Managing Financial Resources and Decisions

MFRD-UNIT2 Date Issued
16/09/2019
Student Name
Student ID
Date: Received
16/09/2019
Team Leader
Omwenga Mwambi Internal Verifier Name
ABU TIMBO
Lecturer

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Learning Outcomes and assessment requirements
Learning Outcomes Assessment Requirements
1 Understand the sources of finance available to a business 1.1 identify the sources of finance available to a business
1.2 assess the implications of the difference sources.
1.3 evaluate appropriate sources of finance for a business project
2 Understand the implications of finance as a resource within a business 2.1 analyse costs of different sources of finance
2.2 explain the importance of financial planning
2.3 assess the information needs of different decision makers
2.4 explain the impact of finance on the financial statements
3. Be able to make financial decisions based on financial information 3.1 analyse budgets and make appropriate decisions
3.2 explain the calculation of unit costs and make pricing decisions using relevant information.
3.3 assess the viability of a project using investment appraisal techniques
4. Be able to evaluate the financial performance of a business
4.1 discuss the main financial statements
4.2 compare appropriate formats of financial statements for different types of business
4.3 interpret financial statements using appropriate ratios and comparisons, both internal and external

In addition to the above PASS criteria, this assignment gives you the opportunity to submit evidence in order to achieve the following

MERIT and DISTINCTION grades
Grade Descriptor Indicative characteristic/s
Contextualisation
M1Identify 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 understand

the 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 – 2.4
M2 Select / design and apply appropriate methods / techniques • the selection of methods and techniques/sources has been

justified
• complex information/data has been synthesised and processed • Use a range of appropriate methods to deal with

problems and ability to justify methods used; eg, ability to evaluate the case study and use appropriate financial tools like

investment appraisal tools, ratio analysis, budgeting to assess and compare the projects and evaluate performances effectively.
Task 3.1 – 3.3 & Task 4.3
M3 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 been

coherently & logically presented using an appropriate structure & approach eg in explaining the implications of finance as a resources

and in evaluating financial statements. Task 2.1 – 2.4 & Task 4.1 – 4.3
D1 Use critical reflection to evaluate own work and justify valid conclusions • conclusions have been arrived at through

synthesis of ideas and have been justified
• the validity of results has been evaluated using defined criteria • Decisions on budgeting, costing, capital

investment or external sourcing are made through in-depth analysis of the information, merits of the tools used and well justified on

the context of the businesses
Task 1.1 – 3.3 & Task 3.1 – 3.3
D2 Take responsibility for managing and organising activities • the importance of interdependence has been recognised and

achieved • The importance of interdependence has been recognised and achieved for example clearly identified how some

elements impact different financial parameters and analysed the relations of different ratios with each other. Task 2.1 – 2.4& Task 4.1

– 4.3
D3 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 generate

ideas & decisions. For example, combinations of a range of finances recommended to cater to different business needs or a reasonable

business conclusion made through interpretation of financial statements and effective business recommendation made based on the

conclusion.
Task 1.1 – 1.3 & B Task 4.1 – 4.3

Assignment title Managing financial resources for a business
Purpose of this assignment
This assignment is designed to give learners an opportunity to demonstrate achievement of all the module learning outcomes. In doing

this learners will identify sources of finance available to a business, assess implications, analyse costs, evaluate appropriate

sources, 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 investment

appraisal techniques. Learners will also have an opportunity to show understanding of financial statements, and evaluate financial

performance of a business.
ScenarioCase Study: Hardwood Ltd

Hardwood Ltd is a medium-sized private limited liability company producing furniture for the retail sector and private homes for the

last 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 the

business has been growing steadily over the years. Given the past business successes, growing brand name and the loyal customer base

the promoters think that now is a good time to expand the business. Their intention to expand is also backed by a growing enquiry for

their furniture from some overseas buyers. Their main ability and skills are in design and production of furniture; however, other

business functions such as marketing, administration and sourcing materials at the best prices are poorly developed as none of the

three 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 it

expands. 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, so

will 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 had

a preliminary talk with a bank manager who was encouragingand even suggested to prepare adetailed financial plan and forecast in order

to apply for a bank loan. John was also aware that Hardwood Ltd. could also explore for other sources of finance. For example many

equipment suppliers have tie ups with financing companies offering financing options like lease, hire purchase etc. As such, each

source of finances have different implications and bear different borrowing costs.
Section A
As part of the expansion plan of Hardwood Ltd included setting up a separateproduction unit for contemporary designed furnitureexpected

to start production in 2015. John wanted to ensure sufficient funds were available to finance the expansion based on current

assumptions. The following information is available

Forecast of income and expenses for Feb – Sep 2015 are as follows:
Feb Mar Apr May Jun Jul Aug Sep
Sales 270 270 270 270 270 275 280 300
Purchase 80 80 80 80 95 95 100 105
Labour 75 75 85 85 85 85 85 85
Other variable
Expenses 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 B
The 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 B
1 200 225
2 200 210
3 200 200
4 200 170
5 200 100
Section C
Analysis of historic financial statements gives an insight into the company’s financial standing by revealing information about recent

profitability, liquidity and gearing [financial leverage]. This will be highly relevant to prospective investors in the business, in

addition to any budget that may be available. The most recent two years income statement and balance sheet are summarised below
Income Statements 2014£000 2013
Sales
Cost of sales
Gross profit

Operating expenses
Profit before interest and tax
Interest
Net profit before tax

Income tax
Profit after tax

Retained profit brought forward
Retained profit carried forward 2,590
(1,310)
1,280

(901)
379

(115)
264

(90)
174

608
782 2,217
(1,201)
1016

(732)
284

(86)
198

(88)
110

498
608

Balance Sheet 2014£ 000 2013 £ 000
Non Current Assets:
Freehold property – cost
Equipment – cost
Depreciation
Current Assets:
Inventory (stock)
Trade receivables (debtors)
Bank

Less: Current Liabilities
Trade Payables(creditors)
Overdraft

Net Working Capital
Operating Assets

Less: Long Term Liabilities
9% Long term Loan
Net Assets
1,170
1,015
(450)
565
1,735

390
226
60
1020

400
10
410
265
2,000
(798)
1,202
1,170
675
(210)
465
1,635

375
190
280
845

321
106
427
418
2,053
(1,025)
1,028
Equity
420,000 ordinary £1 shares
Retained Profit
Shareholders Funds
420
782_
1,202
420
608_
1,028
Task 1

1.1. 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. (AC

1.3)

To achieve M1 demonstrate that personal judgements are made to recommend appropriate sources of finance to Hardwood Ltd which is

effective 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 range

of finances recommended recognising their inter-dependence and impacts on the business.
Task 2

2.1. 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 study

scenario.
Task 3

3.1 Using the information in Section A prepare the cash budget for Hardwood for the 6 months April – Sep 2015. Analyse this budget and

make appropriate decisions.(AC 3.1)

3.2 Explain the calculation of unit cost of furniture and make pricing decisions using the information in
Section 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 Present

Value [NPV], Internal Rate of Return [IRR] and Accounting Rate of Return [ARR]. To do this you should perform the relevant calculations

and 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 pricing

and 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 the

information, merits of the tools used and well justified on the context of the businesses.

Task 4

4.1. 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 Limited

Company] businesses.(AC4.2)

4.3. Interpret the Financial Statements of Hardwood Ltd [presented in Section C] by calculating and commenting on the nine ratios

listed below for 2014 and 2013 and compare these with Industry averages shown below.(AC4.3)

Industry Averages
i) Return on Capital Employed 15%
ii) Operating Profit % 13.6%
iii)Gross Profit 40%
iv) Operating Asset Turnover Ratio 1.1

v) Current Ratio 2
vi) Quick Asset Ratio 1.5

vii) Stock Days 75
viii) Debtors Days 30

ix) Gearing Ratio. 1.0

To achieve M3 present the financial statements and their interpretations coherently and logically in a professional way using financial

terminology.
To achieve D3 present reasonable business conclusion made thorough interpretation of financial statements and effective business

recommendation made based on the conclusion.
Evidence checklist Summary of evidence required by student
Task 1 Anessay identifying internal and external sources of finance, their implication to the business and recommend the most suitable

ones 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 the
Task 3 Preparation of cash budget, calculation of unit cost and applications of investment appraisal tools and analyse the results to

make the appropriate business decisions.
Task 4 A report describing key financial statements and interpreting their results with the help of the suggested ratios in the

assignment brief.
Achievement Summary
Qualification Pearson BTEC Level 5 HND Diploma in Business Assessor name
Unit Number and title Unit 2 Managing Financial Resources & Decisions Student name

Criteria 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 business
1.1 identify the sources of finance available to a business
1.2 assess the implications of the difference sources.
1.3 evaluate appropriate sources of finance for a business project
LO 2 Understand the implications of finance as a resource within a business
2.1 analyse costs of different sources of finance
2.2 explain the importance of financial planning
2.3 assess the information needs of different decision makers
2.4 explain the impact of finance on the financial statements
LO3 Be able to make financial decisions based on financial information
3.1 analyse budgets and make appropriate decisions
3.2 explain the calculation of unit costs & make pricing decisions using relevant information
3.3 assess the viability of a project using investment appraisal techniques
LO 4 Be able to evaluate the financial performance of a business
4.1 discuss the main financial statements
4.2 compare appropriate formats of financial statements for different types of business
4.3 interpret financial statements using appropriate ratios & comparisons, internal &external
Higher Grade achievements (where applicable)
Grade descriptor Achieved?(tick) Grade descriptor Achieved?(tick)
M1: D1:
M2: D2:
M3: D3:

Assignment Feedback
Formative Feedback: Assessor to Student
Action Plan
Summative feedback
Assessor Signature Date

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