FINANCIAL DECISIONS

Financial Decisions and Resources

Introduction1

Discussion1

Sources of Finance1

Personal Savings1

Retained Profit1

Working Capital2

Sale of Assets2

Shares2

Loans2

Overdraft3

Hire Purchase3

Credit from the Suppliers3

Grants3

Venture Capital4

Factoring4

Appropriate Way to Raise Funds by Trevor4

Financial Planning and Its Importance5

Income5

Cash Flow5

Capital5

Investment6

Family Security6

Financial Understanding6

Savings6

Assets7

Information needs of Various Decision Makers7

Shareholder/Owners7

Employees7

Lenders8

Regulatory Institutions and Government8

Customers and General Public8

Impact of Financing on the Financial Statements8

Main Financial Statements and the Formats of Financial Statements for Various Forms of Businesses9

Formats of Financial Statements11

Interpretation of Financial Statement Through the Ratio Analysis11

Profitability12

Liquidity12

Asset Efficiency12

Management of Workign Capital13

Solvency Ratios13

Investors Ratios13

Discounted Pay Back and Net Present Value13

Unit Cost in the Project14

Conclusion14

References15

Financial Decisions and Resources

Introduction

This assignment is focused on analyzing the performance of Trevor Plc through the use of ratio analysis and the decisions regarding the new project which the company is going to undertake. This will be done through the focus on the formats and types of financial statements. The ratio analysis is also performed for the company.

Discussion

Sources of Finance

The internal sources of finance for the company are:

Personal Savings

It is one of the most widely used sources of finance as Trevor is dependent on the savings for the source of finance.

Retained Profit

It refers to the profit that has already been made and has also been set aside for investing in the business. It can be used for the purchase of a new IT system, machinery or the advertising and marketing (Lee, n.d.).

Working Capital

It refers to the short term money that is reserved in Trevor for the day-to-day expenses which includes invoice payments, bills, rent, salaries and stationery.

Sale of Assets

There can be a surplus in the fixed assets which can be machinery or buildings that could be sold for generating money for the new areas. The decisions for selling the items which are still in the use should be done carefully as it will affect Trevor's capacity to deliver the current services and products (Lee, n.d.).

The external sources for financing of Trevor include:

Shares

Trevor can sell more shares to the existing or new shareholders in the exchange for the return on the investment.

Loans

The company can have debenture loans that have a variable or fixed interest that are main secured against the asset in which the investment is made. In this situation, the loan company has the shared interest which is legal in the investment. It also shows that Trevor will not be able to sell the asset without the agreement of the lender. In this case, the lender also has the priority over the shareholders and the owners in the failure of business and the cost will be needed to repay despite the loss. There are also other forms of loans that have fixed payment. They are more flexible than the debenture loans (henleybusinessreview.wordpress.com).

Overdraft

It is a good source for the short term finance for helping the company to reduce the seasonal effect on the cash flow that will not require a long term solution. The benefit is that the interest is calculated on a daily basis due to which its cost is lesser than that of loan (henleybusinessreview.wordpress.com).

Hire Purchase

This form of arrangement allows the firm to get ...