Budget analysis

| October 22, 2018

Higher National Diploma in Business

Unit 2: Managing
Financial Resources

and Accountancy

and Decisions

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Edexcel
BTEC Level 5 HND Business and Accountancy

Unit
2 Assignment: Managing Financial Resources and Decisions

Useful
Websites:

www.businesslink.gov.uk www.managementhelp.org www.ba.com
www.iagshares.com www.accaglobal.com www.cimaglobal.com www.mindtools.com

Section
1

Understanding
the sources of finance available to a business

You
will need to:

·
identify
the sources of finance available to a business

Focusing on “sources” you need to discuss
internal sources, such as from revenue/sales income or selling off assets, and
external sources such as loans from banks, development grants (eg from the EU),
selling shares in the company, and in the case of a public sector organisation,
allocated budget from government and the collection of local taxes.

·
assess
the implications of the different sources

There will be negative or positive
implications for each of the above – for example if assets are sold the overall
value of the organisation is diminished, and if loans are arranged then
repayments must be made, and with certain sources of funds the “lender” will
demand some influence over the organisation’s decisions.

·
evaluate
appropriate sources of finance for a business project

Select a project that is typical for your own
organisation, or sector, or select a project which interests you. Then
identify, and discuss the merits of, sources of funds appropriate for that project.

Section
2

Understanding
the implications of finance as a resource within a business

You
will need to:

·
analyse
the costs of different sources of finance

You will need to research this for each of
the identified sources, but as a guide, there will be financial costs on some
sources – mainly interest added to the amount, and constraints on pay-back
timescales (a “pressure” cost). On others there will be the “cost” of loss of
control – as would be the case with some loans, grants, and share issues.

Higher National Diploma in Business

Unit 2: Managing
Financial Resources

and Accountancy

and Decisions

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·
explain
the importance of financial planning

In
essence, without financial planning there is no way of being certain that the
organisation can fund its own activities. You will need to give more detail on
how this is done.

·
assess
the information needs of different decision makers

In the context of Managing Finance, you need
to identify the decision makers inside an organisation eg managers and
specialists operating at different levels, and external decision makers such as
shareholders, funding organisations, the government – and discuss the
differences in the amount and quality of (financial/accounting) information
they need.

·
explain
the impact of finance on the financial statements

Here you need to describe how the influx of
funds – eg loans, grants, share issue income, retained profits – can influence
the appearance of the profit and loss account and the balance sheet, and you
should also briefly mention how organisations must be transparent about this.

Section
3

Making
financial decisions based on financial information. You will need to use an
example either from your present employer, or you can use the published
financial statements of companies such as British Airways, which are published
on the internet.

You
will need to:

·
analyse budgetsand make appropriate decisions

You will need to analyse a budget period of
at least 6 months, and comment on the performance, the behaviour, over that
period, and give your views on what action should have / could have been taken.

·
explain the calculation
of unit costs and make
pricing decisions using
relevant

information

Unit costs are calculated in a similar way in
most business sectors, as are pricing decisions – you will need to give the
formula and explain the link between Unit Cost and Selling Price, and the
importance of information on Fixed Costs, Variable Costs, and Break-Even Point.

·
assess
the viability of a project using investment appraisal
techniques

From the finance point of view, projects need
to be assessed for viability, to ensure that the project is properly funded and
that it will be profitable. You need to (briefly) describe techniques such as
NPV, DFC, Rate of Return, and IRR – and give a simple example of one of these
being used.

*www.businesslink.gov.uk – Finance and Grants pages are an excellent
source of information for this

Higher National Diploma in Business

Unit 2: Managing
Financial Resources

and Accountancy

and Decisions

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Section
4

Evaluate
the financial performance of a business. You will need to use an example either
from your present employer, or you can use the published financial statements
of companies such as British Airways, which are published on the internet.

You
will need to:

·
discuss
the main financial statements

These are the annual accounts – the Profit
and Loss Account (in some sectors knows as the Operating Statement, or
Statement of Income and Expenditure) and the Balance Sheet – you need to
explain what they contain, their purpose and importance, and who makes use of
them.
·
compareappropriate
formats of financial statementsfor different typesof business

Here you need to describe and compare the
formats (structure, content, detail) of the main statements for different
businesses – eg Self-employed, Partnership, Limited Company, Public Limited
Company, Charity, Local Authority, State Owned.

·
interpretfinancial
statements using appropriate ratios and comparisons,both internaland
external

You will need to analyse at least 3
continuous years of the Profit and Loss Account and Balance Sheet (or
equivalents) of your own organisation or an organisation that you can research
(BA can be used, or a different organisation but only with your Tutor’s
approval) – to identify a range of ratios and trends, and then to comment on
those.

Comparison
Ratios – such as Gross Profit to Sales of 1.25:1 – Net Profit to Sales 0.25:1
Trend Ratios such as the ratio of Net Profit to Sales, over each of a series of
years (3 years is universally accepted as the minimum needed to identify a
trend

Internal ratios are literally that – ratios
comparing figures related to the organisation’s own accounts only.

External ratios are either comparisons
between that organisation and a different one – eg BA with Virgin Air – or
compared with industry standards (most industries have “standard” ratios which
are considered to be “safe” ones to aim for/achieve).

*for an example of financial statement
ratios, go to www.iagshares.com – then
to the Economic and Financial Information pages
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