The Art of the West and Dunges

Task B

Sources of finance

There are other sources of finance available to aquamarine power limited other than using a grant funded by the Scottish government. One of the sources they could use would be Hire Purchase. This would allow them to purchase items by only paying a deposit for the item and the rest would be paid for with instalments. There are many advantages to doing this for example they would receive the item immediately without paying in full, the cost of the item is spread which may make it more affordable, and the item would be owned by aquamarine power limited after the final instalment is paid. There are disadvantages to this source of finance, the interest accumulated on the item could make it expensive and the item is not owned until all payments are made.

An alternative method that Aquamarine Power Limited could use to finance their operation could be a bank loan. This would allow aquamarine power limited to borrow a large amount of money for their project that would be repaid over a period of time. Using this source of finance would allow them to budget and plan for current and future projects, whilst having the benefit that the loan would be repaid in instalments. The disadvantages to taking a bank loan would be, the interest rate on the loan may be high, and the interest is paid back on top of equity borrowed. Also, the more money borrowed the higher the instalments are going to be and these must be made instantly.

Financial Statements

Aquamarine Power Limited are required to produce a set of financial statements (final accounts) each year. The records have to be created to give information on all of the financial transactions carried by aquamarine power limited. The most common financial records used by businesses are, Cash flow statement, income statement, and a statement financial position, together these make up the annual accounts (final accounts). In order that the information in these records can be reported in a recognisable way items that are similar are grouped together in the financial statements. These statements would allow aquamarine power limited to see exactly what is coming in and out of their business and would also show fixed and current assets as well as current and non-current liabilities. It has to be noted that as soon as these statements are produced the information contained in them is no longer accurate as it is historic.

Accounting Ratios

One accounting ratio Aquamarine could use to help analyse its financial position is Gross profit percentage. This ratio shows how effectively a business has controlled its cost of goods it also measures how well a company manages its expenses relative to its net sales. To calculate the Gross profit percentage, Gross profit is divided by sales and then multiplied by 100. The gross profit ratio will change if the selling price of goods change or the cost price of goods change. The profit margin ratio directly measures what percentage of sales is made up of net income. In other words, it measures how much profits are produced at a certain level of sales.