Business Finance Assignment Sample

Introduction Of Business Finance Assignment

This report shall determine the important attributes of business finance with respect to provided case studies. In order to incorporate the essential attributes of business finance, the concepts of traditional capital budgeting and sources of finance shall also be discussed in brief. Moreover, essential attributes of financial accounting shall also be outlined in this report, where features of financial accounting as well as usage and preparation of financial accounting shall also be discussed. The additional aspects of this report shall highlight a critical discussion on various financial topics, relevant and significant for the purpose of this report.

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Part A: Concepts of Traditional Capital Budgeting and Sources of Finance

Concepts of Traditional Capital Budgeting

The concepts of traditional capital budgeting are considered to be mostly associated with how a viable investment plan is being chalked out in the near and distant future. As per narrations and explanations of Siziba and Hall (2021), the traditional capital budgeting can be further aligned with the investment appraisal techniques which ascertains the net monetary and financial worthiness of a new project. Projection of financial figures can also be established under traditional capital budgeting, where better returns usually encourage an organisation to select and proceed with the project. The concepts of traditional capital budgeting can be further aligned with respect to five key methods that propel financial aesthetics as well as enable an organisation to either select or reject a particular project. Following is a detailed description of all five methods involved under traditional capital budgeting.

Accounting Rate of Return

The accounting rate of return is considered to be the primary method involved in the traditional capital budgeting, where adherence to expected project cost and expected cash inflows is being considered. As per narrations and explanations of Sergi and Sari (2020), the accounting rate of return is considered to be a primitive method of the capital budgeting where no emphasis of discounting rates or time value of money is being adhered to.

Payback Period

Payback period is deemed to be the second essential method involved in traditional capital budgeting, where time required for a project to recover its initial costs is calculated. The traditional payback period does not offer any substance on cost of capital or discounting rates.

Discounted Payback Period

Discounted payback period is considered to be an upgraded version of the payback period where adherence to cost of capital and discounting factor is also adhered to. The adherence to discounting payback period further associates the inclusion of discounted cash flows to arrive at future value payback period of a project.

Net Present Value Method

The net present value method is considered to be the most weighted method in traditional capital budgeting, where summation of outflows and discounted cash inflows is being considered (Warren and Jack, 2018). Hence, it is considered to be the most authentic method of traditional capital budgeting where the highest priority is being provided to this method.

Internal Rate of Return Method

The fifth important method is considered to be the internal rate of return method, where a cumulative rate of return considering the initial project cost and the cash outflow is being considered.

Concepts of Sources of Finance

The concepts of sources of finance are considered to be important factors which determine the available financial resources a company can implement upon to obtain additional funding. As idealised and narrated by Chismar et al. (2020), the major sources of finance mainly consist of debt, equity and venture capital. Hence, all three sources of finance are considered to be closely related with the case study of Karolina. Following is a detailed demonstration of the various sources of finance by outlining the pros and cons of each.

Pros of Sources of Finance

Debt

The fundamental pros of debt financing can be attributed to an organisation keeping full ownership title and rights when this mode of financing is being selected. Ali and Khalid (2019), expressed and narrated that the additional advantages of selecting debt financing can be attributed to building credit lending scores. As per the case study of Karolina, the proposed loan from HSBC worth GBP 100,000 at 8.9% for 10 years would help her retain ownership rights and make her organisation levered to ensure high future investment prospects.

Equity

Along with debt, equity is also considered to be a viable source of finance, where a company lists itself in the securities and the capital markets. Hence, shares and stocks are being issued by a company to raise capital from IPO’s and to facilitate a healthy investor orientation and thus possessing a credible advantage as a source of finance (Gupta and Singh, 2018). In the case of Karolina her proposal of issuing GBP 100,000 and GBP 50,000 as ordinary and preference shares would bring her a lot of investments and financial resources to facilitate her dream project in a harmonious manner.

Venture Capital

In addition to debt and equity, venture capital is also considered to be a viable source of finance, where capital is raised through strategic business partnerships and joint collaborations or ventures. The advantage of employing venture capital can be attributed to provision of security with respect to financial risk management. As per the case study of Karolina, it can be ascertained that by entering into a 55-45% partnership business, she can safeguard her financial risks as well as ensure lower additional costs to be generated in future.

Cons of Sources of Finance

Debt

The major cons of debt financing can be attributed to obligation for paying back principal and interest inclusive amounts after a particular time frame. Hence, the financial burden could unsettle a particular project when budgeted financial parameters portray a significant deviation. In the case of Karolina, her major cause of concern could be her inability to pay off the principal and interest amounts of the Bank Loan proposed to be availed from HSBC.

Equity

In addition to the determination of the main cons of debt source of financing, the cons of equity sources of financing are also considered to be an important aspect of financing decision-making conundrum. The major disadvantages of equity form of financing could be attributed to difficulty and obligation in paying off dividends to shareholders. In the case study of Karolina, the disadvantages of equity are considered to be division of ownership, where she doesn't have full control or ownership for her business.

Venture Capital

The disadvantages or the cons of venture capital are considered to be potential rigidness in making an appropriate decision for necessitating ventures and potential business collaborations. Yano and Shiraishi (2020), expressed and idealised that cons of venture capital can be attributed to minimisation of financial resources as profit sharing is generally shared. In the case of Karolina, she is at a danger of losing considerable control in her business and possible financial redundancy, as she needs additional investment to propagate the business.

Part B: Context of Financial Accounting

Features of Accounting Information

The accounting information is deemed to be a vital aspect for an organisation to convey the required process of accounting and transactions in monetary nature. As per narrations and explanations of lonescu (2019), the major features of accounting information mainly consist of Verifiability and compatibility features. The feature of verifiability can be mainly associated with an organisation seeking verification of financial statements and accounts by considering a third-party role. The feature of compatibility is further considered to be an important aspect where accounting statements of various and multiple organisations are considered to be compared accordingly by following a common accounting principle.

Preparation of the Cash Budget

Table 1: Calculation of Cash Budget

(Source: Created by Leaner)

Usage and Preparation of Financial Accounting

The usage and preparation of financial accounting for an organisation can be primarily adhered by considering the types of accounts prepared. Jooriaby and Azadi Hir (2021), idealised and narrated that three main types of financial accounting statements are prepared which includes the income statement, balance sheet and the cash flow statement. The usage of all three statements is considered to be vital for ascertaining the apt financial position of Bemus Ltd to attract a large plethora of investors.

Critical Discussion and Communication on Financial Topics

Identification and Importance of Financial Topics

The identification of financial topics mainly consists of Profit, Returns and Expenses. As idealised and opined by Busco et al. (2020), the concept of profit is deemed to be mostly equivalent with that of surpluses where excess of sales and expenses are being considered. The various forms of returns could be further considered as Return on Equity, Return on Investments and Return on Assets. Expenses could be further divided and segregated based on either variable or fixed expenses, where variable expenses mainly include expenses which change with every unit altered. The fixed expenses or costs mainly consist of expenses which remain unhinged even with changes in units of production.

Critical Discussion

The critical discussion and communication associated with the identification of financial topics relevant for the case study of Bemus Ltd. As observed in the provided case study, the major financial topics are considered to be related with sales and costs, where the main source of sales revenue generation is considered to be credit sales while the main source of costs include purchase of goods for resale and other overheads. However, as per critical explanations of McCrae et al. (2021), the topics of sales and costs are considered to be precarious ones which needs to be handled carefully by an organisation and its concerned management. Hence, as per the above cash budget, it can be ascertained that the overall cash balance is considered to be negative, which is numerically expressed as GBP -266,383. Hence, necessary strategic implications are needed to be considered for ensuring maximised revenue collections. The turnover ratios can also be stimulated to facilitate better financial readings for Bermus Ltd.

Conclusion

This report has discussed the important aspects of business finance and financial relevance where two case studies have been discussed. The first case study consists of Karolina where pros of debt financing have been identified as full ownership and cons of equity financing have been established as partial ownership and obligation of paying dividend to shareholders. In Part B, the case study of Bemus Ltd. has been considered, where the cash flow projection has been attributed to readings of -GBP 266,383. Moreover, the preparation and usage of financial accounting is mostly considered to be related with preparation of the balance sheet for encouraging investment propositions. Subsequently, various alternative topics of finance have been identified as profits, costs, sales and returns.

References

Ali, K. and Khalid, M., 2019. Sources to finance fiscal deficit and their impact on inflation: A case study of Pakistan. The Pakistan Development Review, 58(1), pp.27-43.

Busco, C., Consolandi, C., Eccles, R.G. and Sofra, E., 2020. A preliminary analysis of SASB reporting: Disclosure topics, financial relevance, and the financial intensity of ESG materiality. Journal of Applied Corporate Finance, 32(2), pp.117-125.

Chizmar, S., Castillo, M., Pizarro, D., Vasquez, H., Bernal, W., Rivera, R., Sills, E., Abt, R., Parajuli, R. and Cubbage, F., 2020. A Discounted cash flow and capital budgeting analysis of silvopastoral systems in the Amazonas region of Peru. Land, 9(10), p.353.

Gupta, M. and Singh, S., 2018. Sources of finance for hospitalized treatment in India: Evidence for policy. Indian Journal of Public Health, 62(4), p.308.

Ionescu, L., 2019. Big data, blockchain, and artificial intelligence in cloud-based accounting information systems. Analysis and Metaphysics, 18, pp.44-49.

Jooriaby, E. and Azadi Hir, K., 2021. Accounting Information System Adoption Based on Self-Assessed Wisdom. Audit Science, 21(85), pp.373-393.

McCrae, J.P., Mohanty, P., Narayanan, S., Pereira, B., Buitelaar, P., Karmakar, S. and Sarkar, R., 2021. Conversation Concepts: Understanding Topics and Building Taxonomies for Financial Services. Information, 12(4), p.160.

Sergi, D. and Sari, I.U., 2020, July. Fuzzy capital budgeting using fermatean fuzzy sets. In International Conference on Intelligent and Fuzzy Systems (pp. 448-456). Springer, Cham.

Siziba, S. and Hall, J.H., 2021. The evolution of the application of capital budgeting techniques in enterprises. Global Finance Journal, 47, p.100504.

Warren, L. and Jack, L., 2018. The capital budgeting process and the energy trilemma-A strategic conduct analysis. The British Accounting Review, 50(5), pp.481-496.

Yano, G. and Shiraishi, M., 2020. Finance, institutions, and innovation activities in China. Economic Systems, 44(4), p.100835.