MRFD-Nakeeb

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Managing financial resources and decision Individual assignment

BTEC EDEXCEL HND DIPLOMA IN B !INE!! "MANA#EMENT $H MAN

%E!O %CE!&

O''E%ED B( INTE%NATIONAL COLLE#E O' B !INE!! AND TECHNOLO#(

NIT )*+ Managing financial resources and decisions

HND,BM,*-,./

ICBT CIT( CAMP !

Nakeeb Nawaz

! BMITTED TO+ M%!0 Mad1us1ani Hassant1i2a

3/ t1 4ul5 -)3.

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Acknowledgment

!6ecial to2en of gratitude goes for Mrs0Madus1ani Hassant1i2a for ma2ing t1is 6at1 to 7ring

t1e ma8imum outcome of t1is 6ro9ect:

I ;ould li2e to a66reciate t1e 6riceless contri7ution of several 6eo6le ;1o 1el6ed me to ma2e

t1is re6ort and also t1e manager of Cargill<s for giving all t1e necessar5 details in order to

com6lete t1is re6ort successfull5:

And also li2e to mention m5 6arents and m5 friends ;1o su66orted me to ma2e t1is

assignment a success:

!o m5 1eartiest a66reciation goes for all ;1o su66ort get done t1is tas2:

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Executive summery

'inance generall5 refers to - activities0 To t1e stud5 of 1o; mone5 is managed efficienc5 and

effectivel5 and t1e 6rocess of collecting re=uired mone50T1is re6ort mainl5 contains a7out 1o; effective decisions s1ould me made using re=uired

financial tools suc1 as investment a66raisal tec1ni=ues0

T1e first tas2 contrasts on 1o; financial re6orts are ta2en into consideration in order to

evaluate 7usiness 6erformances and 6ositions0 As 6er !LA! "!ri Lan2a Accounting

!tandards& 6ur6ose of 6u7lis1ing financial re6orts are also anal5>ed in t1e re6ort

T1e second 6art of t1e re6ort discusses on 1o; a com6an5 anal5ses re=uired e8ternal and

internal factors suc1 as !?OT anal5sis and PE!T anal5sis in order to esta7lis1 small and

medium scale 7usinesses0

It furt1er discusses on different a66raisal tec1ni=ues so t1at it ;ould 7e muc1 easier to figure

out t1e 6attern of 6rofita7ilit5 of a com6an5 for investment 6ur6oses0 ?e s1ould 7e a7le to

identif5 t1e future cas1 inflo;s and outflo;s so t1at it ;ould 7e muc1 effective in testing t1e

com6an5<s 6erformance continuousl50

In t1e latter 6art of t1e re6ort 1as discussed a7out t1e sources of finance availa7le for t1e

7usiness and also 1as discussed a7out t1e advantages and disadvantages of t1e sources of

finance availa7le and also t1e 7est o6tion 1as 7een suggested0 Documents re=uired to a66l5

for a 7usiness loan 1as 7een stated and also t1e reason for su7mitting t1e documents

re=uested 75 7an2 is also stated in t1e re6ort and finall5 1as s6o2en a7out t1e im6act of 7an2

loans to t1e 7usiness0

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Introduction

'inancial %e6orts of com6anies 7ring out information a7out t1e com6an5 and 1o; t1e

6rocedures of t1e com6an5 are ta2en into action0 'urt1ermore financial re6orts s1o; t1ecom6an5<s current 6osition and t1e 6erformance in financial terms0

In !ri Lan2a uoted Com6anies ;1ic1 are listed in t1e Colom7o !toc2 E8c1ange 1as to

6re6are t1eir financial re6ort in accordance ;it1 !LA! "!ri Lan2a Accounting !tandards&0 It

is essential to assess t1e financial re6orts on a continuous 7asis in order to endure 2ee6 t1e

standard effectivel50

?e live in an era ;1ere 7usinesses are t1riving to satisf5 customers 7e5ond t1eir e86ectationsdue to t1e 6resence of 1ig1 com6etition0 As a result 5oung entre6reneurs commit t1emselves

in 6utting u6 ne; 7usiness ideas in order to succeed in t1eir 6rofession0 In order to invest in

suc1 7usinesses ;e s1ould 7e a7le to anal5>e t1e necessar5 re=uirements suc1 as !?OT and

PE!T anal5sis0 'urt1ermore ;e s1ould 7e a7le to 6redict future results due to 6resent

transactions and events0

Also small and medium scale 7usinesses contri7ute collectivel5 to an econom5

com6re1ensivel50 !o it 1as to consider as an im6ortant industr5 to carr5 out 7usinesses0

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Contents000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

Ac2no;ledgment00000000000000000000000000000000000000000000000000000000000000000000000000000000000

E8ecutive summer500000000000000000000000000000000000000000000000000000000000000000000000000000000

Introduction000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

List of illustrations000000000000000000000000000000000000000000000000000000000000000000000000000000000

Cargill’s (Ceylon !"C 00000000000000000000000000000000000000000000000000000000000000000000000000

PA%T A000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

)30 Pur6ose of 6u7lis1ing financial information0000000000000000000000000000000000000000000000000000000

se of financial information for t1e sta2e1olders0000000000000000000000000000000000000000000000000000000

To s1are1olders , o;ners000000000000000000000000000000000000000000000000000000000000000000000000000

)-0 !tandards re=uested 75 !LA! in order to 6u7lis1 financial re6orts000000000000000000000000000003)

)@0 Anal5>ing financial statement of Cargill<s0000000000000000000000000000000000000000000000000000000

Part B0000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

-0) !?OT Anal5sis "anal5sis is ;it1 regard to t1e fast food industr5 in !ri Lan2a0&00000000000003*

!trengt1s000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

PE!T Anal5sis0000000000000000000000000000000000000000000000000000000000000000000000000000000000000

)-0 Cas1 flo; statement of a similar industr50000000000000000000000000000000000000000000000000000000000000

)@0 Timeline0000000000000000000000000000000000000000000000000000000000000000000000000000000000000

04. Investment Appraisal Techniques 0000000000000000000000000000000000000000000000000000000

A%% "average rate of return&000000000000000000000000000000000000000000000000000000000000000000000

Discounted 6a57ac2 6eriod000000000000000000000000000000000000000000000000000000000000000000000000

)*0Calculation of I%% "investment rate of return&0000000000000000000000000000000000000000000000000000000

)/0 Possi7le source of finance0000000000000000000000000000000000000000000000000000000000000000000000000

) 0 Documents re=uired to o7tain 7an2 loan000000000000000000000000000000000000000000000000000000000000

) 0 Im6acts of 7an2 loans to t1e 7usiness000000000000000000000000000000000000000000000000000000000000000

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Conclusion and recommendation0000000000000000000000000000000000000000000000000000000000000000000000

A66endices000000000000000000000000000000000000000000000000000000000000000000000000000000000000000

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"ist of illustrations

Ta7le 30) Current asset ratio 33

Ta7le 303 Acid test ratio 3-

Ta7le 30- %eturn on ca6ital em6lo5ed 3-

Ta7le 30@ #ross 6rofit ratio 3-

Ta7le 30. Net 6rofit margin 3@

Ta7le 30* 'i8ed asset turnover ratio 3@

Ta7le 30/ Price 6er earnings ratio 3.

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Cargill’s (Ceylon !"CCargill<s "Ce5lon& PLC is t1e largest retail store c1ain in !ri Lan2a 6ossessing of more t1an

1alf of t1e mar2et s1are in t1e retail industr50 Also Cargill<s 'ood Cit5 is rated t1e fourt1 most

valua7le retail 7rand in !ri Lan2a0 "Brand %esearc1 Lan2a&

It ;as esta7lis1ed in 3 .. and since it 1as 7uilt a solid dura7le foundation for t1e retail

industr50 Cargill<s is recogni>ed for its innovative su6ermar2et tec1ni=ues0 It 1as also 2no;n

as t1e Hig1est Brand E=uit5 in t1e Asia Pacific region0 "!urve5 on !1o66er Trends 75

ACNielsen&

It deals ;it1 food and ot1er franc1ise 7usinesses0 Cargill<s distri7utes its food and nonFfood

7rands t1roug1 t1eir mar2eting and distri7ution c1ain to retail industr50

Due to 7eing t1e onl5 retail 2ing it is ca6a7le of giving t1e 1ig1est 6ossi7le 6rice to its

su66liers even t1e su66liers 6rovide 1ig1est nutritious food 6ossi7le to t1e consumer at

lo;est 6ossi7le 6rice0

T1e retail c1ain is accelerated ;it1 over 3 outlets across t1e island0 ?it1 immense

innovation and safet5 t1eir food 6roducts 1as led to sectorial gro;t1

!A#$ A

%& !ur'ose of 'ublis ing financial information

T1e 6ur6ose of 6u7lis1ing financial information is to 6rovide information a7out com6an5<sfinancial 6ositionG 6erformance and c1anges in t1e 6osition of t1e organi>ation over a 6eriod

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of ;1ic1 is useful for a ;ide variet5 of users in ma2ing decisions0 T1ese users can 7e 2no;n

as !ta2e1olders of t1e enter6rise0

T1ese sta2e1olders com6rise of su66liersG customersG s1are1oldersG managersG com6etitorsG

governmentG 6ressure grou6s and etc0

)se of financial information for t e stake olders

$o s are olders * owners

• To evaluate t1e gro;t1 of t1e 7usiness• To evaluate t1e 6rofita7ilit5 of t1e 7usiness0• To estimate t1e s1are of 6rofit t1at is allocated to s1are1olders0

$o managers

• To manage o6erational activities0• To ma2e economic decisions0• To com6are 6revious 5ear<s 6erformances0• To com6are ;it1 t1e com6etitor 6erformance and 6osition0• To set future aims and targeted 7udgets0

$o su''liers

• To evaluate t1e credit 6eriod0• To a66raise t1e li=uidit5 of t1e organi>ation0• To 9udge t1e gro;t1 and 6erformance of t1e 7usiness0

$o +overnment aut orities

• To calculate t1e annual ta8 to 7e 6aid0• To evaluate t1e 9o7 o66ortunities availa7le0• To 6rovide ta8 reliefs or ta8 re7ates0• To 6rovide su7sidies if t1e com6an5 is failing over a 6eriod of time0

$o Em'loyees

To evaluate on salaries and ;ages0 4o7 securit50• Bonuses and allo;ances0

$o community and 'ressure grou's

• To 9udge on gro;t1 and 6rofita7ilit5 of t1e 7usiness0

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• To e86eriment 6ro9ect researc1es0• To evaluate on 6urc1asing s1ares0

$o financial institutions• To ma2e decision on 6roviding loans0• To allo; overdraft facilities0• To evaluate on 6urc1asing s1ares0

,& -tandards re.uested by -"A- in order to 'ublis financial re'orts

As 6er !LA! )@ 6resentation of financial statement s1ould com6rise of * com6onents0

30 Income !tatement-0 Balance !1eet@0 !tatement of C1anges in E=uit5.0 Cas1 flo; !tatement*0 Notes to t1e Accounts

In a com6an5<s financial information stated assetsG lia7ilities and e=uit5 are associated ;it1

t1e 6osition of t1e organi>ation ;1ile stated income and e86enditure are associated ;it1

6erformance of t1e organi>ation0

!LA! s1all 7e a66lied to all general 6ur6ose financial statement 6re6ared and 6resented in

accordance ;it1 !LA!0

T1e com6an5 follo;s re=uired standards in accordance ;it1 !LA! in re6resentation of

financial statement0 Due to t1e 6u7lis1ing of financial statementG a com6an5 can access to t1e

information in order to evaluate t1e actual 6erformance and 6osition in com6arison to t1e

e86ected 6erformance and 6ositionG and also com6etitor anal5sis ;ould 7e muc1 effective0

T1e main o79ective of !LA! )@ is to ma2e decisions 75 different sta2e1olders regarding t1e

com6an50

-tandards followed by Cargill’s in 're'aring financial statements

T1e Balance !1eetG Income !tatementG Cas1 'lo; !tatementG !tatement of C1anges in E=uit5

and Accounting Policies and Notes " 'inancial !tatements & of t1e #rou6 as at @3 Marc1

-)3- are 6re6ared in accordance ;it1 t1e Accounting !tandards laid do;n 75 t1e Institute of

C1artered Accountants of !ri Lan2a and are in com6liance ;it1 t1e re=uirements of t1e

Com6anies Act No0 ) of -)) 0 T1e accounting 6olicies ado6ted are consistent ;it1 t1ose of

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t1e 6revious financial 5ear0 T1ere ;ere no c1anges to t1e accounting 6olicies of t1e #rou6

during t1e 5ear0

/& Analyzing financial statement of Cargill’sA com6an5<s financial statement can 7e anal5>ed in various ;a5s in order to derive ratios and

come into conclusions0

/&% "i.uidity #atios

Current Asset #atio

(ear ,0%0 ,0%%Current assets, Current

Lia7ilitiesJ3))

.G/ G/)3 , G) *G. /J3)) *G @/G -- *33G@. G@ -J3))

Current Asset %atio 11&,220%34 50&5502132 Ta7le 30)

Current Asset %atio K Current Assets , Current Lia7ilitiesJ3))

T1is s1o;s t1e amount of current assets 1eld in com6arison to Current lia7ilities0 T1e

standard current asset ratio s1ould 7e more t1an or e=ual to -0 According to t1e evaluation t1e

current assets ratio of 5ear -)33 is *)0* G ;1ile in 5ear -)3) is // 0 T1e current asset ratio

1as decreased from 3*0* 0 It is 2no;n t1at t1e com6an5<s current lia7ilities 1ave increased

6ro6ortionatel5 ;1en com6ared to t1e 6revious 5ear0 ?e can come to conclusion t1at t1evalue of t1e current assets is a66ro8imatel5 1alf of t1e current lia7ilities in 7ot1 t1e 5ears0

T1e com6an5 s1ould reduce t1e amount of lia7ilities and, or increase t1e amount of current

assets in order to gain t1e re=uired standard of current assets0

Acid $est #atio

Acid Test %atio K "Current Assets F !toc2& , Current Lia7ilitiesJ3))

(ear ,0%0 ,0%%"Current assets F stoc2& ,

Current Lia7ilitiesJ3))

".G/ G/)3F@G)* G@ & ,

G) *G. /J3))

"*G @/G --F@G* /G@--&*

33G@. G@ -J3))Acid Test %atio ,/&%,03062 %2&0/3054,

Ta7le303

T1e standard acid test ratio is more t1an or e=ual to 30 According to t1e calculation in t1e

5ear -)3) is -@ G ;1ile in -)33 t1e ratio is 3 0 ?e can sa5 t1at t1e com6an5 is not u6 to

t1e re=uired standard of acid test ratio0 T1e decrease is . 0 But t1e com6an5 can ac1ieve its

33CT,HND,BM,*-,./




target 75 increasing its level of assets and, or decrease t1e amount of lia7ilities as t1e earlier

solution0

/&, !rofitability #atios

#7CE (#eturn on Ca'ital Em'loyed

%OCE K Net 6rofit After Ta8, Ca6ital Em6lo5edJ3))

8ear ,0%0 ,0%% NP after ta8, Ca6italJ3)) 3-G@ -, /G3.3G3**J3)) 3G) .G3 @, G). G.@@J3))

%OCE %%&100,2/6 %5&5,%6/,3Ta7le 30-

T1is ratio derives on t1e amount 5ou get to ever5 ru6ee invested0 It is 7eing mentioned t1at

;1en 3)) ru6ee is em6lo5ed t1e return for t1e 5ear -)3) ;as 330/ ru6ees ;1ile in 5ear -)33

it is 3*0* ru6ees0 T1is e86lains t1at t1e com6an5 1as increased its %OCE 75 . 0

+ross !rofit #atio#ross Profit %atio K #ross Profit , total sales revenue J3))

(ear -)3) -)33#P,!alesJ3)) -G/.)G@ @, @)G .G J3)) @G. -G.- , @ G3- G//3J3))

#P %atio 4&55%43%1 2&/32/624Ta7le 30@

#ross 6rofit ratio is derived in order to evaluate t1e amount of gross 6rofit gained ;it1

com6arison to t1e sales0 T1e 6ercentage in -)3) is 0* ;1ile in 5ear -)33 is 0@ 0 T1ere is

an increase of )0 0 It s1o;s t1at t1e com6an5 is ac1ieving ;ell in !ales com6ared to t1e

6revious 5ear0

Net !rofit Margin

Net Profit 7efore ta8 , Total sales %evenue J3))

(ear -)3) -)33 NP,!alesJ3)) 3G)))G -/,@)G .G J3)) 3G.)/G )@,@ G3- G//3J3))

NP %atio /&,6%,/2% /&34435/Ta7le 30.

Net 6rofit ratio is derived in order to evaluate t1e amount of net 6rofit gained ;it1

com6arison to t1e sales0 T1e 6ercentage in -)3) is @0- ;1ile in 5ear -)33 is @0 0 T1ere is

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an increase of )0* 0 It s1o;s t1at t1e com6an5 is ac1ieving ;ell in !ales com6ared to t1e

6revious 5ear ;1ic1 1as a 7ig im6act on t1e ratio to c1ange 75 )0* 0

/&/ Efficiency #atios

9ixed Asset $urnover #atio

'i8ed Asset Turnover %atioK Total sales revenue, 'i8ed asset at NB

(ear -)3) -)33sales , 'i8ed asset at

NB J3))

@)G .G , G-*3G-.3 @ G3- G//3* 3@G*/ G

'i8ed Asset Turnover %atio /&//3/14%6/ ,&3/1/%0/,3Ta7le 30*

'i8ed asset turnover asset derives t1e amount of sales against t1e fi8ed asset of t1e com6an50

T1e ratio 1as 7een decreased in -)33 ;1en com6ared to t1e 5ear -)3) 75 )0/0

/&6 Investment #atio

!rice !er Earning #atio

Price 6er Earning %atio K Loans , !1are1older<s 'und J3))

(ear -)3) -)33Loans , !1are1older<s fundJ3)) 3 G. , /G3.3G3**J3)) @ .G3/ , /G * G 3)J3))

Price 6er Earning %atio /&,/,,363 5&5%24303Ta7le 30/

Price 6er earnings ratio refers to t1e valuation of organi>ations current s1are 6rice and

com6aring it ;it1 t1e earning 6er s1are0 According to t1e valuation in t1e 5ear -)33 t1ere

is an increment of -0@ 0

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!art :

,&0 -;7$ Analysis (analysis is wit regard to t e fast food industry in -ri

"anka&

-trengt s

• Product differentiation due to introduction of ne; varieties of 6roducts0

• Location of t1e outlet ;1ic1 is accessi7le easil5 for t1e consumers0

• !etting of t1e outlet ;1ic1 6rovides t1e feeling of sta5ing at ;it1 utmost rela8ed

mentalit50

• E86ertise and e86erienced staff in t1e industr5 is an added strengt10

• ualit5 6roducts and innovative conce6t0

• Management tec1ni=ue ;1ic1 reflects customer focused service0

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;eaknesses

• Ba2er5 items are =uite 6eris1a7leG so it 1as to 7e sold fast as 6ossi7le 7ecause

consumers 6refer fres1 6roducts0

• Limited variet5 of menu0

• Lac2 of e86erience as ;e are ne; to t1e industr50

• T1oug1 financial re6orts 6ossess re6orts of sta7ilit5G unseen ;ea2nesses are t1ere 5et

to 7e identified0

• Lac2 of ca6ital to 7e em6lo5ed0

7''ortunities

• E86anding t1e range of 6roducts0

• E86anding t1e 7usiness 75 esta7lis1ing more outlets in different 6laces0

• Producing more 1ealt15 and nutritious 6roducts ;ill increase t1e sales0

• T1e industr5 is gro;ing at a 1ig1er 6ace ;1ere t1e demand ;on<t find an end0

• nderta2ing ca2e orders ;ould 7e a fres1 o6ening to a ne; mar2et0

$ reats

• Com6etition from ot1er 7a2eries and 7a2er5 6roduct su66liers suc1 as %o5al

Ba2er5G T1e fa7G P$! and etc0

• Economic do;nturn ;ould affect t1e dis6osa7le income ;1ic1 ;ould lead to

reduction in sales0

• Demand for !1ort eats ;ould decrease due to 1ealt1 concern0

!E-$ Analysis

!olitical and "egal 9actors

Documents ;1ic1 are essential to register t1e outlet0

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• Em6lo5ment La;s and rules0

• Environmental %egulations0

• Healt1 and !afet5 factors0

• Ta8 Pa5ment strateg50

• Trade %estrictions or !u7sidies0

Economic 9actors

• Mar2et gro;t1 %ate0

• Interest %ates ;1en a66l5ing t1e loan0

• Inflation %ate0

• E8c1ange %ate ;1en im6orting ra; materials0

• !ta7ilit5 of currenc5 value0

-ocial 9actors

• Po6ulation and gro;t1 of 6o6ulation0

• Age distri7ution of consumers0

• Attitude of t1e career0

• !afet5 6recautions of t1e consumer0

• %eligious intervention on certain 6roducts0

$ec nological 9actors

• ariet5 develo6ment0

•

Ba2ing Process0

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• Ne; mac1iner5 em7racement0

0,& Cas flow statement of a similar industry

Date Description Amount Rs

Initial Investment (90,000)31 01 !ash sales "0,00031 0# !ash purchases (30,000)31 03 Divi$en$ receive$ 10,00031 04 Ta% pai$ (30,000)31 0" Depreciation o& assets (',"00)31 0 ales on cre$it #0,"0031 0' Rent pai$ (10,000)31 0* !ash sales 1",00031 09 !ash purchase (#",000)31 10 alar+ pai$ (#0,000)31 11 Insurance (10,000)31 1# quipment-s purchase$ (3,000)

(30,000)

0/& $imeline

*

(90,000)"0,000(30,000)10,000(30,000) (',"00)#0,"00(10,000)1",000(#",000) (#0,000)

(10,000)(3,000)

3,)3 -,)3 @,)3 .,)3 *,)3 /,)3 ,)3 ,)3 ,)3 3),)3 33,)3 3-,)3

04. Investment Appraisal Techniques

NPV

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Total / (1+ i

12Fv¿

12t ¿

50,000

(1+

¿0.0512

) 1

(30,000)

(1+¿ 0.0512

) 2 +10,000

(1+¿0.0512

) 3 +(30,000)

(1+¿0.0512

) 4

(7,500)

(1+ ¿0.0512

)5 +20,500

(1+¿0.0512

) 6 (10,000 )

(1+ ¿ 0.0512

) 7 15,000

(1+¿ 0.0512

) 8 2

(25,000)

(1+¿0.0512

) 9

(20,000)

(1+¿0.0512

) 10

(10,000)

(1+¿0.0512

) 11

(3,000)

(1+¿0.0512

) 12

49,'90.** (#9,'"0.1) 9,*'"."' (#9,"01.4#) (',34".0#)

19,99#.# (9,'10. #) 14,"0 .'' (#4,0*4.'*) (19,1'9.13)

(9,"49.#') (#,*"#.'9)

(3',*0'.'1)

A## (average rate of return

Avera e pro ts all in5o6s (pro ts)

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1#

"0,000 10,000 #0,"00 1",000

1#

',9"*.33

ARR Avera e pro t

Investment

',9"*.33

90,000

*.*47

<iscounted 'ayback 'eriod

Initial investment 90,000

3CT,HND,BM,*-,./

3))

3))




1 st month (49,'90.**

) 40,20 .!2

# n$ month 000000

40,20 .!2

3 r$ month (9,*'"."')

30,333.""

4 th month 000000

30,333.""

" th month 000000

30,333.""

th month 19,99#.#

!034!.3"

' th month 00000

!034!.3"

14,"0 .''

!ayback 'eriod is e.ual to 3 mont s and ,% days

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05& Calculation of I## (investment rate of return

In#$%s &ut#$%s"0,000 90,00010,000 30,000#0,"00 30,0001",000 ',"00

10,000 #",000 #0,000 10,000 3,000

Cannot find I%% since t1e final 7alance is a negative value due to t1e 1ig1 amount of out

flo;s0

01& !ossible source of finance

'inance 6la5s a 7ig role in ever5 7usiness organi>ation0 It is t1e main driving force of

resources ;1ic1 moves t1e organi>ation to;ards a certain direction0

!ource of finance can 7e 7roadl5 identified as t1e ;a5s and met1ods a 7usiness is a7le to

raise funds for its various 7usiness activities0 !ource of finance varies according to

organi>ations0

A 7usiness mig1t 1ave various alternatives for financing itselfG 7ut it must select t1e most

7eneficial sourceG sources of finance can 7e mainl5 classified into -

30 Internal source of finance t1is is t1e source of finance from ;it1in t1eorgani>ation itself0 !ome internal source of finance can 7e as follo;s

i0 %etained 6rofits t1ese are t1e undistri7uted 6rofit of t1e organi>ation ;1ic1

;ere 2e6t 7e1ind as resourcesG using retained 6rofits to finance is eas5

7ecause t1ere is no cost of financeii0 Accumulated de6reciation t1is is t1e total, addition of de6recation for a

6articular asset ;1ic1 ;ere c1arged during t1e 6ast financial 5ear0

Accumulated de6reciation is treated as a reserve and ;ill 7e used to 6urc1ase

ne; assets and also used for 7usiness 6ur6ose

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iii0 !ale of fi8ed asset a 7usiness can finance itself eit1er 75 selling its assets

"fi8ed assets, intangi7le assets, investment in ot1er 7usiness etc0& suc1

decisions s1ould 7e made onl5 if t1e 7usiness 1as no ot1er o6tions left0#. External source of finance = t1ese are t1e sources from outside of t1e organi>ation0

i0 7an2 loan or overdraft a 7usiness can 7orro; a loan or get an O,D facilit5 752ee6ing as securit5

ii0 Leasing t1is is ;1ere t1e organi>ation ;ould use t1e assets ;it1out o;ing,

7u5ing it0 6a5ments ;ill 7e made in installmentsG ;1ere t1e o;ners1i6 ;ill 7e

transferred after t1e last 6a5mentiii0 Preference s1are t1ese are t1e s1ares issued to t1e 6u7lic ;it1 a fi8ed rate of

annual dividends0 Preference s1are1olders are not o;ners of t1e com6an5iv0 Ordinar5 s1are1olders t1ese are t1e s1ares issued to t1e 6u7lic ;it1 ordinar5

rig1ts on t1e com6an5<s 6rofit and varia7le dividend0 Ordinar5 s1are1oldersare t1e o;ners of t1e com6an50

Agreeing to all t1e finance sources a7ove t1e 7est o6tion I ;ould select is 7an2 loanG t1e

reasons for selecting it as t1e 7est o6tion since t1e organi>ation is 7een esta7lis1ed and it<s

not 6ossi7le to finance internall50

03& <ocuments re.uired to obtain bank loan

A financial mar2et can 7e identified as a situation ;1ere finance 7orro;ers and finance

lenders ;ould meet in order to fulfill eac1 ot1er<s re=uirements0

A 7usiness needs to o7tain a 7an2 loan in order to increase t1eir financial sta7ilit50 T1e

documents needed to o7tain a 7an2 loan for a 7usiness are

• Com6letel5 filled a66lication form• NIC of t1e individual,individualsF t1is is re=uired 75 t1e 7an2s to identif5 if t1e

individual is of legal identit50• Individuals and t1e 7usiness credit 6rofileF t1is includes t1e credit 1istor5 of t1e

o;ners and t1e 7usiness0 T1is ;ill 7e 1el6ful to t1e 7an2s to identif5 t1e credit 1istor5

of t1e o;ners and t1e 7usiness0• CollateralF an5t1ing of value ;1ic1 is 6ledged ;1en o7taining loans0 T1is is used 75

7an2s to ensure t1at t1e loans ;ill 7e 6aid on t1e maturit5 date 75 t1e 7orro;ers0• 'inancial statementsF to identif5 t1e sta7ilit5 and t1e 6osition of t1e 7usiness0• Ban2 statementF to see if t1e o;ner 1as a 7an2 account and see if t1e 7an2 account is

;ell maintained0

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T1e a7ove mentioned documents used 75 Cargill<s to o7tain loans are attac1ed as a66endices

to t1e re6ort0

04& Im'acts of bank loans to t e businessT1e advantages t1at t1e 7usiness can gain t1roug1 7an2 loans are+

30 Increment of t1e ;or2ing ca6ital of t1e organi>ation cas1 increases in t1e 7usiness

since o7taining a 7an2 loan0 T1is funds needed 75 a 7usiness organi>ation to run its

da5 to da5 7usiness activities suc1 as cas1 6urc1asesG stoc2s for sales and 6roduction

ETC0-0 Investment decisions t1ese are decisions made on t1e ac=uiring of fi8ed and current

assets of a 7usiness organi>ation0 EX+ 6urc1ase of landG 6urc1ase of mac1iner5@0 Ensuring t1e availa7ilit5 of funds of and ;1en re=uired.0 A7ilit5 to maintain a re=uired li=uidit5 level

Disadvantages of gaining a 7an2 loan+

1. Hig1 interest value to 7e 6aid in 6a5ing 7ac2 t1e loan#. %is2 value is 1ig1 since loans are 7een ta2en 75 2ee6ing a collateralG so t1e ris2

attac1ed ;it1 a 7an2 loan is relativel5 1ig13. Mont1l5 installments 6aid to t1e 7an2 ;ill reduce t1e cas1 flo; of t1e 7usiness

;1ic1 ;ill reduce t1e ;or2ing ca6ital of t1e com6an5

Conclusion and recommendationT1is re6ort contains of t;o sections0

T1e first !ection tal2s a7out 1o; financial re6orts of listed =uoted com6anies of Colom7o

!toc2 E8c1ange continue t1eir standards of !LA! "!ri Lan2a Accounting !tandards& in order

to evaluate re=uired 6erformanceG 6ositions and li=uidit5 of t1e com6an50

'urt1ermore it discusses on 1o; different a66raisal tec1ni=ues are 7eing used to evaluate

different decision ma2ing 6rocess0

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T1e second 6art of t1e re6ort anal5ses on different environmental factors to 7e considered

;1en starting off a small and medium scale 7usinessesG and 1o; financial statements are

7eing evaluated in different ;a5s0 T1e 7alance s1eet ;1ic1 descri7es t1e 6osition of t1e

7usinessG trading 6rofit and loss a,c ;1ic1 s1o;s t1e financial 6erformance and t1e cas1 flo;

statements of t1e 7usiness to measure t1e li=uidit5 of t1e 7usiness0 'urt1ermore t1is re6ort

s6ecifies a7out evaluation of investment a66raisal tec1ni=ues in order measure t1e 7usiness<s

e8istence0 Additionall5 t1is re6ort sum u6s including t1e ;a5s and means of ris2

measurement tec1ni=ues ;1ic1 is used to calculate t1e ris2 to 7e 7orne and sources of finance

;1ic1 could 7e considered in investing0 'inall5 it discusses a7out t1e im6act of t1e financial

statement to gain different sources of finance0

As a ;1ole t1is re6ort deli7erates on 1o; effective decisions are to 7e ta2en ;it1 regards tofinance and resources0

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#eferences• #eorge N0 %oot0 -)) 0 T1e Advantages $ Disadvantages of E8ternal 'inancing0

ONLINE Availa7le at+ 1tt6+,,small7usiness0c1ron0com,advantagesFdisadvantagesF

e8ternalFfinancingF3))@@01tml0 Accessed ) Ma5 -)3. 0• 4o1n DeMerceau0 -)) 0 Advantages $ Disadvantages of Ban2 Loans0 ONLINE

Availa7le at+ 1tt6+,,small7usiness0c1ron0com,advantagesFam6FdisadvantagesF7an2F

loansF. @ 01tml0 Accessed ) 4une -)3. 0• 1tt6+,,;;;0for7es0com,-)3),) ,)/,7estFfundingFsourcesFforFsmallF7usinessF

entre6reneursFfinanceFdilee6Frao01tml• ant1on5sGd "-)3-&0 7usiness finance 0 Colom7o+ misadventures 0 @.F*)

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http://www.forbes.com/2010/07/06/best-funding-sources-for-small-business-entrepreneurs-finance-dileep-rao.html







A''endices

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