Finance: Net Present Value and Financial Statements

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Unit 2:

Managing Financial Resources and
Decisions

Learning hours:

60

NQF level 4:

BTEC Higher National — H1

Description of unit
This unit is designed to give learners a broad understanding of the ways in which finance is managed within a business organisation. Learners will learn how to evaluate the different sources of finance, compare the ways in which these are used and will learn how to use financial information to make decisions. Included will be consideration of decisions relating to pricing and investment, as well as budgeting. Finally, learners will learn techniques for the evaluation of financial performance.

Summary of learning outcomes
To achieve this unit a learner must:
1 Explore the sources of finance available to a business
2 Analyse the implications of finance as a resource within a business 3 Make financial decisions based on financial information
4 Analyse and evaluate the financial performance of a business.

Content
1 Sources of finance
Range of sources: sources for different businesses, long term such as share capital, retained earnings, loans, third-party investment, short/medium term such as hire purchase and leasing, working capital stock control, cash management, debtor factoring Implications of choices: legal, financial and dilution of control implications, bankruptcy Choosing a source: advantages and disadvantages of different sources, suitability for purpose eg matching of term of finance to term of project

2 Finance as a resource
Finance costs: tangible costs eg interest, dividends; opportunity costs eg loss of alternative projects when using retained earnings; tax effects
Financial planning: the need to identify shortages and surpluses eg cash budgeting; implications of failure to finance adequately, overtrading
Decision making: information needs of different decision makers Accounting for finance: how different types of finance and their costs appear in the financial statements of a business, the interaction of assets and liabilities on the balance sheet 3 Financial decisions

Budgeting decisions: analysis and monitoring of cash and other budgets Costing and pricing decisions: calculation of unit costs, use within pricing decisions, sensitivity analysis
Investment appraisal: payback period, accounting rate of return, discounted cashflow techniques ie net present value, internal rate of return
Nature of long-term decisions: nature of investment importance of true value of money, cash flow, assumptions in capital investment decisions, advantages and disadvantages of each method
4 Financial performance
Terminology: introduction to debit, credit, books of prime entry, accounts and ledgers, trial balance, final accounts
Financial statements: basic form, structure and purpose of main financial statements ie balance sheet, profit and loss account, cashflow statement, notes, preparation not required; distinctions between different types of business ie limited company, partnership, sole trader Interpretation: use of key accounting ratios for profitability, liquidity, efficiency, and investment, comparison both external ie other companies, industry standards and internal ie previous periods, budgets

Outcomes and assessment criteria
Outcomes

1 Explore the sources of
finance available to a
business

2 Analyse the implications of
finance as a resource within
a business

3 Make financial decisions
based on financial
information

4 Analyse and evaluate the
financial performance of a
business

Assessment criteria for pass
To achieve each outcome a learner must demonstrate
the ability to:
• identify the sources of finance available to a
business
• assess the implications of the different sources
• select appropriate sources of finance for a business
project
• assess and compare the costs of different sources of
finance
• explain the importance of financial planning
• describe the information needs of different decision
makers
•...
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