Assignment Sample on Individual Report

Introduction

An Indonesian company called Clifton Limited is a UK-based subsidiary of Spring Group. The company has been doing business in the UK for the past 12 years, and for the previous 10 years, it has been steadily turning a profit and growing its market share. The firm has decided to expand the business further and raise the capital required in the UK. The company will take help from the consultancy for preparing its cash flow statement for identifying all the issues coming in between to earn enough profits.

Furthermore, the research will explain various funding options available to the company, identify their advantages and disadvantages, and offer suggestions for the best funding source. NPV will be used to analyze the investment proposal and provide recommendations. The investment proposal method that Clifton Limited is permitted to utilize is within the limitations of the methods. A budget and break-even analysis, as well as the analysis and cash budget for the first three months, are also included in the report. Lastly, management tools and their significance will be examined, along with problems with generating a profit in this report.

Literature review

Clifton Limited

According to Cai et. al. (2021 Several types of funding are available for businesses and each source of funding has its advantages and disadvantages. Different types of sources of funding will help Clifton Limited with the planned expansion program. Clifton Limited is growing, and the business is obtaining the necessary funding in the UK so that dependency on cash will be removed. The company has also made investments in a more contemporary system and in specialized services for its clients. The company has established two new service package types the basic level and the advanced level in order to grow its business. The company decided to seek assistance from a consulting business for an explanation of the cash flow statement in order to analyze cash flow issues.

Sources of funding

“Equity Financing” is selling the company’s shares to public financial institutions or institutional investors is the most typical way new cash is raised. As a result of their ownership or receipt of interest in the company, those who purchase shares of the company are referred to as shareholders of the company. Clifton Limited can sell its share in the UK market for raising funds to expand its business.

The advantages include the funds are raised by selling shares of ownership in the company and there are no repayment obligations. This method also helps in sharing risk with investors and potential access to expertise (Oranburg, 2020). The company doesn’t have to make monthly payments, which will enable it to make enough money in the beginning. With this approach, the company may grow its network without incurring any financial obligations. On the other hand, “Disadvantages” the main disadvantages of this funding method are the division of earnings and the potential for investor disputes. The company is required to give all shareholders frequent updates and reports (Avazov, 2020). Depending on how much of an organization each shareholder owns, ownership and control are divided among them.

According to Raimo et. al. (2021 Debt financing is a frequently utilized way of acquiring capital that involves borrowing money from banks and other financial organizations to be prepared at a later time. This is a technique where the interest on the borrowed funds is then owed to the creditors. According to the agreement or contract, the lender, who is the company, must make monthly payments on both short- and long-term schedules. At an interest rate set by the bank, Clifton Limited borrowed money from UK banks and other financial organizations.

The benefits of debt financing include keeping the company in ownership and control. Businesses can lessen their tax liability due to tax incentives on interest (Kathomi et. al. 2022). With the aid of this funding, the business establishes a solid credit history for future borrowings. The system’s primary drawbacks are monthly and yearly interest and payback responsibilities, which directly raise total capital costs. The requirements, as well as the laws, are strict. Risks of default and creditworthiness harm result in increased payback and depth for the company.

As per this, Cai et. al. (2021) Crowd financing is a method of fundraising when a firm asks the public directly for contributions in exchange for stock in the business (Cai et. al. 2021). In order to attract or include access to a big pool of possible investors, the company might use a fund-raising strategy that involves asking a lot of individuals for tiny contributions. This is the low or risky way for raising capital and helps in generating publicity (Yasar, 2021). The easy way and a fast way for raising capital. The drawback of this funding method is no guarantee of reaching the funding goal, and the involvement of platform fees there is a need for the firm for creating a compiling campaign (Wahjono et. al. 2021). Huge time and effort are required for managing the campaign.

The investment proposals with the use of NPV

A method called Net Present Value (NPV) helps in determining whether it is worthwhile to proceed with a project based on the current value of the cash flows (Wang, 2021). It helps in adjusting the original investment based on the discounting of the cash flows across various time periods (Pärssinen et. al. 2019). If the NPV is positive, the project will likely be successful and acceptable. Clifton Ltd invested in a master package with the discount rate which is required for assessing the NPV is 8%.

Break-even analysis and cash budget

According to Kiran, (2019), the break-even analysis and cash budget tool examine all aspects of the profitability of a company initiative, product, or service by determining the sales volume required to achieve break even and the degree of profit over it. Outside parties like investors or regulators are given access to this internal management tool (López, 2020). For bank loan applications and financial predictions, financial institutions require this computation (Bartocci, 2022). In relation to unit pricing and profit, the formula accounts for both variable and fixed expenses. Fix pricing remains stable and the same.

The significance of the Clifton Ltd. break-even analysis aids in identifying risk and sensitivity factors that may affect a company’s profitability, such as cost price or sales volume. enables the company to determine pricing that covers costs while maintaining market competition (van Schaikc, 2023). A break-even analysis method is also used to assess investment prospects in order to assist achieve a desired return on investment.

Analysis from calculation and recommendations

The cost of the new system, sales revenue, and expected revenue are all shown in appendix 1 table. Additionally, overhead costs were projected to increase by four percent per year, while the costs of elements X and Y are predicted to increase by 6% annually starting in year 1. The price of Specialists 1 and 2 was also included.  The PV factor, which is 8%, is also computed together with all other components.

• The present value of cash flow is positive in the year.
• The Net per value is positive which is 195.77 for the master project.
• The rate of returns is more than the discount rate.
• The Clifton will be successful in implementing this master project.
• The firm will benefit and generate enough amount of profits by utilizing this method.
• Changes in cost or any other variable will lead to incorrect results.
• The method will be irrelevant if comparing the project of different size.
• If quality of input is poor the results will be poor.

Recommending other other investment proposal techniques

The average rate of return

• Calculating the average yearly profit anticipated from the investments, the new project, and the cost of investment included in the project will all be made easier with the aid of the Average Rate of Return (ARR) (Barrientos al. 2022).
• By dividing the average yearly profit by the cost of the investment and multiplying by 100, the average rate of return is determined.
• It is a simple method for estimating predicted profit and cost, and it enables the company to compare initiatives and outcomes (Situmorang, 2023).
• Helps in determining if a project is worthwhile or should be pursued. It makes use of all cash flows and is beneficial for businesses that are having profitability issues.
• The average rate of return is entirely determined by profit rather than cash flow, and non-cash factors like the percentage of depreciation and other costs that are used to determine profit have a significant impact on it (Thompson al. 2020). Fails to consider when the earnings will be made.

Calculation of Break-even analysis

Break-even analysis is a financial tool which helps in determining the point at which the total revenue and total cost are equal which results in neither profit nor loss condition for the firm (Weygandt et. al. 2020). It provides valuable inside into the minimum level of sales required for covering costs and starts generating profits.

• From the above table this indicates that if Clifton Limited sells 602 units, it will be in a breakeven situation, which means there would be no profit or loss.
• Clifton Ltd sells units and will achieve the break-even analysis at the point when the revenue and total cost are equal.
• According to the above graph, the point of the sold unit with standard level and advanced level which is 602 and revenue which is 216700 is the break-even point for the firm.
• This is the point where the organization will earn enough profits for covering the overall cost and earn enough profits to run the business smoothly.

Recommendations

• The Clifton Ltd for increasing its revenue need to increase its cost for achieving break- even analysis.
• Raising money will lessen tax obligations while assisting shareholders in acquiring ownership and management of the company.
• With the help of that debt financing, the company will go on to take out other loans that are needed for growth.
• The loan must be obtained in accordance with the company’s financial statements, which will be helpful in determining how much interest a company can afford to pay after calculating its net profit from borrowing money.

Calculation of cash budget

• There will be a profit for Clifton Limited after excluding all the variable and fixed costs which shows a positive implementation of the master project.
• The cash budget of Clifton Ltd includes all the startup capital which is 100000, sales output cost, sales revenue cost and cash cost are being added and lastly the variable cost and fixed cost deducted.
• The loan of 40000 pounds has been taken and interest rate on it has to be paid on monthy basis 12 per annum. The rate of interest charged is bearable.
• The cost such as rent, cleaning, general insurance, loan interest, light and heating local authority charges are being deducted including costs such as staff salary, administration, and marketing from cash inflow.
• Lastly the cash budget shows a positive net cash profit is being generated deducting all the expenses and liability.
• The net cash flow which is total of cash outflow115602 deducted from cash inflow 756000 shows a net cash flow of 640398 shows Clifton Limited has a huge an opportunity to expand its market in different locations.

Recommendations

• For business expansion and capital raising in the UK, Clifton Limited should employ both debt financing and equity financing.
• This will assist the business in reducing its constant reliance on funds from the parent corporation.
• Regular interest payments from businesses will assist in first reducing all costs and generating adequate profit from the two new services.
• Without any financial strain according to the cash, Clifton Ltd. is able to expand its network in the UK market.
• In the event of a loss, all losses are distributed among all shareholders in accordance with their ownership interests in the firm.
• This will ensure sharing of risk and reduce overall variable and fixed costs.

Discussion

The firm will be profitable in all the months of July, August, and September according to the cash budget which is mentioned in the above table. Excluding all the fixed cost and variable cost out of sales revenue which has to be paid for the overall evaluation of cash profit. The firm’s fixed cost will remain the same over the period but the variable cost may change due to a variety of reasons such as an increase in depreciation cost, changes in inflation and deflation rate, changes in the rate of bank charges and many more. Increase in variable cost will result in a decrease in the overall cash profit and vice versa. According to the cash budget and break-even analysis of Clifton Limited expanding and investing in the master project will create a good position in the market and increase its overall revenue and cash profit.

Furthermore, the management of Clifton Ltd. needs to take into account additional factors in order to generate sufficient income. poor pricing will result in poor earnings, thus the company must do a thorough market analysis before setting prices that reflect the level of market competition. Overhead costs are the other problem (Ropero-Miller, 2019). The firm’s overall profit and crash profit is decreased by operating costs and overhead costs, both of which are direct and indirect. For the company to increase its overall profit, extra expenditures such as rent, office supplies, advertising, and accounting fees must be reduced or eliminated. Internal examination of all fixed and variable costs is necessary to identify the many types of hidden and unseen costs that have an immediate impact on the firm’s short- and long-term profits.

Conclusion

From the above report, it has been determined that there are several funding options available to the businesses for growing their business and putting out a new project. Both the funding source and the technique have benefits and drawbacks. The best sources of finance for Clifton Ltd. are debt and equity financing. Furthermore, the application of the net present value approach in investment proposals has also been shown to be helpful in analyzing cash flow. A positive NPV indicates that the business should proceed with the project, and vice-versa.

Moreover, in terms of resource utilization, the break-even point is where there is neither profit nor loss for the company. Another useful management tool is a cash budget, which analyses all variable and fixed expenses while helping in determining the cash earnings. For the project to be implemented successfully, the company must analyze a number of external aspects and extra concerns.

References

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