Higher National Diploma in Business
Unit 2: Managing Financial Resources
and Accountancy
and Decisions
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Edexcel BTEC Level 5 HND Business and Accountancy
Unit 2 Assignment: Managing Financial Resources and Decisions
Useful Websites:
www.businesslink.gov.uk www.managementhelp.org www.ba.com www.iagshares.com www.accaglobal.com www.cimaglobal.com www.mindtools.com
Section 1
Understanding the sources of finance available to a business
You will need to:
· identify the sources of finance available to a business
Focusing on sources you need to discuss internal sources, such as from revenue/sales income or selling off assets, and external sources such as loans from banks, development grants (eg from the EU), selling shares in the company, and in the case of a public sector organisation, allocated budget from government and the collection of local taxes.
· assess the implications of the different sources
There will be negative or positive implications for each of the above for example if assets are sold the overall value of the organisation is diminished, and if loans are arranged then repayments must be made, and with certain sources of funds the lender will demand some influence over the organisations decisions.
· evaluate appropriate sources of finance for a business project
Select a project that is typical for your own organisation, or sector, or select a project which interests you. Then identify, and discuss the merits of, sources of funds appropriate for that project.
Section 2
Understanding the implications of finance as a resource within a business
You will need to:
· analyse the costs of different sources of finance
You will need to research this for each of the identified sources, but as a guide, there will be financial costs on some sources – mainly interest added to the amount, and constraints on pay-back timescales (a pressure cost). On others there will be the cost of loss of control as would be the case with some loans, grants, and share issues.
Higher National Diploma in Business
Unit 2: Managing Financial Resources
and Accountancy
and Decisions
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· explain the importance of financial planning
In essence, without financial planning there is no way of being certain that the organisation can fund its own activities. You will need to give more detail on how this is done.
· assess the information needs of different decision makers
In the context of Managing Finance, you need to identify the decision makers inside an organisation eg managers and specialists operating at different levels, and external decision makers such as shareholders, funding organisations, the government and discuss the differences in the amount and quality of (financial/accounting) information they need.
· explain the impact of finance on the financial statements
Here you need to describe how the influx of funds eg loans, grants, share issue income, retained profits can influence the appearance of the profit and loss account and the balance sheet, and you should also briefly mention how organisations must be transparent about this.
Section 3
Making financial decisions based on financial information. You will need to use an example either from your present employer, or you can use the published financial statements of companies such as British Airways, which are published on the internet.
You will need to:
· analyse budgetsand make appropriate decisions
You will need to analyse a budget period of at least 6 months, and comment on the performance, the behaviour, over that period, and give your views on what action should have / could have been taken.
· explain the calculation of unit costs and make pricing decisions using relevant
information
Unit costs are calculated in a similar way in most business sectors, as are pricing decisions – you will need to give the formula and explain the link between Unit Cost and Selling Price, and the importance of information on Fixed Costs, Variable Costs, and Break-Even Point.
· assess the viability of a project using investment appraisal techniques
From the finance point of view, projects need to be assessed for viability, to ensure that the project is properly funded and that it will be profitable. You need to (briefly) describe techniques such as NPV, DFC, Rate of Return, and IRR – and give a simple example of one of these being used.
*www.businesslink.gov.uk – Finance and Grants pages are an excellent source of information for this
Higher National Diploma in Business
Unit 2: Managing Financial Resources
and Accountancy
and Decisions
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Section 4
Evaluate the financial performance of a business. You will need to use an example either from your present employer, or you can use the published financial statements of companies such as British Airways, which are published on the internet.
You will need to:
· discuss the main financial statements
These are the annual accounts the Profit and Loss Account (in some sectors knows as the Operating Statement, or Statement of Income and Expenditure) and the Balance Sheet you need to explain what they contain, their purpose and importance, and who makes use of them.
· compareappropriate formats of financial statementsfor different typesof business
Here you need to describe and compare the formats (structure, content, detail) of the main statements for different businesses eg Self-employed, Partnership, Limited Company, Public Limited Company, Charity, Local Authority, State Owned.
· interpretfinancial statements using appropriate ratios and comparisons,both internaland external
You will need to analyse at least 3 continuous years of the Profit and Loss Account and Balance Sheet (or equivalents) of your own organisation or an organisation that you can research (BA can be used, or a different organisation but only with your Tutors approval) to identify a range of ratios and trends, and then to comment on those.
Comparison Ratios – such as Gross Profit to Sales of 1.25:1 – Net Profit to Sales 0.25:1 Trend Ratios such as the ratio of Net Profit to Sales, over each of a series of years (3 years is universally accepted as the minimum needed to identify a trend
Internal ratios are literally that ratios comparing figures related to the organisations own accounts only.
External ratios are either comparisons between that organisation and a different one eg BA with Virgin Air or compared with industry standards (most industries have standard ratios which are considered to be safe ones to aim for/achieve).
*for an example of financial statement ratios, go to www.iagshares.com – then to the Economic and Financial Information pages
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