports. All the related financial information of a
business presented in a structured manner and in a form that can be easily
understandable is called financial statements. The four basic financial statements
are as follows

Balance Sheet: Companys assets, liabilities and ownership equity at a given

point in time are reported to explain the financial position or situation.
Income Statement: Also known as profit and loss statement (P&L).
Companys income, expenditures and profits over a period of time are
reported. It has two elements; income and expenses.
Statement of Retained Earnings: Gives explanations of the changes in a
companys preserved income over the reporting time period.
Statement of Cash Flows: Companys cash flow activities, mostly operating,
financing and investing activities are reported.

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Impacts of finance on financial statements are explained in the following table.

Dividend paid to the shareholders
On Income Statement
No effect. Show in the statement of omprehensive income.
On Cash Flow Statement
Financing Activities Cash. Cash outflow for the company.
On Balance Sheet
If outstanding, will be included in the list of Cureent Liabilities of the company.
On the Statement of Changes in Equity
Mainly, dividend paid on Equity is paid out of reserves. Hence need to be adjusted accordingly.
Interest paid to the bank
On Income Statement
Treated as a Financial Expense, will be deducted from the Earings. Thus will decrease the profits.
On Cash Flow Statement
Financing Activities Cash. Cash outflow for the company.
On Balance Sheet
If outstanding, will be included in the list of Current Liaibilities of the company.
On the Statement of Changes in Equity
Mainly, Interest on Debentures or Bonds are paid from special types of reserves known as Capital
Redemption Reserve or Debenture Redemption Reserve. Hence, need to be adjusted accordingly.
Oppotunity Costs
On Income Statement
No distinct impact. However, intabily Time Value of Money will be taken into account.
On Cash Flow Statement
No effect
On Balance Sheet
No effect
On the Statement of Changes in Equity
No effect
Bonuses
On Income Statement
Treated as a Financial Expense of the company, will be deducted from the profit of the company.
On Cash Flow Statement
Financing Activities Cash. Cash outflow for the company.
On Balance Sheet
If outstanding, will be treated as a current liability. Amount need to be dudcted from the amount
originally paid if any provision was made earlier.
On the Statement of Changes in Equity
Adjustments need to be made accordingly if paid from Reatained Earnings or specific reserves such
as General Reserves.
Brokerage & Audit Fees
On Income Statement
Treated as a Financial Expense, will be deducted from the Earnings. Hence, will decrease the profits.
On Cash Flow Statement
Operating Activities Cash, will be a cash outflow for the company.
On Balance Sheet
If outstanding, will be included in the list of current Liabilities of the company. Usually, these types
of expenses are not in outstanding in nature.
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On the Statement of Changes in Equity
No effect

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The following figures explain the accounting equation.

Figure 5 (https://www.blendspace.com/lessons/QlnM8tLmc6Am1g/accountingequation)

Figure 6 (http://accountingflash.com/dictionary/) (http://accountingflash.com/wpcontent/uploads/2013/07/M_1F_Accounting_equation.png)

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REFERENCES
BPP Learning Media. 2010. Business essentials: managing finance. London: BPP
Learning Media
Owen, A.S. 2003. Accounting for business studies. Burlington: ButterworthHeinemann
UK Essays. November 2013. Implications Of Different Sources Of Finance Finance
Essay. [online]. Available from:
http://www.ukessays.com/essays/finance/implications-of-different-sources-offinance-finance-essay.php?cref=1 [Accessed 27 June 2015].
Class Resources

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