Managing Financial Resources And Decisions
Managing financial resources and decisions focus on imparting the best results for every business concern working in a specified industry. The financial resources start from collecting source of finance, and invest in a profitable venture (Berk, 2007). Business has to seek various parameters to define the usability and implication it will affect in an organisation.
The report will focus various subjects starting from collecting various sources of finance, justifying the cost to obtain such resources. Further along it will also seek to understand the effectiveness of source of finance and it durability for longer sustainability. The report will try to bring various procedures to evaluate projects and select the most profitable one as well.
The business review shows that in upcoming times, the resources will get scarcer and availability of such resources gets pricier as well. To acknowledge the purpose of warding off such situations, planning of resources is a must in today’s world. In respect of planning and selecting the best one, sources of finance plays an important role for Pepsi. The sources of finance are very basic requirement of any business unit (Correia and et.al, 2012). The requirement will fulfil all the needs like expansion, selecting investment scenarios, refinance, installing equipments, etc are very much fund dependent. In order to achieve that sources are divided in two types, internal and external sources. They are as follows
Internal Sources: Internal sources are those where firm will involve pooling of funds from in-house sources, like sale of current assets, debt factoring, retained earnings and leasing.
External Sources: External sources of finance are those where firm will call for outdoor assistance in financial requirements. The financial institutions and other private source funds will aid in providing best financing facility. They are bank loans, private equity, bonds and debentures and equity capital.
In availing the best source of finance, it also includes determining the cost of such finance as well. Cost of finance refers to total outlay a business experiences in order to get the optimum level of funds for the operations of the business. Cost is also important, because it will affect the finance income it will generate after a time period. If cost borne is higher than the return potential, thereby it will be considered as a negative or vice versa.
Internal and external sources of finance do pose a cost or outlay structure. Talking about internal sources, it deserves less cost compared to external. Leasing and debt factoring involves cost output to obtain the assets and pay rental on the leased equipments. In debt factoring, the unpaid receivables are held as collateral before availing the funds, on non fulfilment of paying back the amount will result into owing of the receivables. Retained earnings are revenue to be distributed to dividend holders, but they are used in other investment vehicles. Sale of asset involves selling at lower cost will bring down the expected cash or funds for further uses (Davison and Warren, 2009).
External sources also incur some cost expenditure while adopting it for the business needs. Financial institutions before availing the loans, acquire an asset as collateral, they also require submitting various essential documents of the business and they also need to pay interest on the borrowed amount (Gakhar, 2012). Equity capital requires submission of entitlement on a recognised stock exchange, listing cost and issue procedures are also face a cost outlay from the business. Pepsi also needs to pay a certain sum as dividend towards investors. The private equity requires offering huge capital gains towards the interested shareholders. Payment of interest on a regular basis of debenture holder is also a cost for Pepsi.
Implication of every business like Pepsi has to bear certain limitations and benefits in adopting such sources of finances. Leasing and sale of assets incur heavy maintenance charges and payment of lease rentals and they also enjoy a benefit from various tax exemptions and deductions as well. Retained earnings are preserved dividends from the investors, they also carry some benefit, like they do not need to pay any costs to procure any funds. But they need to pay some bonus dividends on the retained earnings. External sources of finance have implication of dilution of control and legal implications are also counted on the external sources (James, Leavel and Mainam, 2002). Equity capital loses a major share in the company and it is transferred to general public, they also hold some say in the business objectives. The private equity hold improved capital gains in the business. Term loans have at the right to acquire the assets if payments are not done on time. The interest facility is based on the borrower; it can be fixed or floating rates as well.
Financial planning means plan or systemize all the business activities in order to achieve an optimum position and improve the productivity of business. Financial planning has to undergo various sub procedures to assess the original and perceived quality of the business. Pepsi works in various operations like drinks, food and snacks and other confectionaries as well. All these procedures have to streamline and remain continuous. If processes are not running simultaneously it will affect the productivity and economies of scale will be hampered.
Financial planning has to identify what form of business operations are administer, like they are heavily dependent on the outside integration to they prepare the product on their own (Siano, Kitchen and Confetto, 2010). The inventory and manufacturing plant has to rationalize all the activities like prioritising the activities, enable plant to produce more demanding products. Shift the activities to subsidiary plant, like bottling and packaging will be done at other sites and distribution and will be administered from different sections.
Financial planning has to seek areas where they can down on the man power and automate the activities they need to prepare forecasting sheets as well. The forecasting sheet will predict the future market demands and how much funds it will require to fulfil the need as well. The debt and cost finalisation is also very important for any business. Managing the expenses is necessary the utilisation of resources can be operated in a more conventional way also.
The need of business decision makers is to analyze the current position and formulate future plans to sustain in the market place. The decision makers are divided in 2 parts, Internal and External.
Internal decision makers include mangers, owner, employee and board of directors. The team of managers and board of directors will assess the current proposition and future proposition also. They had to forecast the business performance and facilitate upcoming plans. They need to evaluate the risk in one business and its running processes. Internal decision makers also assess the requirement of funds as well. The equity requirements and other investment mechanism also need to get acknowledged. The employee will seek how they propose new employee rules and regulations.
External decision makers are government authorities, public or investors, bankers and suppliers. External decision makers will demonstrate their notion towards upbringing the awareness towards higher productivity and more public welfare (Strebel, 2011). Government authorities have to see the accountability in disclosing the accounts and maintain transparency in the business. This also provides an opportunity to show the ethical nature of transactions conducted. Bankers and supplier will seek to understand the actual financial position of company and how the credit and interest payment terms are structured.
For a large scale project like Pepsi, the significance of investment is very crucial topic to address. The appropriateness is matched with the required set of objectives they have lined up. The most beneficial source of finance is Equity capital and term loans. This source of finances will address the importance of needed list of aims and goals they will seek.
Equity capital is very much used and highly favourable source of finance, because they do not incur any extra cost to procure the source. The only requirement they need to fulfil is fulfil the listing and issue agreements. The listing procedure is a cumbersome thus it is nowadays managed by merchant bankers an investment bankers. This way they also get maximum subscribed capital and issue functions also gets more linear (Theeke and Mitchell, 2008). Equity capital is very fine and better source of finance, because there is no bound on issuing any amount of capital. They can even allot a single share on pro rata basis, this way all the shares gets subscribed and dividend allocation can get more diversified. The time period of dividend distribution is depends on the company and they can provide any amount of dividend on single share, it can be 1p per share or £10 per share.
Financial institutions are very efficient source of capital formation, they can borrow a specific amount of fund for the further expansion purposes and they also have a choice of selecting the type of interest they will pay, it can be fixed rate or floating interest. Some banks also provide very high amount of borrowed amount at a negligible rate of interest, such consideration is ascertained when company has good recognition and goodwill (Blocher, 2006). Some financial institutions also provide some concessions on the total interest accrued. Some also provide a larger time scale to payout the total sum on the accrued amount. They appropriateness also justified that term loans are not the only substitute to fund for long terms. They also provide sum for short term fund availability.
Financial statements are very nurturing and provide all the information about the company’s financial performance. Pepsi is a public limited company and they need to publish all the necessary documents according to stated regulations. Pepsi will announce three main documents they are, Income statement, balance sheet and cash flow activity. The impact of finance will show the required change in the business (Cowton, 2013). Adoption of any source will encounter implied changes in the books of accounts and it will be represented in the following statements as well.
Term loans are very basic and most favoured kind of source of finance, the impact of term loan will influence the balance sheet because there will be an increment of long term liability and bank loan will be added in the balance sheet and following this the total asset and liability will accord that amount. Term loans also affect the income statement and cash flow activity as well. The payment of interest will affect the expenses side of income statement and expense side will increase by introducing the loan amount. The cash flow activity will also improve, because under financing activity the inflow of cash will be recorded. This way this source of finance will impact on the financial statements of the business (Gotze, Northcott and Schuster, 2007).
No business can function better if they have no recognisable size of record to judge the feasibility of business performance. To evaluate the total performance of the business, they are usually divided in 3 parts. They are as follows;
Balance sheet: Balance sheet provides a financial snapshot of the given company they need to address how much asset and liability exists in the business. This assessment will tell various stakeholder and other governing bodies to understand the functional status of the company (Pogue, 2010). They also need to address how much and where they made their investment and what kind of liability they have adopted to meet the investment and other financing needs for further uses. Balance sheet is divided in two parts, assets and liability. Asset is divided in current and non current. The current assets are those which are convertible into cash in immediate future. Non-current assets are those which are not easily converted into cash in near future. The liability is also divided in current and non-current as well. They are also treated in the same way as assets are.
Cash flow activity: cash flow activity is divided in 3 parts where it will account for total inflow and outflow of cash in business transactions. The parts include investing, financing and operating activities. The operating activity shows that how much cash been out and earned in one financial period through manufacturing and production facilities. The investing activity shows, the total payment and inflow of cash via investment activities occurred in one year (Teruya and Pourajali, 2009). The financing activities has to undergo what are the sources and for which sources they will earn revenue of funds to include in the business.
Income statement: A report which describes the total income and expense experienced. A income statement is divided in two parts debit and credit side. The debit side will show total change in the expenses in the business incurred and credit side will show total amount received in the business in one financial year. The income statement is divided in gross profit and net profit, the gross profit is arrived by deducting the total sales from cost of sales and purchase returns. The net profit is arrived at deducting the total expenses and other finance cost to get at the net profit and this profit will be shifted to balance sheet and further dividend distribution is managed.
In business world it provides various business structures which involve scattering the essential information for further purposes. The need of business structure will evaluate the motive for them to pursue. There are various pattern of business structures are available.
Sole trader: Sole proprietor of any business runs the business on its own terms; he is owner of the business and takes all the necessary decision for the business as well (Thomas, 2010). Best example of sole trader, food truck, small provision stores, etc run by sole trader ownership. The Sole trader is liable for entire base of expenses and incomes. Sole trader usually does not prepare any balance sheet and income statement. They only prepare a single statement of total sales and expenses done in a given period. Sole trader has no involvement with board of director and also does not possess any separate employee structure. The need of finances and publishing of accounts are not handled by the sole trader (Managing financial resources. 2014).
Public Limited Company: Public limited company has to prepare various types of business accounts. The need of preparation will screen different types of stakeholders. The stakeholder holds a portion of interest in the business operations. The business operations will lead them to scrutinise the financial performance of the company. The preparation of account includes three statements; they are income statement, cash flow activity and balance sheet. These documents will aid in giving immense knowledge about the financial performance. The dividend distribution and publish the accounts of financial year. They also need to get the accounts of scrutinised (Jones and McCaffery, 2008).
Joint venture: Joint Venture Company is a collaborated effort of two or more than two company, both company infuse to achieve a single objective. The partners in the company have to prepare separate accounts and one consolidated income statement also. They do not need to prepare any separate sheets for further acknowledgement. The expense and profit division are based on the total capital ratio contributed in the company. The profit division is also facilitated on the basis of capital formation by the contributing partners.
The report has identified various tools and techniques to impart effective information to induce best results for PepsiCo. The tools and techniques are suggested to take optimum solution to take decisive selection of objectives for investment appraisal (Broadbent and Cullen, 2011). The report also mentioned about appropriateness of sources of finance. The impact of finance and how different organisation will prepare their accounts for further examination is also covered.
Books and Journals
- Berk, J. B., 2007. Corporate Finance.Pearson. Addison Wesley.
- Blocher, 2006. Cost Management: A Strategic Emphasi. Tata McGraw-Hill Education.
- Bourne, M., franco, M., and Wilkes, J., 2006. Corporate performance management. Measuring business excellence. 7(3). Pp. 15-21.
- Broadbent, M. and Cullen, J., 2011. Managing Financial Resources. 3rd ed. Routledge
- Correia, C. and et.al, 2012. Financial Management. Juta and Company Ltd.