Discuss about the Microsoft Dynamics and understanding the sources of finance available to business?
Identification of sources of finance available to business
Financing is one of the driving forces for each lucrative business enterprise. Most of the business requires capital for funding investors in generation of revenue in the near future. Business does not have instant access to money generation (Aamer 2012). Various funding options makes business owners select types of financing that suits best for their competitors needs. Some of the sources of sources of finance are mentioned below:
Bank Loan
It is noticed that banks and credit unions believes in offering loans to small and large business enterprise. Companies takes out loan from a bank and sets access to required sum of money but need repayment with certain interest rates for the same (Albrecht, Stice and Stice 2011). Interest fee indulges on the borrowing of bank’s money and pay back the funds on timely manner.
Retained Earnings
It is important to understand the fact that amount of earnings with the business relates directly on amount of dividends in an overall manner. Reinvested profits in case of retained earnings relates with paid dividend in Business Corporation (Balla 2012). Retained earnings helps in financing new investments and payment of higher dividends especially for new equity investments in the most appropriate way.
Ordinary or equity shares
Ordinary shares are the real owners of the business enterprise. It includes face values quoted for share of the company and bears no direct relationship with nominal value for the same.
Deferred ordinary shares are one type of ordinary shares that receives entitlement for rising profits and certain amount in an overall manner. They enjoy voting rights in comparison with ordinary shareholders (Bonham 2013). Ordinary shareholders can put their funds in the company either by paying new shares or through retained earnings.
Leasing
Leasing is mutual agreement between parties including lessor and lessee. It is noticed that lessor owns the particular capital asset. On the other hand, lessee stops usage of capital assets by the lessor (Davies and Crawford 2012). Addition to that, lessee makes the final payment within specified period. Leasing is one form of rental properties. Leased assets include:
Plant and machinery
Cars and commercial vehicles
Office Equipment
Owner’s Investment
This source of finance includes the personal money like savings of the business owner for the same.
Bank Overdraft
It refers to short-term sources of financing for helping continuous cash flow operations.
Working capital
Working capital is an important source of financing for improving cash flow in an organization. It helps in meeting the day-to-day working expenses of the business organization (Dyckman, Magee and Pfeiffer 2011). It deals with payment to suppliers and seeking earlier payments from respective customers.
Hire Purchase
Hire purchase taking into loan for purchase of equipment and acquisition of assets in the near future
Personal Loans
This loan is provided for personal issues and retain with the owner for the same
Grants business angels
It helps in assisting business for expanding as well as investing in related equipment. It mainly avails by the local as well as central government in an overall manner.
Silent Partners
These partners are not active like others but contribute equal amount of money in the business activities
Commercial loans
These loans are granted for building or construction of commercial properties.
Debt Factoring
In this, organization sells debts to another organization and terms as outstanding terms.
From the above discussion, it is easy to understand the sources of finance available for conducting business activities. In this particular section, advantages and disadvantages of each type are explained for bringing clear understanding on best options on sources of finance. It is important to consider the fact that finance types will depend entirely on factors ascertaining the size of business enterprise.
|
Sources of Finance |
Advantages |
Disadvantages |
|
Bank Loan |
Interest on business bank loans helps in tax deduction. It includes fixed-rate loans and various loan-servicing payments. |
Bank loans indulge in high difficulty for obtaining in case of small business enterprise. It fails to record of accomplishment of related collateral like real estate company. Interest rates for bank loan are quite high includes bank funding. |
|
Retained Earnings |
Obtaining retained earnings helps small business in providing efficient financial resources for investing for operations as well as creation of growth. It mainly funds projects like research development, facility construction, expansion and renovation for the same. |
High Limits for Internal Revenue service’s for small business corporations. |
|
Shares |
Shares help in giving potential for raising large amounts of capital. It indulges in selling new shares. |
It mainly requires high cost for raising small amount of money. Shareholder percentage holds for risk loss control in and around the business organization. |
|
Leasing |
It helps in purchasing and leasing for upfront money for business organization. No loss of control for the business enterprise |
It fails to sale equipment or returns it for longer time. Undertaking of credit check is one of the drawbacks for leasing attributes. |
From the above analysis, it is easy to gather relevant facts on the available sources of finance and elaborating on the advantages as well as disadvantages for the same. It depends on the ability to repay debt as well as control over the relinquishing financial operations in an overall manner.
It is important to appropriate the financial sources for viewing at the current financial performance on matters relating to current financial position and expected future financial position for the same (Edmonds, McNair and Olds 2013). It is necessary for recommending financing method for various factors. This includes:
Cost
It is noticed that debt finance consider cheaper in comparison with equity financing. It ensures cost advantage for final debt payment matters in an overall manner.
Cash Flows
It is necessary to consider company in generation of cash in debt finance matters. Equity providers mainly focus on accepting the cash return for short-term capital growth for dividend enhancements in the most appropriate form.
Risk
Business Corporation faces large number of risk including finance risk and business risk for the same (Elliott and Elliott 2012). Organization should diversify their risk in riskier areas for operating gearing and reduction of financial risk in an overall manner.
From the above analysis, it is easy to make understand with the help of real life scenario for an example. The selected organization for sources of finance project is Wesfarmers. They have strong market position as well as financial position for the same. They have the required amount for investing returns and adequate sources of finance in an overall manner.
Analyze the costs of different sources of finance
It is important to consider the fact that financial cost borrowing relates tangibility in terms of interest paid to the shareholders. It implies for alternative uses for money transactions for tax amount for particular business organization. Finance is the life-blood of business organization. Opportunity cost helps in evaluation with the choices preferred in the spending pattern of individuals (Horngren 2013). Business organization has overheads including rent and utility bills for the same. It is noticed that money paid for the borrowing limits ascertain on timely basis in the most appropriate way. It enhances retained profits for limited amount left in investment pattern in and between the alternative options in an overall manner. Corporation tax adds the depreciable amount for attainment of business profits in the near future (Horngren, Harrison and Oliver 2012). Capital allowances helps in implementation of rules, regulations as well as eligible amount charges for the same.
For example- Company saving 1000 Euros for spending money in case of facing difficulty in any form. Options available are:
Purchasing new car
Going for Holiday
It is essential to consider the fact that financial planning plays an important role in future growth in an overall manner. Business Corporation should manage with the expenditure and various implications for the same. Late payment of salaries to staff members negatively affects the total workforce of business enterprise. Proper financial planning enables maintenance of cash flow management for critical running of Business Corporation (Kemp and Waybright 2013). Business organization should calculate the cash flow for identification of surplus or shortage of finance in the operational activities. This requires checking at the budget expenditure for smooth functioning of the business organization. Organization should be aware of overtrading activities for completion of work for facing the unforeseen events like delays as well as delivery problems for the same (Libby, Libby and Short 2011). Business organization should plan for addressing the cash flow problem for payment of bills in the near future.
It is important to plan each small things pertaining to business enterprise. This gives clear idea as well as understanding over the business projects. It helps in giving proper plan and course of action in consolidated format. Lacks of effective planning fails to address the problems in one go. Effective planning helps an organization attain future goals in smoother terms.
It is easy to understand the fact that organization consists of variety of decision makers for activities pertaining business. CEO as well as senior management team is responsible for handling the strategic matters directly future activities of particular business organization. Finance and sales departmental managers takes decisions on matters relating to customer credit terms, maximization of profits (McKeith and Collins 2013). Managers believe in preparation of budgets on expenditure incurred by the department for attainment of future goals as well as objectives for the same.
On critical analysis, senior managers refer to profit and loss account for viewing at the turnover of particular organization. It mainly includes expenditure and the incomes governing towards the business enterprise for the same (Needles and Powers 2012). Balance sheet predicts the financial position and value of assets as well as liabilities within specified time.
As far as management accounting is concerned, it includes budgeted cash flow forecast in the most appropriate form. It mainly ensures planned incomes and expenditures broken into departments. It helps in arriving at actual expenses in comparison with expected variances in an overall manner.
It is noticed that financial statements predicts the overall health of the business organization. It mainly serves effective method for communicating financial information on business entity like banks as well as investors for the same (Phillips, Libby and Libby 2013). Results of the financial statements affects the following attributes like:
Financial statements affect the share price of a company in rendering reliable financial information in an overall manner.
It mainly reflects on the ability of the company for gathering relevant financing options in the near future.
It helps the potential investors for processing new share issue as well as dividends for the same.
It reflects transparent communication with the help of reported financial statements in case of honesty and integrity of particular business enterprise
Analyzing the budgets and making appropriate decisions
From the financial statements of British Airways, it is easy to ascertain the fact that managers analyses the budget. It mainly compares with the planned income as well as expenditure for the same.
Budget of British Airways:
|
Budgeted Figures |
Actual Figures |
|
|
Units Produced |
12000 units |
10000 units |
|
Direct Materials Cost |
$ 15000 |
$12000 |
|
Direct Labour Costs |
$12000 |
$13000 |
|
Fixed overhead costs |
$5000 |
$4000 |
|
Variable overhead costs |
$4500 |
$5600 |
|
Total Costs |
$36500 |
$34600 |
From the above table, it is reported that British Airways budget 12000 units but only produced 10000 units in operational activities. It is because of less revenue figures and decreases sale figures for the same. It is revealed that there is decrease in the actual production in comparison with budgeted amount for expected costs in an overall manner. It is easy to calculate the percentage variance that actual production is 20% less than the planed one.
It is noticed that products have certain cost of producing the items in business activities. Managers should decide on understanding the concept of costs for ensuring profit-making in the near future. Classification of costs:
Fixed cost remains same irrespective of increase or decrease of production like rent.
Variable costs increases or decreases depending entirely on the level of production like electricity.
Unit cost
= Total Fixed costs+ Total variable costs/ Total units produced
Linking unit cost and selling price
It is noticed that cost calculation depends entirely on selling price decisions taken by an organization (Shim, Siegel and Shim 2012). Most of the business organization adds the profit for determination of selling price of products as well as services for the same.
Selling Price
= Direct Cost+ Indirect Cost + Profit Margin/ Number of items sold
Techniques in identification of breakeven point
Breakeven graph monitors the sales revenue, fixed cost as well as total costs.
It mainly estimates the contribution for each unit
Business organization should examine the feasibility risks with usage of sensitivity analysis.
Quantitative techniques include:
Payback Period
This technique is one of the easiest ways for calculation of feasibility for a given project. It mainly estimates the initial investment divided by the total cash flow period in an overall manner (Spiceland, Thomas and Herrmann 2011). It helps in estimating the clarity of the project proposal for returning money on timely basis. This particular technique fails to address the total amount of profitability attained in terms of time value of money.
Payback period
= Initial Investment/ cash Inflow per period
Accounting Rate of Return
This particular technique results in ascertaining total profit divided by the initial investment of specified project proposal. It is easy to calculate and mainly addresses the profitability aspects of the business organization. It fails to consider the concept on time value of money and variance allowances for unreliable figures (Weetman 2012). It mainly analyses as well as compares projects in terms of accounting income and cash flows for the same.
Accounting Rate of Return
= Average Accounting Profit/ Initial Investment
Qualitative factors include:
It mainly address the business objectives based upon the proposed investment in alignment of business organization
It ensures undertaking reliable data for forecasting as well as preparation of quantitative analysis for the same
It addresses economy aspects and takes into current consideration for business organization
It includes environmental factors for positive as well as negative changes affecting the overall organization for the same
It includes ethics and image and alignment with attainment of future goals as well as objectives
It mainly focus on the qualitative aspect on internal as well as external shareholders
It focuses on the customer needs by undertaking investment decisions for the majority of the shareholders in an overall manner.
Discussion on financial statements
British Airways maintains three financial statements for smooth functioning of the business enterprise. This includes:
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Management mainly uses the financial statements for managing the organization and discussing the future strategies on long-term basis (Weygandt, Kieso and Kimmel 2012). External shareholders use the information for taking decisions on possible involvement of operational activities in an overall manner.
Balance sheet helps in predicting the financial position of British Airways and presentation of assets as well as liabilities for the same on specified date.
Profit and loss statement reveals the financial performance of British Airways. It includes expenditure and incomes pertaining to business organization.
Cash Flow statements reveal the information on cash from the operations, investing as well as financing activities for the same.
In accordance with International Accounting Standards, it is essential to follow the format by business organization. Close distinction in financial statements are as follows:
Balance sheet
It mainly consists of net assets including:
Company
Company mainly reveals the financial information to the shareholders and owner of business organization.
Partnership
It includes two partners in case of private companies and sharing of assets and liabilities in equal portions of business organization (Williams 2012). Capital accounts include investment as well as current account reveals shares, salaries as well as interest for the same.
Profit and Loss Account
Charity
It reveals the unrestricted, restricted as well as endowment for quick funds.
Local Authority
It is mostly funded by the government. It receives funds mainly from the collection of related local taxes (Albrecht, Stice and Stice 2011).
Financial ratios help in calculating the profitability, liquidity as well as solvency position of particular business organization.
Liquidity ratio helps in predicting the liquidity position of business enterprise. This includes:
Current Ratio
= Current assets/ Current liabilities
Quick ratio
= Current assets- stock – prepaid expenses/ current liabilities
Profitability ratio measures the profitability position of the business in terms of current performance (Aamer 2012). This includes:
Gross profit margin
Gross Profit/ Net sales*100
Net Profit
= Net Profit/ Net Sales* 100
Efficiency ratios indicate the utilization of financial resources by an organization.
Stock turnover ratio
= Cost of goods sold/ average stock
Asset turnover ratio
= Total fixed assets+ total current assets
Aamer, M. (2012). Microsoft Dynamics AX 2012 R3 financial management.
Albrecht, W., Stice, E. and Stice, J. (2011). Financial accounting. Mason, OH: Thomson/South-Western.
Balla, D. (2012). CLEP financial accounting. Piscataway, NJ.: Research & Education Association.
Bonham, M. (2013). International GAAP 2013. Chichester, West Sussex, England: Wiley.
Davies, T. and Crawford, I. (2012). Financial accounting. Harlow, England: Pearson.
Dyckman, T., Magee, R. and Pfeiffer, G. (2011). Financial accounting. [Westmont, Ill.]: Cambridge Business Publishers.
Edmonds, T., McNair, F. and Olds, P. (2013). Fundamental financial accounting concepts. New York, NY: McGraw-Hill/Irwin.
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