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BA4F04 Managing Financial Resources Level 4 Business Management

Introduction

The main aim and objective of the managing financial resources is to maintain the adequacy level of finance in the company. It also aims to provide information to the non-financial managers with better understanding of terms and techniques of financial, so that they can communicate more effectively and interpret the reports which are issued by their financial colleagues(Broadbent and Cullen, 2012). The presented report is based on Metro Products Ltd. It is a British manufacturing company which supplies auto accessories and mechanical security products to retail stores in the UK. So, it is very important for them to manage financial resources for maintaining the cash balance in company. Present report covers differences between limited and a non-limited company and requirements for the end of financial year. It explains the difference between management and financial accounts. Further, the cash flow statement, profit and loss account, retained earnings account as well as the balance sheet are highlighted. Apart from that, managing the interest of potential stakeholders of company are discussed in this report.

Task 1

1.1 Difference between a limited and a non-limited company along with requirements for the end of financial year

The legal requirements which any company has to comply with otherwise, it will be nul and void from the side of law(Renz, 2016). The difference between in the legal requirements for both the company are as follows:

Basis

Limited company (Public)

Non-limited company (Private)

Liabilities

Liability of shareholders is limited with the number of shares.

The liability of owners is unlimited as there are only private members.

Paid-up capital

The minimum paid-up capital is 5 lac.

Here, it is 1 lac.

Minimum number of members

The minimum requirement of members are 7.

Here, it is 2.

Maximum number of members

There is no restriction for the maximum limit of members.

In non-limited company, limit of maximum number of members are 50.

Transferability of shares

There is no restriction over the transferability of shares.

There is complete restriction over the transferability of shares.

Issue of prospectus

The issue of prospectus is free.

There is prohibition on the issue of shares.

Minimum number of directors

The minimum number of directors is 3.

Here, it is 2.

Statutory meetings

Statutory meetings are compulsory and obligatory.

There is no obligation for statutory meetings.

External audits

It has to audit its financial accounts from the external auditor or by government authority.

External auditing is optional for private companies.

The given company is a limited company so the legal requirements for Metro Products for the end of the financial year are needed to maintained financial statements which includes income statement, cash flow statement, balance sheet, disclosure notes and ratio analysis(Swayne, Duncan and Ginter, 2012). Also, it is mandatory for company to get its accounts audited by the external auditors. These are also presented in front of shareholders as they have right in the profits of the company. The good financial position and performance that attracts more potential investors and shareholders. It puts positive impact on the image and goodwill of the company in the market and this pulls more customers. The financial statements are also useful for the government authorities, banks, financial institutions etc.

Difference between Management accounts and Financial accounts:

Basis

Management accounts

Financial accounts

Purpose of information

It helps in taking decisions for the fulfilment of company's objectives.

It communicates financial position of company to its related users.

Primary users

These are primarily used by the managers of company (internal users).

These are for external users like investors, banks, suppliers and regulators.

Focus and emphasis

It is future oriented for company like preparation of budgets for the next year.

It is past oriented for company.

Legal requirements

There are no legal requirements to be complied.

Financial accounts must be prepared by limited companies.

Nature of information

It includes both financial and non-financial information.

They mostly cover financial information.

Formats

The formats are decided by the management on the basis of required information and the most useful way of presenting it.

The true and fare view has given by format and content of financial accounts. So, the format has given in the companies law and follow the accounting standards.

Time period

The time duration which it includes are historical and forward-looking.

It mainly focuses on historical records only.

The company maintain both the accounts for increasing the productivity and profitability in long term. Management accounts are very helpful in taking decisions by the top management. As these provide informations regarding all the aspects of the company, this tends to make improvement wherever needed. And the financial accounts are necessary for the maintaining records for future references.

1.2 Cash flow, profit and loss account, retained earnings account, balance sheet and their importance

The explanation and importance for Metro Products Ltd are enumerated as below:

Cash flow: The incomings and outgoings of cash has represented the operating activities of Metro products. In financial accounting, cash flow is identified by the difference of amount of cash available in beginning (opening balance) with that of available at the end (closing balance). The result is positive if the closing balance is higher than opening and vice versa. The high and low level of cash balance is not necessarily be always a good measure of performance(Rockey and Collins, 2010). This statement includes three activities which are operating, investing and financing. By these activities, company can generate information about net cash outflow and inflow for managing the requirement of funds.

The cash flow is increased by more selling of goods and services, selling of assets, reduction in costs, fast collection from debtors, slow payment to creditors, increasing the selling price, bringing out more equity or taking outsider’s loan. The importance of cash flow for Metro products is the sign which indicates smooth running of company(Kusumasari, Alam and Siddiqui, 2010). Therefore, naturally, the positive cash flow is preferred for managing expenses.

Profit and loss account: The statement of profit and loss account summarizes revenues as well as costs and expenses which have incurred during a particular period of time i.e. accounting period. The profit and loss account is also known as 'Statement of Profit and Loss', 'Income statement', 'Statement of operations', 'Statement of financial results' as well as 'Income and expense statement'. It is prepared for calculating net profit or loss with the help of gross profit which is identified by trading account(Conway, 2013). Profit and loss account includes non-operating items for finding out the net amount. The income statement of Metro products helps in showing profitability during the time interval specified in its heading. If net profit is generated, then it is added to the capital amount and if net loss occurs, then it is subtracted from the amount of capital. So, it affects the capital of company. The debit balance of profit and loss account indicates the net loss and the credit balance indicates the net profit of the company.

Retained earnings account: Retained earnings of Metro products refer to the percentage of net revenue which have not been paid as dividends, but remained by company to be again invested in its core activities or to pay debt. It is to be recorded under the head of shareholders' equity on balance sheet(Aras, Aybars and Kutlu, 2010). This is important to maintain by the company for its future plans like expansion or for managing contingency liability(Retained earnings. 2017). The items included on the debit side of retained earnings account are net loss, prior adjustment for overstatement of net income, cash and stock dividends and the sale of treasure stock below cost. And the credit side's item are net income and prior period adjustment for understatement of net income. When the balance of retained earnings is negative then it is termed as deficit or accumulated deficit.

Balance sheet: The statement showing financial position of company on a particular date is known as Balance sheet. It has two parts where one is denoted as Assets and another as Liabilities. On the assets side it includes non-current assets and current assets. And on the liabilities side it covers shareholders' equity, outsiders liability and current liabilities. This helps the investors and shareholders to take investment decision for company. Every firm has to mention disclosure notes which is a legal requirement of accounting principles. These are to be made below the balance sheet of company which gives information regarding decisions of company. The significance of balance sheet for Metro products helps in analysing ratios for company. The ratio analysis shows financial performance in various key areas with quick indication. It includes ratios like solvency, liquidity, turnover and profitability.

All the above mentioned statements and accounts are maintained by Metro Products Ltd. for showing the financial performance of the company and these are compulsory from the side of companies law.

1.3 Identifying potential stakeholders and their relative interest

Various potential stakeholders of Metro Products Ltd.

Stakeholders: The person, group or organisation which has interest or concern in a company like Metro products ltd. The stakeholders are get affected or can affect by the actions, objectives and policies of the company(Remund, 2010). The example of various stakeholders are creditors, directors, employees, governments and its agencies, shareholders (owners), unions, suppliers and the community from which the company withdraws its resources. All the stakeholders are not equal, for each one company has different types of responsibility. The customers of Metro products are entitled to fair trading practices but they are not entitled to the same consideration as the employee of the company. Example for the negative impact which has made on the stakeholders that, when the company needs to cut costs and plans a round of lay-offs. The local economy and the community of workers in the area are negatively affected by this. On the other side if someone is owning shares in a Metro products ltd. and the company generate profits due to which its share price increases. This puts positive impact on the stakeholders.

Potential stakeholders: Metro products ltd. is planning for the expansion plan. Its wants to expand its operational activities overseas and across the country as their current manufacturing is conducted in the UK(Huang and et.al., 2013). Due to recent increase in the demand for their products, therefore they are also planning for the outsourcing strategy for its manufacturing unit. It leads to manage economies of scale and the greater control over the increasing component costs of the product. These two plans are needed for growth of the company. For both the plans company is require to invite potential stakeholders who invest in the plans. The company has to present its plans more effectively and efficiently so that the potential stakeholders can get influenced and can take decision for investing in the company.

The various potential stakeholders for Metro products ltd. are the government and its agencies, underwriting companies, suppliers, employees, shareholders, creditors, employees, unions, communities etc. It is the responsibility of the company to manage ans satisfy all the potential stakeholders for maintaining the new plans in the future. For identifying the stakeholders then it is important to think beyond the obvious(Foerstl and et.al., 2010). The company should try to think of as many ways as possible that its effort might bring benefits or problems to the people not directly in its path. There are several ways to identify the stakeholders. These are: Brainstorming, Collect categories and names from informants in the community, Consult with organisation, Get more ideas from stakeholders as company can identify them and through advertisements.

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Interest and influence of stakeholders and Options for managing the interest of them

The interests of stakeholders may vary in several times. Interest of come of them may be best served by carrying the effort forward and others' by stopping or weakening it. There may be conflicting concerns, even among the same group of stakeholders. Many ways which influence the stakeholders' interests:

Potential stakeholders might be widely supportive of an effort or seeing it is an opportunity or the pathway to a better life. The decision of making investment in the company is not an easy for any stakeholders(Oh, Yang and Lee, 2012). They may be afraid to get fail, try something new or will end up with worst than they are now. It may be happen that they feel distrustful from any people or the company engaged in such an effort and feel they are being locked down on.

Some of the stakeholders are more concerned about the economic condition. The inflation rate, recession and interest rates are more influenced by them. They take decision accordingly or if they find the economic condition is well going. Sometimes these are merely greedy or selfish.

Because of funding concerns organisations, agencies and institutions may have a financial stake in an effort. They are more influenced for funding may be the difference between laying off and keeping staff members or even between the survival and closing of the company.

The interest of stakeholders may also get influenced by the ideological as well as cultural differences. They generally feel that government shouldn't be seen as the source of anything but the most basic services that people can't provide themselves are the military, police, roads, public education.

It is important to maintain the stakeholders' interest for the survival and growth of the company. It is also essential to understand groups and individuals reactions in different situations. The importance of stakeholders are simply refers as their problems, needs and interest are priority for a company. The influence of stakeholder is always in relation to the objectives that Metro products is seeking to achieve. The following available options to Metro products ltd. for managing the interests of stakeholders are: The legal hierarchy of company which includes command ans control over the budgets. The authority of leadership adopted by the company i.e. charismatic and political. The control of strategic resources for the suppliers of services or other inputs. The negotiation position towards the strength in relation to other stakeholder(Altenburg and Pegels, 2012). And some other options which can help to managing the interests are: by providing right information in the company's financial reports, by showing the goodwill and market position to the potential stakeholders.

Conclusion

It has been concluded from the above report that management of financial resources for Metro Products Ltd. affects the interests of stakeholders. There is significant difference between limited company and non-limited company. The legal requirements for the company at the end of financial year are income statement, cash flow statement, ratio analysis, balance sheet and notes to disclosure. The major difference has analysed between management accounts and financial accounts that one is to be prepared for internal users and another is to be prepared for external users. Cash flow, profit and loss account, retained earnings account and balance sheet these are the tools of accounting which helps in preparing the financial statements of the company. Company identifies the potential stakeholder for its future expansion plan and outsourcing plan. The options has mentioned above for managing the interest of stakeholder.

References

  • Altenburg, T. and Pegels, A., 2012. Sustainability-oriented innovation systems–managing the green transformation. Innovation and Development.
  • Aras, G., Aybars, A. and Kutlu, O., 2010. Managing corporate performance: Investigating the relationship between corporate social responsibility and financial performance in emerging markets. International Journal of productivity and Performance management.
  • Broadbent, M. and Cullen, J., 2012. Managing financial resources. Routledge.
  • Conway, J. B., 2013. A course in functional analysis (Vol. 96). Springer Science & Business Media.
  • Foerstl, K., and et.al., 2010. Managing supplier sustainability risks in a dynamically changing environment—Sustainable supplier management in the chemical industry. Journal of Purchasing and Supply Management. 
  • Huang, C., and et.al., 2013. Managing the health effects of temperature in response to climate change: challenges ahead. Environmental Health Perspectives (Online).
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