71205 Level 6 Business Finance Assignment Answer

This is the assignment answer of “71205 Level 6 Business Finance”

This course will teach you more about the financial aspects of a business.You will learn how to make strategic decisions, such as what your company’s money should do and where the money goes when making these decisions for others.

This class is all about learning how businesses use their finances wisely with an eye towards success not just today, but tomorrow as well.

This knowledge can then be applied through decision-making processes that are appropriate for any size or type of enterprise so that everyone benefits from wise choices made along the way .

This course will cover many of the most important aspects of financial and accounting principles that are used by businesses every day.

You’ll learn how businesses run their operations, plan for success, meet or exceed expectations and then use analysis to assess what went right or wrong along the way in order to adjust their plans in a timely fashion.

Assignment Solutions of 71205 Level 6 Business Finance

Assignment Activity 1. Describe the role of the finance and treasury function in the business environment.

The finance and treasury function plays a central role in the workplace environment. These professionals can determine the type of office space, shape employee’s buying behavior and tailoring benefits packages best for employees.

Finance people make decisions based on an “entropy principle”. This is to say that they’re convinced that every expenditure is a cost that will result in some waste or near-waste somewhere down the road – with each penny spent you eventually deplete 1% of your richness.

Think of it this way, when someone leaves their desk to use the restroom, you’ve created an opportunity for them to not come back – so if all those hours are coming out of your paycheck, it would be wrong to allow them set foot inside that seedy house of horrors.

Assignment Activity 2. Discuss how organisations make investment and distribution decisions by applying capital budgeting techniques and evaluate investment decisions.

The process of evaluating an investment decision is a difficult one and the first step in the process, deciding if an investment opportunity exists at all, will involve looking at cash flows, risk/return profiles and other factors.

The capital budgeting techniques that you might use could include net present value (NPV), internal rate of return (IRR) or discounted cash flow analysis. These are then evaluated by comparing with each other to choose between them.

There are three main methods for evaluating investments:- Net Present Value (NPV), Internal Rate of Return (IRR) and Discounted Cash Flow Analysis.

-NPV measures how much outflow over every period equals to project’s inflows multiplied by their respective weightings . It can be expressed as follows:-

-The IRR is a measure of profitability that takes into account how much money you recoup on an investment, where in time those recouped profits come from, and the riskiness associated with such an investment.

The IRR calculation requires four key pieces of information:  – the initial sum invested; each payment or distribution made to or from your portfolio between now and when you expect to recover your original expenditure; the date on which each payment or distribution was made to or from your portfolio;

-Discounted cash flow is a type of financial analysis used for capital budgeting where the best course of action can be obtained by comparing investments with different combinations of profitable and risky outcomes.

It attempts to take into account the timing and magnitude of all future cash flows, including some external factors such as tax rates.

The calculations are done by comparing a series of cash payments in order to choose which is most valuable at a given point in time (see discounted value).

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assignment Activity 3. Demonstrate an understanding of financial planning and control by applying knowledge of working capital to effectively manage a business for a given situation.

Financial planning and control will allow you to achieve the best balance between risks and opportunity.

Financial Planning: There are three types of financial plans that contribute to financial fitness, which are increasing savings rates, reducing expenses, and analyzing your returns for potential profits.

Your plan is built with inputs from your goals and limits that you’ve set as well as your outlook for the future.

Making sure the bills are paid on time, that all checks have been accounted for and that customer balances have been reconciled.

Financial control also includes making sure departments request funds they need when they need them, instead of having general approval.

Lastly, it is about making sure there are thorough reconciliations at least once a month.

There are three primary lines of defense for working capital, and this is in order of priority.

Management of inventory, accounts receivable and accounts payable means that a company has to make good decisions about selling products when the market demands it without letting all product go out the door at once.

The goal is to find financial equilibrium between managing inventory too low on cash or having too much inventory with not enough income to boost numbers.

Improving collections by understanding trends in customer payment patterns will help you collect as many dollars from your purchases as possible on a timely basis.

assignment Activity 4. Discuss how organisations are financed by comparing and contrasting financing options to recommend a course of action.

Organizations are usually financed by private investment, government grants or loans, individual donations or targeted or unrestricted gifts from outsiders.

Private investment may increase the risk and decrease liquidity for a company, but it can also lead to higher returns and expansions.

Government grants and loans can be used even by start-up industries, but they typically come with conditions of repayment. Individual donation options offer no control over how the funds will be used but still help drive successful outcomes.

Targeted gifts might include funding scholarships or medical research respectively while unrestricted gifts allow flexibility of use with donors’ intent considered at a later date.

This article goes into more detail on financing options if you want to learn more about each option.

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assignment Activity 5. Identify and explain basic financial risks and risk management concepts through a discussion of the principles of capital structure and cost of capital.

Risk and risk management is crucial in the world of finance and banking. A key to knowing how safe your account has been managed is by examining the bank’s loan-to-deposit ratio.

This ratio calculates the proportion of funds a bank has lent out versus deposited with them, and it’s ideally below 90%.

It means that at least 10% of the funds are backed up by deposits, with little risk for heavy withdrawals from customers who would want to withdraw their money once there is news about a potential financial turmoil.

Risk comes in many forms. For example, when you move your money from one security to another, that is called a market risk.

We take other risks like credit risk and country risk too – the chance of government intervention or expropriation can happen.

Liquidity risk happens when people with money leave the bank quickly without warning us first. Operational risks are also a type of risk, and this includes cyber fraud for instance.

There are two types of risk: business risk and financial risk. Business risks are the operating risks that a company faces as it does its day to day operations, for example making widgets.

Financial risks are the allocation of resources to do investments or take on debt in order to fund future operations.

The various types of capital structure decisions (debt vs equity financing) is an important topic for financial managers with implications on cost of capital.

The commonly-used formula for calculating cost of capital is the weighted average cost method, which factors in not only pricing considerations but also time value considerations when determining a company’s overall risk level and therefore what rate it should be charged.

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assignment Activity 6. Apply business finance knowledge to a given situation and provide recommendations.

Cash flow is the amount of money that comes in and goes out. You need to know your cash flow because it tells you how much money you have in the bank.

Investments are for when you make money. There are two types of investments: those that cost less than what they make and those that cost more.

Small businesses need to pay attention to these changes because they may not have the resources like bank loans or credit lines to act on them quickly.

Cash management is when you know how long your cash will last. If you wait too long, you will not be able to pay people who work for you.

A financial snapshot is a way of seeing the state of your company’s cash at certain points in time, such as daily.

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