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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
Transcript of F:\Assignment\Unit 2
Unit 2: Managing Financial Resources andDecisionsLearning hours: 60NQF level 4: BTEC Higher National — H1Description of unitThis unit is designed to give learners a broad understanding of the ways in which finance ismanaged within a business organisation. Learners will learn how to evaluate the differentsources of finance, compare the ways in which these are used and will learn how to use financialinformation to make decisions. Included will be consideration of decisions relating to pricingand investment, as well as budgeting. Finally, learners will learn techniques for the evaluationof financial performance.Summary of learning outcomesTo achieve this unit a learner must:1 Explore the sources of finance available to a business2 Analyse the implications of finance as a resource within a business3 Make financial decisions based on financial information4 Analyse and evaluate the financial performance of a business.Content1 Sources of financeRange of sources: sources for different businesses, long term such as share capital, retainedearnings, loans, third-party investment, short/medium term such as hire purchase andleasing, working capital stock control, cash management, debtor factoringImplications of choices: legal, financial and dilution of control implications, bankruptcyChoosing a source: advantages and disadvantages of different sources, suitability forpurpose eg matching of term of finance to term of project2 Finance as a resourceFinance costs: tangible costs eg interest, dividends; opportunity costs eg loss of alternativeprojects when using retained earnings; tax effectsFinancial planning: the need to identify shortages and surpluses eg cash budgeting;implications of failure to finance adequately, overtradingDecision making: information needs of different decision makersAccounting for finance: how different types of finance and their costs appear in the financialstatements of a business, the interaction of assets and liabilities on the balance sheet3 Financial decisionsBudgeting decisions: analysis and monitoring of cash and other budgetsCosting and pricing decisions: calculation of unit costs, use within pricing decisions,sensitivity analysisInvestment appraisal: payback period, accounting rate of return, discounted cashflowtechniques ie net present value, internal rate of returnNature of long-term decisions: nature of investment importance of true value of money,cash flow, assumptions in capital investment decisions, advantages and disadvantages ofeach method4 Financial performanceTerminology: introduction to debit, credit, books of prime entry, accounts and ledgers, trialbalance, final accountsFinancial statements: basic form, structure and purpose of main financial statements iebalance sheet, profit and loss account, cashflow statement, notes, preparation not required;distinctions between different types of business ie limited company, partnership, sole traderInterpretation: use of key accounting ratios for profitability, liquidity, efficiency, andinvestment, comparison both external ie other companies, industry standards and internal ieprevious periods, budgets
Outcomes and assessment criteriaOutcomes Assessment criteria for passTo achieve each outcome a learner must demonstratethe ability to:1 Explore the sources offinance available to abusiness• identify the sources of finance available to abusiness• assess the implications of the different sources• select appropriate sources of finance for a businessproject2 Analyse the implications offinance as a resource withina business• assess and compare the costs of different sources offinance• explain the importance of financial planning• describe the information needs of different decisionmakers• describe the impact of finance on the financialstatements3 Make financial decisionsbased on financialinformation• analyse budgets and make appropriate decisions• calculate unit costs and make pricing decisions usingrelevant information• assess the viability of a project using investmentappraisal techniques4 Analyse and evaluate thefinancial performance of abusiness• explain the purpose of the main financial statements• describe the differences between the formats offinancial statements for different types of business• analyse financial statements using appropriate ratiosand comparisons, both internal and externalGuidanceDeliveryUnderstanding will be developed via exposure to a variety of case studies. It will also be usefulto look at a number of sets of financial statements. The form and structure of these statementsmust be understood, although learners are not required to actually prepare the statements. Thatsaid, simple examples which do require accounts to be prepared may aid understanding of theformats.AssessmentAssessment may be by way of case study or project, based on specific business organisations.The organisations can be simulated, but learners may benefit from the analysis of a variety ofreal organisations. Assessment of the decision making outcome is likely to require a simulatedcase study.LinksThis unit links with other units within the specification: Unit 6: Business Decision Making, Unit9: Management Accounting: Costing and Budgeting, Unit 10: Financial Reporting, Unit 11:
Financial Systems and Auditing and Unit 12: Taxation.This unit also covers some of the underpinning knowledge and understanding for the followingunits of the NVQ in Accounting at level 4: Contributing to the management of costs andenhancement of value, Contributing to the planning and allocation of resources.The unit covers financial topics essential for learners wishing to make a career in this field andwishing to gain membership of a professional accounting body.Support materialsTextbooksSufficient library resources should be available to enable learners to achieve this unit.Particularly relevant texts are:Cox D and Fardon M — Management of Finance (Osborne Books, 2003) ISBN: 1872962238Dyson J R — Accounting for Non-Accounting Learners (Pitman, 2003) ISBN: 0273646834Journals and newspapersThe financial and mainstream press can provide useful background reading, and can also be auseful source of case studies and financial information. Copies of published financial reports areavailable from companies themselves, or via The Financial Times (a free online ordering serviceis available).VideosA number of videos is available covering the financial aspects of business.WebsitesThe professional accounting bodies all have websites with lots of useful information and links.The Financial Times website includes a free service providing copies of financial reports. Biz/edprovides a wealth of useful resources aimed at learners and teachers.www.aat.co.uk The Association of Accounting Technicianswww.accountingtechnician.co.uk Accounting Technician magazinewww.bized.ac.uk provides case studies appropriate foreducational purposeswww.ft.com The Financial Times
