Finance

Finance

You are reminded of Oxford Business College’s policy on unfair practice aka Academic Impropriety, which covers a range of infringements related to the assessment process. This policy applies in any situation where a student is attempting to gain credit by unfair or improper means and covers cheating, attempts to cheat, plagiarism and collusion.

What this means

Keep all your notes and electronic files, if your class attendance is below 80% or if you do not attend tutorials you will first be asked to provide additional evidence that the work submitted is your own and then to attend a viva.
If you have hired a tutor or a language teacher please let me know so we can discuss acknowledgment.
If you study with a friend please let me know so we can discuss acknowledgement
1. Introduction
This aim of this unit is to provide you with
i. An understanding of where and how to access sources of finance for a business
ii. The skills to use financial information for business decision making
This assignment gives you the opportunity to demonstrate that you have achieved these learning outcomes. You will prepare four short papers. If you hand the papers in by the deadlines shown on page 1, you will receive very detailed feedback, the skills coaching needed if necessary and an opportunity to improve it.
Business communications for finance should always be brief, carefully written and maximise the use of summaries, tables and conclusions. The maximum word count for all four papers combined is 3,000 words.
Recommended Reading:

BPP (2009): Business Essentials: Managing Financial Resources and Decisions. BPP Learning media, UK. The official text book. Pearson Education. Online document available June 2011 from http://www.edexcel.com/migrationdocuments/BTECHigherNationalsfrom202010/Business-spec
Business Link (2011): Finance and Grants for Small Businesses. Online available 22/06/11 at www.businesslink.gov.uk/finance and grantsChapman, CM,: (2012) How to write an introduction. Unpublished document circulated in class. Oxford UK
Companies House (2011). Life of a company, Part 1 Annual Requirements, Companies House BIS online document available June 2011 at www.companieshouse.gov.ukHoxley, S (2010): BTEC, Higher Nationals Business Specification level 4 and 5. Issue 3. Edexcel available online June 2011 at http://www.edexcel.com/quals/highernationals10/business/Pages/default.aspx
HSBC,(2011) Commercial Funding options, www.hsbc.co.uk/1/2/business/commercial banking/loans and financeInternational Accounting Standards Board (IASB), 1989, Framework For the Preparation and Presentation of Financial Statements, available June 2011 on line at www.iasplus.com/standard/framewk.htm and summarized by Wikipedia editors in entry on International Financial Reporting Standards (IFRS). Key Sector reports (available from the public library)
London Stock Exchange, Alternative Investment Market rules for companies, 2010: available online at http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/rules/aim-rules-for-companies.pdf
Market Line Ltd (2012)Datamonitor database of businesses and sectors, available on OBC intranet on http://advantage.marketline.com
Nightingale Les (2007). The historical functions of accounting and the accounting environment today; Evaluating Costs and Revenues, Support Booklet, Association of Accounting Technicians, London, UK. Distributed in class as a handout.
Vitesse Media (2009): Helping your business think big. http://www.smallbusiness.co.uk/channels/small-business-finance has pages for everything. Wood F, Sangster A. (2008) Business Accounting Volume 1, 11th ed. Chapter 34. There will be at least one copy in the library.
Wood, F. (2004): A Level Accounting. Pearson Education, UK.

1. Tasks
Paper 1: Analyze sources of finance available to a business (Learning Outcome 1)
Max 800 words: Carry out the following tasks with relation to Case Study 1 below.
Introduction.Explain what you are doing in this paper, explain what sources you have used, explain how the paper is structured. Explain why, in this case study, this company needs additional financing
Task 1: identify very briefly describe four sources of finance available to this business. The sources you identify should include long and short terms sources as well as internal and external sources. (AC 1.1)
Task 2: describe and assess the legal, financial, and ownership implicationsfor each source of finance (AC 1.2)
Task 3: evaluate the advantages, disadvantages and overall suitability for purpose for each source of finance. (AC1.3)
Conclusion: Make recommendations to the business about how they should proceed.
Paper 2: Analyze the implications of finance of as a resource within a business (Learning Outcome 2)
Max 600 words:Select any company listed on a UK stock exchange. Write a brief report using the section headers provided and carry out the following tasks with reference to the fund raising activities of that company.
Introduction: Explain what you are doing in this paper, explain what sources you have used, and explain how the paper is structured. Briefly describe the company you have selected.
Section 1: Analyse a. the tangible and b. opportunity costs of the following sources of finance: (AC 2.1)
1a. Issue of 5m ordinary shares at an offer price of £1.50 each.
1b. Issue of 5m bond, paying 8% per annum, redeemable in 10 years, with a face value of £1.00, at an offer price of £0.80.
1c. Cancelling the proposed dividend of £0.05 per share
Section 2: Explain the importance of financial planning to the management of a very large listed company (AC 2.1)
Section 3: Assess the information needs of the different decisions makers involved in the fund raising activities of the UK listed company you have selected (AC 2.3)
Section 4: explain how any two of the following financing activities will affect the published financial statements of the UK listed company you have selected and how the following indicators will alter: PE ratio/ EPS ratio/ ROCE.
4a. Issue of 5m ordinary shares at an offer price of £1.50 each.
4b. Issue of 5m bond, paying 8% per annum, redeemable in 10 years, with a face value of £1.00, at an offer price of £0.80.
4c. Cancelling a proposed dividend of £0.05 per share

Conclusion: refer to the above and briefly explain what you think are the main implications of finance as a resource within a business.
Paper 3: Use financial information to make financial decisions. (Learning Outcome 3)

Max 600 words: Carry out the following tasks with relation to Case Study 2 below.
Introduction: Explain what you are doing in this paper, explain what sources you have used, explain how the paper is structured.
Task 1: Using the budget information given for this business, and using spreadsheets analyse the business model generate a cash flow budget and profit and loss forecast for each of the following six months.(AC 3.1 Analyse..)
Task 2: Review this information, suggest some appropriate improvements that should be made and show how these would affect the forecast cash flow and profitability. (AC 3.1 … make decisions)
Task 3: Calculate the total variable and fixed unit cost per unit of output for this business. Explain your calculation. Using this and information from task 1 and 2 and the case study suggest some minimum prices and give reasons for the suggestion. (AC 3.2)
Task 4: Prepare a Net Cash flow forecast for this business for 5 years, assume that all the improvements suggested in task 2 are adopted and that the loan is repaid as soon as this is possible. Calculate the internal rate of return and assume a cost of capital of 8% calculate the Net Present Value of this business. (AC 3.3)
Conclusions: Refer to all the information you have and suggest what financial decisions the business owner needs to make and what choices s/he has.

Paper 4: Evaluate the financial performance of a business (Learning Outcome 4).
Max 1200 words
Introduction: Explain what you are doing in this paper, explain what sources you have used, explain how the paper is structured. Explain why it is possible to use the main published financial statements to evaluate the financial performance of a business and the scope of the information normally provided in these statements. Evaluate the scope of the information normally provided by published financial statements. (AC4.1)
Task 1: Compare the published financial statements for two different limited companies which you have studied, identify and explain the main differences in their presentation and format. (AC 4.2)
Task 2: Analyze the financial performance of these two companies. This analysis should make use of key accounting ratios, comparisons with similar companies and with the industry standards and with previous years. (AC 4.3)
Conclusions: Refer to the information you have and suggest how useful this process might be.

3. Assessment information and Grading Criteria
Assessment information
A pass grade is achieved if your paper provides evidence that meetsall the requirements defined in the pass assessment criteria shown in the table below for each unit. In addition the final submission of your work must have:
Have a signed cover sheet which can be found on share point.
Have a separate header sheet for each paper
Be organised with a contents page that aligns to the sub headings,
Have a reference list
Have a separate bibliography.
Outcome 1. Understand the sources of finance available to a business
1 1 identify the sources of finance available to a business
1 2 assess the implications of the different sources
1 3 evaluate appropriate sources of finance for a business project
2. Understand the implications of finance as a resource within a business
2 1 Analyse the costs of different sources of finance
2 2 explain the importance of financial planning
2 3 assess the information needs of different decision makers
2 4 Explain the impact of finance on the financial statements
3. Be able to make financial decisions based on financial information
3 1 Analyze budgets and make appropriate decisions
3 2 Explain the calculation of unit costs and make pricing decisions using relevant information
3 3 Assess the viability of a project using investment appraisal techniques
4. Analyze and evaluate the financial performance of a business
4 1 Discuss the main financial statements
4 2 Compare appropriate formats of financial statements for different types of business
4 3 Interpret financial statements using appropriate ratios and comparisons, both internal and external
The table below shows what evidence is needed to award merit or distinction grades.

Merit descriptors Indicative characteristics Distinction descriptors Indicative characteristics
In order to achieve a merit the learner The learner’s evidence shows: In order to achieve a distinction the learner must: The learner’s evidence shows:
M1 identify and apply strategies to find appropriate solutions • Context is researched
• Authentic suggestions and recommendations
• Understands the business problems being presented D1 use critical reflection to evaluate own work and justify valid conclusions • Critical discussion of methods used and the quality of information generated
• Discussion of business context and financial issues raised and alternatives
• Practical and commercial conclusions that are evidence based and well defended

M2 select / design and apply appropriate methods / techniques • Correct choice of analytical technique
• Correct use of tables, graphs and visuals to enhance communication
• Emphasis on problem solving D2 take responsibility for managing and organising activities • An approach that demonstrates autonomy/independence in research, planning and structuring their responses to the assignment.
• A range of appropriate sources are correctly used. Sources are assessed before being used.
M3 present and communicate appropriate findings • Overall professional quality of output: (headers, page numbers, contents page, visual design, title pages, organisation into sections with subheadings, appendices, referencing and bibliography, spell checked)
• Appropriate language is used. D3 demonstrate convergent, lateral and creative thinking • That they have found a way to demonstrate lateral and convergent thinking

Case Study 1:
Life Mimetics Ltd is an Oxford based UK limited company that was founded by academics from the University of Oxford in 2006. The company has three main business activities: (i) Research, testing and bringing to market of medical devices; (ii) Sales of medical testing devices and (iii) Research contracts for governments, universities and businesses. The company is currently financed by a consortium of small venture capital firms and angel investors.The company has 25 employees, laboratories in China and in the UK and sales offices in the UK and the United States.
In September 2012 the company is awarded a very prestigious research contract worth £5m a year for 5 years starting in June 2013. Also in September 2012, the sales forecasts are recalculated and product sales are likely to increase by 80% per annum for the next three years: this is a much faster increase in sales than the original forecast.However they will need extra capital in order to achieve this growth: specifically the company needs to build a laboratory in the US, increase inventory, hire more staff and spend more money on IP. Up to £5m more than will flow in from sales will be needed in the next two years.
Extract from Management Accounts: Income Statements, year to 31 Dec
£’m 2011 2010 2009 2008
Sales 12.50 5.65 2.42 0.60
Net Profit 0.20 -0.60 -2.50 -1.20

Extract from Management accounts: Balance Sheets as at 31 Dec
£’m 2011 2010 2009 2008
Intellectual Property at fair value 6.00 2.50 0.00 0.00
Other non current Assets 1.50 1.30 0.38 0.27
Total Non-Current Assets 7.50 3.80 0.38 0.27
Inventories 3.13 1.41 0.61 0.15
Receivables 1.54 0.70 0.30 0.07
Cash in Hand 0.75 1.20 0.38 0.15
Total Current Assets 5.42 3.31 1.28 0.38
Payables -3.81 -1.52 -0.02 -0.18
Net Current Assets 1.61 1.79 1.26 0.20
Long term convertible loan -1.50 -0.30 0.00 0.00
Net Book Value 7.61 5.29 1.64 0.46
Share Capital 12.71 10.59 6.34 2.66
Reserves -5.10 -5.30 -4.70 -2.20
Total Finance 7.61 5.29 1.64 0.46
Case Study 2:
Casey is a registered sole trader.
Since 1999, Casey has run a barber shop in Magdelen road just off the Cowley Road in Oxford. The lease is valid until 2017 and costs £12,000 per annum payable monthly.
When the barber shop opened, the Magdelen road was a very quiet unfashionable area but successful businesses and popular cafes have since opened in the same neighbourhood. As a result the landlord is now reissuing business leases in the same area at £25,000- £35,000 per annum. There are several businesses looking for retail space in the street
The barber shop is always busy and always has a queue. Casey and his assistant each work 6 hours a day, five days a week, they each see three customers per hour. Adult customers pay £8 each. Children pay £5 each. About 50% of the customers are children.
The assistant is paid £4 per customer, he is self employed and so pays his own national insurance and gets no holiday pay
The shop closes for four weeks in August and for the last two weeks of December.
Casey owes the bank £60,000 on a fixed rate and pays interest of £415 per month until this debt is paid off.
Hair product costs £4 a bottle and lasts for about 100 customers (adult or child). Every child is given a toy or a small packet of sweets worth £0.20.
Laundry and cleaning costs are £10 per day.
Utilities average out at £70 a month.
Business rates are fixed at £200 a month.
A bookkeeper does the quarterly VAT returns and annual tax returns and charges £100 per quarter
Casey lives in a flat above the shop. He pays himself a salary of 2,000 per month.
The bank will let Casey have an overdraft on his business account of up to £3,000. His current overdraft is £750. The overdraft interest rate is 18% per annum.
Casey is getting very stressed about money and badly needs good advice.

 

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