Contents

Task 1: Explain the importance of financial planning in a business. ................................... 2

Task 2: Prepare a report to identify and evaluate the sources of finance available to
DRC. ............................................................................................................................................... 4
1. Sources of finance of DRC ............................................................................................... 7
2. Cost of Finance Sources.................................................................................................... 9
3. Implications in terms of legal and financial aspects in issuing debt and equity to
raise funds ............................................................................................................................... 10
Task 3: Explain the impact of finance on the financial statements ..................................... 10
The interaction of assets, liabilities and equity/capital on the balance sheet ........ 10
How different types of finance and their costs appear in the financial statements
of a business ............................................................................................................................ 11
Bibliography ............................................................................................................................... 12

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Task 1: Explain the importance of financial planning in a business.

Financial planning is critical to business success. Without it, the business will not know if their
business is profitable. Below will shows 10 important reasons why a business needs to make
financial planning (Clark, 2016):

1. A business is more likely to fail without a financial plan. A lack of financial planning is one
of the main reasons why young businesses fail, whether it’s being caught out with cash flow or
overestimating their revenue.

2. It can help with everyday costs. If a business has a plan already, they can see how much they
can afford to spend on every day extras, for example how much expenses they can give employees
and training budgets they can set aside. This will help their business to run more smoothly in the
long-run.

3. It can help them focus on the future of their business. It’s easy to lose track of the long-term
view of their business when they have so many immediate pressures at hand. A forward-looking
financial plan can help they see what expenditures need to be made to grow their business in the
long term.

4. They probably won’t be able to access financial support without one. Lenders will not
consider their business viable for a loan or other financial assistance if you don’t have a sound
financial plan in place, complete with a balance sheet, income statement and cash flow forecast.

5. It can help with their marketing decisions. A financial plan will provide them with the
information they need to know if the strategies they’re putting into place are actually delivering
increased revenue.

6. It can quickly identify a financial downturn. If their revenue is lower than they forecast, they
can focus on sales and marketing to try and increase it. Or if their overheads are coming in higher
than expected, they can take steps to reduce them. By reviewing their financial plan regularly, they
can address any issues straight away, rather than being caught out by bigger problems down the
line.

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7. It can measure their progress. Is their actual revenue better than what you forecast? Seeing
how their business is achieving profit growth in black and white is a great motivator.

8. It can help you prioritize spending. Ready cash is vital to the success of small businesses. The
financial planning process can help you to identify their most important expenditures against those
that can wait until their cash flow is better. It’s a common mistake for small businesses to
underestimate the ready money they need to keep their business running — a mistake that
unfortunately leads many businesses to falter before they really have the chance to get up and
running.

9. It can spot sales trends - and enable you to capitalize on them. Are certain products
delivering higher returns? Or others less so? With accurate sales records as part of their financial
plan, you can identify their best – and worst – performing products and market them accordingly.

10. It will help you better understand their bottom line. Bringing in tons of money won’t matter
if their expenses are almost as high, or even higher. Their business success is down to profit, not
revenue. A financial plan can clearly document their net profit, and help you identify ways in
which you can increase it.

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Task 2: Prepare a report to identify and evaluate the
sources of finance available to DRC.

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Prepare by: Bruce

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 • About us:

Formerly, originated from an American military retreading factory, Danang Rubber Joint Stock
Company (DRC) has been continuously developing for 35 years.

Located around 5km far from Danang International Airport and 10 km far from Tien Sa sea port
DRC has a favorable location in the international and international trade.

Human resource is the important factor to bring the success to DRC as current. The experienced,
dynamic board of management helps the company have many years of development. The team of
skillful, creative, professional engineers and management staffs has been sent abroad for further
training for long service at the company. All of the staffs are always united, self-confident and
responsible for their own work.

The company always focuses on updating information on machinery and equipment to invest and
improve the quality. Quality management system ISO 9001 helps DRC products have high
reliability. DRC tires have been being used by customers due to high performance on heavy load,
high abrasion resistance, long endurance and good warranty service.

For more than 35 years of development, we have established a strong distribution network in
Vietnam nationwide. DRC’s distributors with much year experience have good link, cooperation
for common development and long term. Currently, many customers rely on DRC products such
as Truong Hai Automobile Company, Hyundai Motor Company, TMT Company, Vietnam Coal
and Mineral Group, many transport and coach companies all over the country. In addition, DRC
has many foreign trustful customers in Asia, South America, and Europe…

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With its flexibility and creativity, DRC has created a competitive advantage in the market. With
the high and constant growth over last years and today, DRC occupies the top market share of
truck tires in Vietnam.

With advantage of dynamic and responsible staffs, big market share and with close guidance from
Vietnam National Chemical Group, DRC is currently investing in a new production plant of All
steel Radial Truck tires TBR with capacity of 600,000 tires per annum. This is a large scale,
modern technology plant located in Lien Chieu Industrial zone in Danang to meet the accelerated
strategy of the company.

1. Sources of finance of DRC

This project require up to VND 22.5 billion, of which DRC plans to self-fund by 30%, it means
the rest 70% DRC must get from another sources to have enough money for the implement of the
project.

There are many sources of finance fit the purpose of DRC.

• Business owners:

This is the amount of money comes from business owners that they can invest in the project. With
30% of 22.5 billion, it will not be enough for operating the project, but it helps reduce the burden.
DRC owners can only contribute money in their abilities, because if they put too much money into
the projects, that would not be smart because it will decrease the profit.

Advantages
They will not have to pay any interest rate.
Investments can be a source of further
earnings if they increase in value and pay
dividends
Disadvantages
The amount of money put in will just a part of
the amount they need.
Reduce retained earnings.
Expand the time to recover the capital.

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 • Bank loans:

This is one of the ways many companies apply as a source for getting capital. Bank loans are
available to finance the purchase of inventory and equipment as well as to obtain operating capital
and funds for business expansion.

Advantages Disadvantages
Banks do not take any ownership position in They are very difficult to obtain
businesses.
Interest rate does not change during the Interest rates for small-business loans from
course of a loan banks can be quite high
It is a safe way for growing capital
Can borrow a huge amount of money

• Issuing new shares:

DRC can issue new share for investors to buy their shares.

Through the research, current share of DRC is about 30,000VND (CTCP Cao Su Đà Nẵng, 2017).
DRC can issue more than 700,000 shares into the market to raise capital.

Advantages Disadvantages
Increase credit rating and make it easier to DRC will lose some ownership position in
borrow money in the future businesses to the shareholders.
Pay dividends

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 • Issuing bonds:

This is a way of borrowing money from the investors interest in exchange for using their
money. That interest is tax-deductible as an expense for the company.

Advantages Disadvantages
It is easier for borrowing from investors than The company must pay interest payments on
banks. time to bondholders
Bondholders don't own a piece of the business They increase the amount of debt the business
and they don't participate in decision-making show on their books
of the company.
The company will need to maintain a good
credit rating if they want to issue bonds in the
future. Otherwise, they could have to offer
high interest rates to attract investors.

2. Cost of Finance Sources

• Cost of issuing new shares:

- Dividend cash: DRC must pay the shareholders by cash which is drawn from profit of the
company.
- Scrip dividend: besides paying shareholders by cash, DRC can pay dividends by shares.
It will reduce the money they drawn out.
• Cost of bank loans:
- Interest rate: Vietnam interest rate is now 6.5%. When borrow money from the bank,
DRC must pay 6.5% of the amount of money they borrow.
- Tax: Vietnam tax is currently 20%. However, when DRC borrow money from banks, the
tax will be reduced. They no need to pay more for current tax in Vietnam

(Media, 2010)

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 3. Implications in terms of legal and financial aspects in issuing debt and equity to raise
funds

DRC are required that they must comply with the law and regulation when they issue new shares
or debts to raise funds which is Law on securities.

When issue share, DRC must have 10 billion VND on their capital (Article 12) and their business
activities must have profitable.

Task 3: Explain the impact of finance on the financial statements

➢ The interaction of assets, liabilities and equity/capital on the balance sheet

A company's balance sheet is comprised of assets, liabilities and equity. Assets are the things of
value that a company owns and has in its possession, or something that will be received and can
be measured objectively. Liabilities are what a company owes to others, like creditors, suppliers,
tax authorities, employees, etc. They are obligations that must be paid under certain conditions and
time frames. A company's equity represents retained earnings and funds contributed
by shareholders, who invest for a good return on their investment.

The relationship of these items is expressed in the equation:

Assets = Liabilities + Equity

The most important feature of the balance sheet is balance: The total amount of assets and the total
amount of liabilities and equity at any given time is always the same. During the operations of the
business, financial activities occur regularly, diversely and abundantly, causing changes in the
value of assets, liabilities and equity presented on the balance sheet but without losing the balance
of the balance sheet, that balance between assets and capital is always respected.

Generally, sales growth, whether rapid or slow, leads to a larger asset base, which means higher
levels of inventory, receivables and fixed assets (plant, property and equipment). Whether a
company's assets grow, its liabilities and/or equity also tends to grow in order for its financial
position to stay in balance.

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➢ How different types of finance and their costs appear in the financial statements of
a business.

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Bibliography
Clark, D. (2016). 10 Reasons Why Financial Planning Is Essential for Small Businesses.
Retrieved from Small Business Bonfire: http://www.smallbusinessbonfire.com/small-
business-financial-planning/

CTCP Cao Su Đà Nẵng. (2017). Retrieved from Viet Stock: http://finance.vietstock.vn/DRC-

ctcp-cao-su-da-nang.htm

Media, B. L. (2010). Finance as a source. In B. L. Media, Managing Finance (pp. 49 - 50 ).

London: BPP Learning Media.

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