Managing Financial Resources and Decisions
Understand the implications of finance as a resource within a business 2
In this essay I will be discussing and understanding of where and how to access sources of finance for a business, and the skills to use financial information for decision making.
Finance is essential for a business’s operation, development and expansion. Finance is the core limiting factor for most businesses and therefore it is crucial for businesses to manage their financial resources properly. Finance is available to a business from a variety of sources both internal and external.
LO1 – Understand the implications of finance as a resource within a business
Internal Sources of finance
Internal sources …show more content…
If it wants to replace it, the asset may cost a lot more.
2.2 - Importance of financial planning
Financial planning affects the terms and conditions on which the business will be able to obtain funding required to establish, maintain and expand the business. Financial planning influences the raw material a business is able to afford, the products it is likely to produce and whether the business will market its product efficiently. It will affect the resources the business is able to acquire to operate and it will be a major determinant of the success of the business. A financial plan not only help the business to understand what it wants to do but also helps the business understand how to achieve it.
2.3 The information needs of different decision makers
Different decision makers will want different information about the company regarding their interests in the business. A long-term lender will always want to know the gearing ratio of a company while the short-term lender will want to know about the liquidity ratio of the business. The information for different parties is all taken from financial reports, cash flow and financial statements such as the balance sheet and profit and loss account. The manager needs accounting information to take managerial decisions since all functions of an organisation are tied to the financial strength of a business. Using the financial statements, the financial stability and profitability of an organisation can be analysed and