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Managing Financial Resources and Decisions Assignment 1 BTEC Nguyen Huu Phong 2017

ASSIGNMENT FRONT SHEET
Qualification

BTEC Level 5 HND Diploma in Business

Unit number and title

H/601/0548: Managing Finance Resources and Decisions

Assignment due

Assignment submitted

Learner’s name

Nguyễn Hữu Phong

Assessor name

Learner declaration:
I certify that the work submitted for this assignment is my own and research sources are fully acknowledged.

Learner signature

Date

Grading grid
P1.1

P1.2

Assignment title

P2.1

P2.2

P2.3

M1

M2

M3

D1

Sources of Finance

1

D2

D3


In this assignment, you will have opportunities to provide evidence against the following criteria.
Indicate the page numbers where the evidence can be found.

Assessment criteria

Expected evidence


Task
no.

LO1. Understand the sources of finance

1.1 identify the sources of
finance available to a
business
1.2 Assess the implications
of the different sources

Summary all available sources for
this specific firm - Explain why
other sources are not available
for this firm
Discuss on each available source
of finance to the firm- Identify
the advantages and
disadvantages of each source

1.1

1.2

LO2. Understand the implications of finance as a resource within a business

2.1 analyze the costs of
different sources of finance

Analyze tangible and opportunity
costs, and tax effect of each
source of finance.

2.1

2

Assessor’s Feedback


2.2 Assess the information
needs of different decision
makers

Summarize all the information
needs for financing decision
required by Managers (Including
Financial and Non-financial
information)

2.2

2.3 Evaluate appropriate
sources of finance for a
business project

Make decision on sources of
finance–explain the reason for
choosing a specific source of
finance for this project using a
wide range of criteria

2.3

3


Assessment criteria
Merit descriptor No. (M1)
Merit descriptor No. (M2)
Merit descriptor No. (M3)
Distinction descriptor No. (D1)
Distinction descriptor No. (D2)
Distinction descriptor No. (D3)

Expected Evidence

Feedback
(note on Merit/Distinction if applicable)

Identify and apply strategies
to find appropriate
solutions.
Select/design and apply
appropriate
methods/techniques
Present and communicate
appropriate findings
Use critical reflection to
evaluate own work and
justify valid conclusions.
Take responsibility
managing and organizing
activities
Demonstrate convergent/
lateral/ Creative thinking

4


Summative feedback

Assessor’s Signature
IV Grading Check:

Date
Comments if any:

Agree
Disagree

Modify grade to

IV Signature

Date

5




6


Contents
Introduction

8

LO1. Understand the sources of finance
1.1 Identify the sources of finance available to a business
1.2 Assess the implications of the different sources

8

9

LO2. Understand the implications of finance as a resource within a business
2.1 Analyze the costs of different sources of finance

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2.2 Assess the information needs of different decision makers
2.3 Evaluate appropriate sources of finance for a business project
Conclusion

14

References

15

7

12
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Introduction
A business wants to exist and to develop that it based on the rational decision of the leaders in the
business. To give the decision that the leaders need the solid knowledge of financial resources in the
business. Understanding financial sources inside and outside the business will help make the most
appropriate decision to bring about optimal profit. Report post here will help us better understand the
definitions, financial analysis and the source of costs in the business and from sources outside
investments.

LO1. Understand the sources of finance
1.1 Identify the sources of finance available to a business
Accounts payable
Accounts payable is an accounting item expresses the entrepreneur's obligation to pay all of its short-term
debt to creditors. Short-term debt is the debt that businesses have to pay during the period from 1 year
back down. The term AP not only limited using for business finance. At the household level, we will also
have to pay the Bill of goods the consumer service monthly. For example, the money of phone, water,
gasoline. Each company provided services will provide service before, bills are sent once we have used.
Each request for payment of invoices shall be paid immediately. If the individual or company that does not
pay its bills will be considered insolvent.

Short term loan
Short term loans term loans are charged within a production cycle of the normal business or within a
financial year and it is in contrast to the term loans long term. This may be the proceeds of the loan, Bank
loan organizations, or individuals in and outside the business. Short-term Loan account in accounting to
reflect the short-term loan amount and loan repayments situation of the business. Your short term loans are
shown on the balance sheet include the short-term debts, accounts can pay accumulated debts, and other
types of debt.

Long term loan
Long-term loan consists of loans and financial obligations lasting over one year. The long-term loan for a
company would include any financing or leasing obligations that are to come due in a greater than 12month period. Long-term loan also applies to governments and nations can also have long-term debt.

Bond
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Bond is simply a loan company. The loan portfolio by buying bonds of which the company released. In
return, the company will pay interest for the period predefined periodically (usually annually or semiannually) and to repay the principal at maturity, termination of debt.

Owner Equity
Owner Equity is owned by business owners and members of the joint venture company or the
shareholders in the company.

Retained Earnings
Retained Earnings is not used to pay dividends that are retained to reinvest according to strategic goals or
to pay the debt. Profit retained is shown under the owners ' equity in the balance sheet.
Retained profit is calculated by adding the profit retained (the previous year) and net income minus
dividends paid to shareholders
Retained Earnings (RE) = Beginning RE + Net Income – Dividends
In most cases, the company retained profits to invest in areas where companies can generate good growth
opportunities, such as buying new equipment or spend more money for research and development (R &
D).

1.2 Assess the implications of the different sources
Short –term debt

Advantages

Disadvantages

Short term loans usually require the
standard of comfort and lightness
over the loans of the banks or other
lending sources in the Government.

High interest rates have a major
disadvantage. The interest rate of shortterm loans is usually much higher than
long-term loans.

The approval and fast is a trait that
the company or business often
interest. The approved short term
loans usually take place quite rapidly
from a few hours to a few days.
Long – term debt

Flexibility in the balance when the Interest on debt is permanent burden to the

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capitalization of
capitalization.

major

business company. Company has to pay the interest
to bondholders or creditors at fixed rate
whether it earns profit or not. It is legally
Bondholders are creditors and have liable to pay interest on debt.
no interference in business operations
because they are not entitled to vote. Debt usually has a fixed maturity date.
Therefore, the financial officer must make
The company can enjoy tax saving on provision for repayment of debt.
interest on the debt.
Debt is the most risky source of long-term
financing. Company must pay interest and
principal at specified time. Non-payment
of interest and principal on time take the
company into bankruptcy.
Only large scale, creditworthy firm, whose
assets are good for collateral can raise
capital from long-term debt.
Equity

No Interest Payments - You do not
need to pay your investors interest,
although you will owe them some
portion of your profits down the road.

Lost part of the control of business when
the investor owns so much stock in the
business. Every decision is not exclusively
in the hands of founders which will be
decided based on who owns the
No Liability – If the business doesn’t investment shares.
succeed, the investors are the ones
who take the hit
No Monthly Payments - You
probably won’t need to make
monthly payments until you make a
profit – which keeps more cash in
your pocket while you get things up
and running.

Bonds

Bonds tend to rise and fall less Historically, bonds have provided lower
dramatically than stocks, which long-term returns than stocks.
means their prices may fluctuate less.
Bond prices fall when interest rates go up.
Certain bonds can provide a level of Long-term bonds, especially, suffer from

10


income stability.
Some bonds, such as U.S. Treasuries,
can provide both stability and
liquidity.

Accounts
payable

Retained
Earnings

price fluctuations as interest rates rise and
fall.

Tighter document controls

Error reporting

Better resources

Exception processing

Easy procedure documentation

Duplication issues

To help the company increase the
value on the stock market, solid
financing for a company that helps
companies develop and bring the
source of dividends to investors.

Low dividend rate and shareholders do not
benefit in full from the income of the
company. Easily influenced to value the
market when business activity does not
meet the expectations of investors.

LO2. Understand the implications of finance as a resource within a
business
2.1 Analyze the costs of different sources of finance
Tangible Cost
A quantifiable cost related to an identifiable source or asset. Tangible costs represent expenses arising
from such things as purchasing materials, paying employees or renting equipment.
Example: Customers who bought a faulty phone at a mobile phone shop and this error due to the mobile
phone shop. Mobile phone shop must compensate the cost value of the phone to the clients, this is
considered tangible costs. On the other hand the client unhappy and complained about the quality of the
mobile phone shop for friends or anyone else, the phone shop's revenue will be affected and this also
considered intangible costs.
Opportunities Cost
Opportunity cost is a useful concept used in the theory of choice. It is applied very frequently and widely
in economic life. Opportunity cost based on the facility's scarce resources should compel us to make

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choices. Choice i.e. perform trade-off, i.e. to receive a benefit that would compel us to Exchange or
overlook a certain cost to it. As such, the opportunity cost of a choice is the value of the best overlooked
when making the choice (and is losing benefits when choosing this approach that does not choose other;
Selected other projects might be better option selected). Due to the rules of scarcity should always exist
the trade-off when making the choice. Or in other words, the opportunity cost always exists.
Example: You quit a job at a software company with a salary of $ 5,000 per month to go to the sale of
clothing, one month you only got $ 3,000 profit. 5000USD you bypass is considered the opportunity cost.
Tax Shield
Tax shield (tax shield) is a term that economists talk about reducing corporate income taxes payable to the
State by reducing taxable income. In other words, before the tax shield, corporate income taxes are
collected from enterprises is more than when businesses have tax shield. Tax shield reduces the payment
of taxes to the State and increases the assets to shareholders and creditors.
Example: a business investing in a project with the total amount of capital is 400 million VND. Income
before tax and interest of the loan is 100 million VND. With the enterprise income tax is 28%, we see:
+ Business case does not borrow money to invest that use only the internal capital resources: taxable
income is 100 million VND, corporate income tax payable is 28 million VND.
+ Business loan case 400 million VND to invest, with the loan interest rate is 10% of loan interest rates:
by 40 million VND, so it should the taxable income is 60 million VND. Corporate income tax payable
now only 16.8 million VND. Tax shield in this case has a value: 400 million VND x 10% x 28% = 11.2
million VND

2.2 Assess the information needs of different decision makers
Financial information


Balance sheet: Is a financial report including the company's current assets, liabilities, owner's
equity company in a specific moment.
The balance sheet adheres to the following formula:
Assets = Liabilities + Shareholders' Equity

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Income statement: Is report business results are important because they demonstrate the
profitability of a company in period certain accounting. Accounting period in the report was
selected by the enterprise and can be changed. The main point in the financial statements is that it
represents the revenue, expenses, profits and losses, but it does not reflect the amount that
companies receive or the amount that companies spend.



Cash flow: Cash flow is a term that refers to the amount that a firm received or paid during a
defined period of time, or in a certain project. Cash flow statements is statistics of the cash flow of
the business, is one of the three most important financial statements of enterprises. This report is
used to determine the level of sustainability in the short term of the business. If cash increases
(positive operating cash flow) then it will increase liquidity for the company, ready to meet the
demand for cash.

Non-financial information


Press release: A press release is a short text, it is usually just one page, aimed at calling for
awareness and attention to an event or an issue worth your company's news. Press releases are sent
to all types of press information: print, radio, and television. If this press notice is the media for is
actually have news value, it can bring to a significant awareness of the public about events and
issues of your company.



Vision and Mission
Mission often focus on the present. Handle the current problem, clearly defined customer, the
implementation process, and activities necessary for the company to deploy.
Vision is often focused on the future. It describes the next direction of the company to catch up and
meet the market and sectors are trading. In addition, proper vision can make company leading the
trend and strong growth.
For example:
Tiki’s mission and vision as follows:

-

Vision: "Become an e-commerce company not only goods but also the services. Change the way
everyone's shopping in the future".

-

Mission: "Meet the needs of online shopping in Vietnam. Facilitate quick, convenient, secure
online shopping".

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The users of financial information.
Internal: Managements, Employees, Owners. Used to analyze and improve the company's
business situation, analyze the feasibility and profitability of investment houses, giving the future direction
for the company.
External: Creditors, Tax Authority, Investors. Feasibility analysis for investment and corporate,
determine the level of reliability of the company based on the tax.

2.3 Evaluate appropriate sources of finance for a business project
I have a small project is to set up a software technology company with products is an English learning
application using AI to help people learn more easily. After many of our calculation then the amount we
have to invest in order to implement the project is about 500 million VND.
However, due to our initial capital only 320 million VND so we don't to sufficient funding. The
calculations showed that the amount of money we need to add is about 180 million VND. We decided to
bank loans to carry out this project. Through analysis we found was that the Bank really bring some
benefits for my project.
Specifically, I will have to be large and fast capital initially. Besides, the loan is due, we will not lose the
right to decide in its projects as work thanks to funding from investors. I have the right to property and the
freedom to decide to grow and develop your business. The Bank loans are also beneficial as it helps us
reduce the tax money down because the interest is tax deductible. This is also a benefit of loans instead of
taking the entire funding of itself.

Conclusion
To the business activities of a business and then develop fluency, leaders need to know and understand the
financial resources that existing businesses as well as the financial resources from outside to make the
decisions. The ability of financial analysis, cost and other resource factors are the key factors in success.

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References
Grasshopper (2017) The Pros and Cons of Equity Financing, Available at:
http://grasshopper.com/resources/business-equity-for-entrepreneurs/equity-financing/ (Accessed: 19 May
2017)
Accountlearning (2017) Advantages And Disadvantages Of Long-Term Debt Financing, Available at:
http://accountlearning.blogspot.com/2013/01/merits-and-demerits-of-long-term-debt.html (Accessed: 19
May 2017)
Wood, M. (2016) The pros and cons of short-term debt, Available at: https://www.carbonite.com/en/cloudbackup/business/resources/carbonite-blog/the-pros-and-cons-of-short-term-debt/ (Accessed: 19 May
2017)
Saga (2014) 5 BASIC KNOWLEDGE ON BONDS, available at: http://www.saga.vn/5-kien-thuc-co-banve-trai-phieu~31678 (Accessed: 19 May 2017)

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