Introduction:

JS and co is running in the UK since 1869, which is a medium sized retailer formed by two
partners James and Sainsbury. Along with specialization in quality food products it also sells
other non-food products. In the market this company gains wonderful success from the last three
years. We are going to discuss about this company sources of finance, financial decisions,
finance as a source, and financial performance in this discussion.
LO1: Understand the source of finance available to a business
1.1 Identify the sources of finance available to the business
Current financial resources of a company may be inadequate when it grows rapidly. The number
of companies who have capability to finance their extended plans from cash flows alone is very
few. As a result raising finance from other outer sources takes place in their consideration. In
addition, managers may not have enough resources to get the company who are looking to buy-in
to a business or buy-out a business from its owners. For achieving their objectives they will need
to raise finance.
In a growing business to meet the needs there are a number of potential sources - On hand shareholders and directors funds
- Business angels
- Factoring and invoice discounting
- Venture capital
- Clearing banks (overdrafts, short or medium term loans)
- Hire buy and leasing
By striking equilibrium between equity and liability it is ensured that funding structure suits the
business.
1.2 Assessing the implications of different sources.
Interconnections, innovation, and growth become stronger by financial institutions that surpass
national boundaries and employ such activities as wide-ranging interbank contracts, over-thecounter derivatives contracts, syndicated loan issuance, quit, bond, and trading activities
internationally. Increase of the efficiency of the worldwide financial system as a result of tighter
interdependencies by smooth credit distribution and risk diversification ; potential for crossmarket and cross-border troubles to reach quickly also increased by them .Risks which
complicate the assessment of counterparty risk, policy responses and risk management were not
fully recognized by financial regulators and institutions, now they have done by financial
innovations. Although relations among institutions have usually focused on solvency concerns,
the recent crisis reminds us of the importance of liquidity spillovers, particularly that
(1) Difficulties in rolling over liabilities may fall over to the financial system all together means
Interconnectedness; and that
(2) In present overturn risk related with short-term liabilities not only in the banking sector but
also evenly important in the nonblank financial sector. Hence, improving our realizing and
watching of direct and indirect financial systemic linkages is essential, which may be done by
reinforcing methods to judge systemic link-ages.

Four corresponding approaches to evaluate financial sector systemic linkages and focus on this
meaning of systemic risk:
The network approach
The co-risk model
The distress dependence matrix
The default intensity model
1.3 Choosing the appropriate source of finance for the business.
To rise finance for a business there are different ways and nature of business determines which
type has to choose. The capability of large organizations to use variety of finance sources is
wider than that of smaller ones. Savings are a good way in business to put money. From families
and friends a business can also borrow money, which is small. By issuing shares companies raise
finance. Companies which are large most of time have thousands of shareholders.
A business can take loan to gain extra finance and the loan is provided mainly from a bank or
other financial organization. Before providing loan the lender of money needs to know all the
business opportunities and risks involved with the loan. Most of time lenders prefer to provide a
secured loan.
An overdraft facility with a bank is another means of raising short-term finance. It is permissible
for the borrower to take out more from their account than they have put in. A maximum limit is
fixed by the bank for the overdraft. On the overdraft interest is charged daily.
Businesses may also be eligible for donations. By meeting certain conditions businesses may
become eligible to get Government and private funds.
Out comes:
I understood the different long term and short term sources of finance by this module. It also
helps to realize the advantages and disadvantages of different sources of finance.

LO2: Understand the implication of finance as a source within a business:

2.1 Assess and compare the costs of above mentioned sources of finance.
From the following sources a company might raise new funds from:
The capital markets:
i) New share issues, for example, by companies acquiring a stock market listing for the first time
ii) Rights issues
Loan reserve
Bank borrowing
Preserved earnings
Government sources
Franchising
Business extension scheme funds
Venture capital
Ordinary (equity) shares
To the owners of a company ordinary shares are issued. They have a nominal or 'face' value,
naturally of $1 or 50 cents. There is no relationship between the market value of a quoted

company's shares and their nominal value, but when ordinary shares are issued for cash, the
nominal value of the shares must be equal to the issue price or less than issue price.
Deferred ordinary shares
They are a form of ordinary shares; only after a certain date or if profits rise above a certain
amount they are entitled to a dividend. Here voting rights might also vary with those attached to
other ordinary shares.
In company Ordinary shareholders put:
a) By paying for a new issue of shares
b) Through retained profits.
New shares issues
A company looking for gaining further equity funds may be:
a) To get a Stock Exchange quotation, an unquoted company wishing
b) To issue new shares an unquoted company wishing without obtaining a Stock Exchange
quotation
c) To issue additional new shares a company wishing, that is already listed on the Stock
Exchange.
2.2 Explaining the importance of financial planning
Financial planning
It is a process in which in order to meet the goals the present financial situation and the
modifications in the spending pattern presents before a person, organization or even a country.
Importance of Financial Planning
For obtaining enduring profits through the assets available, it is significant to plan finances.
Through financial planning the investments are structured suitably and handled by experts. If a
appropriate plan is developed in advance, every decision concerning our finances can be
supervised. The importance of financial planning is explained in the following points.
Cash Flow: To increase cash flow and monitor spending financial planning helps. By
undertaking actions the cash flow is increased like- tax plan, careful expenditure and prudent
budget.
Capital: With the help of professional financial planning a strong capital foundation can be built.
Therefore, one can consider about investments and by this means develop his financial situation.
Income: Through planning it is possible to control income efficiently. For separating income
into tax payments, other monthly spending and savings managing income helps.
Family Security: In the viewpoint of family security financial planning is essential. For the
intention of financially securing the family, various policies existing in the market are serving.
Investment: A good financial plan helps in choosing the proper investment policy, which
considers the income and spending of a person. It facilitates the person to achieve the set goals.
2.3 Describe the information needs of different decision makers.
The indicators used commonly used indicators do not present sufficient indications of
sustainability; gross national product (GNP) and measurements of individual source or pollution
flows are some commonly used indicators. Methods are not adequately developed or applied
which are used for evaluating relations between different environmental, demographical, social
and developmental factors. For sustainable development, indicators of need to be developed to
provide firm bases for management at all levels and to contribute to a self-governing
sustainability of incorporated situation and improvement systems.

(a) By better identification of users, more money-making and related data collection and
measurement are achieved in both the public and private sectors, and it should contain all of their
information from at the local to international levels;
(b) Local, provincial, national and international information are collected and using multicultural
information in decision-making processes to strengthen and to increase capacities to gather and
evaluate data and information for decision-making, mostly in developing countries;
(c) Planning for sustainable improvement in all sectors must be based on timely, dependable and
functional information, to expand or support local, provincial, national and international means;
(d) To facilitate relevant informations use, they should need to be available in the form and at
the time required.
2.4 Describe the impact of finance on the financial statements.
The process in which the financial activities of a business, person, or other entity are recorded in
a formal way is known as financial statements (or financial reports).
Presentation of all the related financial information of a business enterprise in a structured
manner and in a form of easily understandable is called the financial statements. There are four
basic financial statements:
Balance sheet: In this statement company's assets, liabilities, and Ownership equity at a given
point in time are reported to explain the financial position or situation.
Income statement: It also known as Profit and Loss statement (or a "P&L"). In this statement a
company's income, expenditures, and profits over a period of time are reported. Information
related to the operation of enterprise is provider by Profit & Loss account. The sale and different
costs incurred during the processing state are included in these.
Statement of retained earnings: give explanations of the changes in a company's preserved
income over the reporting time.
Statement of cash flows: In this statement company's cash flow activities, mostly its operating,
financing and investing activities are reported.
Most of time these statements are complex for large corporations, extensive set of notes are
included for discussion and analysis. Each item on the balance sheet, income statement and cash
flow statement are typically described in further detail in these notes. Notes are an integral part
of the financial statements.
Outcome:
I make out the costs of finance as a resource, way to frame a budget due to specified information
and implication of failure to finance satisfactorily by this module.
LO3: Be able to make financial decisions based on financial information
3.1 Analyze budgets and make appropriate decisions
How much unbudgeted shortcoming risk you should handle
Worst-case situation (given catastrophic losses) vs. regret
The value (and cost) of compliance with regulations (for example, SOX)
Real Options: The Value of Midcourse Corrections to Projects
Considering options have value is one of the basic insights of contemporary financial theory.
"We are out of options"- this phrase certainly indicates a symbol of problem. Though in a

dynamic environment corporations (and other organizations) make decisions, their midcourse
options should be considered in project assessments:
The Option to throw away a project: It is done when return value or savings are lower than
the expectation.
The Option to enlarge a project: It is done when return value or savings are higher than the
expectation.
The Option to holdup a project: When core variables change with a positive trend then it is
done.
The Option to outsource a project: This is done when internal resources don't have necessary
experience and expertise.
Actually, companies occasionally have further choices. For making decision they can wait for the
time when the availability of information is more. Even they can summon outside help after
deciding to leave. A project's anticipated mean NPV and risk can be spectacularly affected by
such investment timing choices. The Projects which dont offer such flexibility are less valuable
than that can easily be customized in this way. The more unsure the outlook, the more helpful
this flexibility becomes.
3.2 Calculate unit costs and make pricing decisions using relevant information.
Defining Costs
When performing a breakeven analysis several types of costs need to be considered. Some of
most relevant of them are given belowFixed costs: These are costs which remain unchanged with the lapse of time and selling. For
example- all start-up costs like rent, insurance and computers etc. and these are essential before
making any sell.
Variable costs: These are the costs which are change with the increase or decrease of production.
Setting a Price
For breakeven analysis setting price is critical because without this it is hard to calculate the
expected revenue.
Psychology of Pricing: Many researches are done on marketing and psychology about how
consumers identify price, because consumer play a vital role in decision-making process of
pricing. Before choosing a price for a product or service a company needs to spend time to
review articles on pricing strategy and the psychology of pricing.
Pricing Methods: During conducting a breakeven analysis some different schools of thought are
used for how to treat price. It is a combination of quantitative and qualitative factors.
The formula: This formula is quite simple. In this formula to conduct breakeven analysis fixed
costs is divided unit selling price, minus variable costs. The equation is given below:
Breakeven Point = Fixed Costs/(Unit Selling Price - Variable Costs)
This calculation help to determine the number of product will need to sell to reach breakeven
point.
Every additional unit sold after the breakeven point increases profit by the amount of the unit
contribution margin.
3.3 Assess the viability of a project using investment appraisal techniques.
Learning Outcome

Assessment Criteria
1. within a business environment try to understand the character of accounting, accountability and
stewardship
2. Understand book-keeping and accountings nature and purpose and the difference between them.
Be able to:
Give explanation of the difference among book-keeping, management accounting and financial
accounting.
Classify different stakeholders and their importance in the financial place of the business.
Give explanation of the way accounting can be used for planning, control and decision making.
Be able to:
Identify and illustrate the elementary accounting models of going concern, growths, constancy,
caution and true and fair.
Spot the key factors of financial statements (income, assets, expenses, capital, liabilities) and
explain their link via the accounting equation.
1. Within a business environment try to understand the character of accounting, accountability
and stewardship (continued)
With Identification of the main financial statements it is important to explain how they are
compiled (Balance Sheet, Profit and Loss Account and Cash Flow Statement).
Express how financial accounts are synchronized by means of accounting standards.
2. To evaluate the performance of a business it is important to understand the way in which
financial statements can be examined and interpreted.
It can be done by using ratio analysis by which stakeholders can review the performance of a
business.
Be able to:
Classify expected users of ratio analysis and explain the way they may use the information.
Profitability ratios are calculated and interpreted (ROCE, gross profit, net profit, asset turnover).
Liquidity ratios are calculated and interpreted (current ratio, debtor days, acid test ratio, stock
turnover days, creditor days).
Investment ratios are calculated and interpreted (gearing, simple EPS, interest cover)
To make comparisons between one business with other or to compare results to industry
standards ratio analysis is used. The advantages and constraints of ratio analysis should be
explained.
3. Understand the significance of functioning capital maintenance (continued)
The way creditors can be used as a source of finance should be explained and the costs of trade
credit should be identified.
The way of the factors of working capital can be handled successfully to minimize borrowing
and its related costs should be explained.
The way of forecasting a cash flow that can be used to predict and control future working capital
requisites should be understand.
Be able to:
Make a distinction between cash and profit.
Categorize and recognize the implications of non-cash accounting amendments such as reduction
and provision for bad debts.
Identify periods of cash surplus or cash scarcity and set up a plain cash flow forecast.

4. Recognize and evaluate different sources of financial supports on hand for business
Realize that there are a variety of sources of finance existing for businesses and those diverse
kinds of finance are appropriate for different uses.
5. Know and differentiate between costs based on their behavior
Know that costs may be classified in diverse means based on their behavior.
Outcome:
I am able to realize the different investment assessment systems and character of long-term
decisions by the help of this module.

LO4: Be able to evaluate the financial performance of a business

4.1 Explain the purpose of main financial statements
The three main financial statements are:
The balance sheet- in a certain period a corporation's assets, stockholders' equity, and liabilities
are reported in it (e.g., as of midnight of December 31, 2009).
The income statement- In a period of time a corporation's revenues and expenses are reported
such as a year, month, quarter, 52 weeks, 13 weeks, etc.
Cash flow statement /the statement of cash flows- During the similar period of time as the
income statement change in a corporation's cash and cash equivalents are reported in it.
In accordance with generally accepted accounting principles (GAAP) the financial statements
need to be prepared that are circulated outside of a company. For instance, the cost principle
usually needs that the balance sheet should report long-standing assets at cost minus collected
reduction. The matching principle needs that the cost of long-standing assets used in the business
are assigned to different accounting periods in which they produce revenues or are used up.
4.2 Compare appropriate formats of financial statements for different types of business
There are three kinds of financial statements: cash flow statements, balance sheet and income
statements.
Income Statements: income statements states revenue first then expenses. By subtracting
expenses from revenue net income is calculated. It is the most simplified income statements and
most service providers use this process. Income statement for a manufacturing or retail store
operation is very difficult. The first line of the income statement is for revenue or gross income,
followed by subtraction of cost of manufactured or goods sold. This provides a gross income
amount. The second section is lists of all expenses include administrative or general costs, selling
and so on. Operation income is calculated by subtracting all expenses from gross income. The
last section subtracts any other expenses, taxes, interest expense to arrive at the net income of the
business.
Balance Sheet: it shows the shareholders equity, liabilities and assets of the business. The total
assets are equal to total shareholders equity and liabilities. The first section is lists of all assets
include equipment, real estate, investments, cash and other business holdings. The next section is
list of all liabilities includes any loans or account payable and last section is shareholders equity.
This balance sheet is suitable for small company but for larger company, the business often
breaks it down to current and long term assets and liabilities.

Cash Flow statement: it shows the actual flow of cash in and out of the business. It helps
investors and others to determine if the business is having difficulty managing its cash flow. It
starts with the cash flow from operations, followed by cash flow from investing and cash flow
from operations. Each category shows incoming and outgoing cash from the business. The
ending cash flow should be equal to the amount of cash the business has on hand.
4.3 Analyses financial statements using appropriate rations and comparisons, both internal
and external.
1. WORKING CAPITAL RATIO/ CURRENT RATIO:
Relationship between current assets and current liabilities is defined as Current ratio it another
name of it is working capital ratio.
CURRENT RATIO/ WORKING CAPITAL RATIO = Current assets/ Current liabilities
Year ended

Current assets(in crores)

Current liabilities(in crores)

Ratio

2007-08

913.27

1479

0.62

2006-07

2333

994

2.347

2005-06

1614

475

3.397

2004-05

1171

336

3.485

2003-04

913.27

213

4.132

Interpretation:
Usually A ideal current ratio is 2:1.
The company is not enjoying the sufficient liquidity, if it is less than 2.
a decline in the ratios is seen in past five years.
2. QUICK RATIO:
Quick ratio = (Current Assets Inventory Prepaid Expenses)/ Current Liabilities
Year

Current assets

Inventory

Current Liabilities

Ratio

2004

964

39

283

3.393

2005

1171

41

336

3.363

2006

1614

46

475

3.301

2007

2333

96

994

2.250

2008

2988

145

1564

1.345

Interpretation:
Ideal quick ratio is 1.
It was higher than 1in all the last five years, where the funds were correctly employed.
LEVERAGE RATIOS
1. DEBT EQUITY RATIO:
Debt-equity ratio is used to calculate the relative claims of outsiders and the owners (i.e.,
shareholders) against the firms assets. It is also known as External-Internal ratio. The correlation
between the exterior equities or the outsiders funds and the interior equities or the share holders
funds is indicates by this ratio.
Debt equity ratio = Outsiders funds/ Shareholders funds
Year

Long-term Debt

Share holders equity

Ratio

2004

128.45

2005

140.71

2006

285.15

2007

13

291.80

0.44

2008

28

298.45

0.093

Interpretation:
Ideal debt equity ratio is 2:1.
There is no debt equity ratio in 2004-06.
It showed a small value in 2007 an 2008.

2. PROPRIETARY RATIO:
The ratio between shareholders equity and entire assets is known as proprietary ratio.
proprietary ratio = Shareholders Equity/ Total Assets
Year

Share holders equity

Total assets

Ratio

2004

125.34

1309

0.095

2005

140.71

1651

0.085

2006

285.15

2257

0.126

2007

291.80

3389

0.086

2008

298.65

3987

0.074

Interpretation:
The proprietary ratio better if it is higher
It is less than one in all the five years.
Feeble financial situation of the business is shown by it.
3. INTEREST COVERAGE RATIO:
The ratio between EBIT and Interest is known as interest coverage ratio.
Interest coverage ratio = EBIT/Interest
Year

EBIT

Interest

Ratio

2004

355

2005

410

2006

499

499

2007

693

115.5

2008

834

13

64.15

Interpretation:
Interest coverage ratio is better if it is higher.
There is no interest coverage ratio in 2004.
A heavy ration is showed in 2006, 2007 & 2008, which indicates a greater safety

Out come:
By this I understand the basic business and accounting terms used and should be able to deduce
the information gathered from financial statements by means of ratio analysis and could draw
conclusions from it.

CONCLUSIONS
I understood the different long term and short term sources of finance by this module. It also
helps to realize the advantages and disadvantages of different sources of finance. I make out the
costs of finance as a resource, way to frame a budget due to specified information and
implication of failure to finance satisfactorily by this module. I am able to realize the different
investment assessment systems and character of long-term decisions by the help of this module.
By this I understand the basic business and accounting terms used and should be able to deduce
the information gathered from financial statements by means of ratio analysis and could draw
conclusions from it.
References:
Anthony, L. (2012), Formant of a financial statement [online], Available
from:http://smallbusiness.chron.com/format-financial-statement-3768.html [Accessed:
4th
January, 2014]
UKessays, (2012) [online], Available from:http://www.ukessays.com/essays/finance/managingfinancial-resources-and-decisions-js-and-co-finance-essay.php [Accessed: 4th January, 2014]
UKessays, (2012) [online], Available from:http://www.ukessays.com/essays/finance/managingfinancial-resources-and-decisions.php[Accessed: 4th January, 2014]