Discuss the main financial statements of a company

BTEC Higher National Diploma In Business (Marketing) - Unit 2 Managing Financial Resources Decisions - Hardwood - level 5

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Task 1:

Question 1. Identify the sources of finance available to Hardwood Ltd. (AC1.1)

Question 2. Assess the implications of the sources of finance you have identified above in Task 1.1. (AC1.2)

Question 3 Evaluate and recommend appropriate sources of finance for the proposed purchase of plant and machinery by Hardwood Ltd. (AC1.3)

Task 2:

Question 1. Analyse the costs of the different sources of finance identified in task 1.1 above. (AC2.1)

Question 2. Explain the importance of financial planning to Hardwood Ltd. (AC2.2)

Question 3. Assess the information needs of different decision makers of Hardwood Ltd. (AC2.3)

Question 4. Explain the impact of finance on the financial statements of Hardwood Ltd. (AC2.4)

Task 3:

Question 1 Using the information in Section A prepare and analyze the cash budget for Hardwood for the 6 months April - Sep 2015. (AC3.1)

Question 2 Explain the calculation of unit cost and make pricing decisions using the information in Section A.(AC3.2)

Question 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)

Task 4:

Question 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)

Question 2. Compare appropriate formats of financial statements for different types of business (AC4.2)

Question 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 compares these with Industry averages shown in the table below.

Hardwood Ltd. is a hardwood flooring company that is considering expanding its operations. The company has identified two potential sources of finance for the expansion: equity finance and debt finance.

Equity finance involves selling shares in the company to investors. This is a relatively expensive source of finance, as the company has to pay dividends to shareholders. However, it also has the advantage of not increasing the company's debt burden.

Debt finance involves borrowing money from a bank or other financial institution. This is a cheaper source of finance than equity finance, but it also increases the company's risk of bankruptcy.

Hardwood Ltd. needs to consider the following factors when choosing between equity finance and debt finance:

• Cost of finance: Equity finance is generally more expensive than debt finance, but the cost of equity finance can vary depending on the company's share price.
• Risk of bankruptcy: Debt finance increases the company's risk of bankruptcy, as the company has to make regular interest payments on its debt.
• Ownership structure: Equity finance dilutes the ownership of the company, as new shareholders are brought in.
• Control: Equity finance gives shareholders a say in the running of the company, while debt finance does not.

Hardwood Ltd. should also consider its long-term financial goals when choosing between equity finance and debt finance. If the company wants to maintain its independence, it may prefer to use equity finance. However, if the company is willing to give up some control, debt finance may be a more affordable option.

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