Managing Financial Resources and Decisions - Life Mimetics Company - Case Study Example

LIFE MIMETICS LTD Name Class Instructor Institution City State Date LIFE MIMETICS LTD Introduction Life Mimetics company has three sources of income including the testing, research and presenting to the market a wide range of medical devices. The sales of the devices as well as getting research contracts for the government organizations such as businesses and universities. The company gets further funding from other stakeholders for instance investors and capital funds in the healthcare sector. Finance and Opportunity Costs From the Life Mimetic balance sheet as at 31st December, the financial statement reveals that there are payables that are constituting a large proportion of the financial costs. In essence, opportunity costs should be given consideration to minimize the cost of running a business. In financial terms, opportunity costs are the best choices that should be chosen in order to utilize the limited resources effectively. (Askew, 2011) In this case, If Life Mimetics issues a 5m ordinary share to a new investor, at an offer price of 1.50 pounds, it cost of investment will be put at risk. However, with the recent growth in sales, the financial implication will be beneficial to the company as it will bring in profit in a span of 5 years. Similar, the benefit that is forgone is less than the actual sales, and the rate of gross profit is expected to hit 45% with product sales estimated to increase by 80% per annum. The tax implication is that over the next five years, and the income tax will increase given the fact that a 5m pound amount will be retrieved from sales in the same period. Contrary to this, the company's nature of the healthcare, medical and government sector, Life Mimetics is bound to receive tax incentives or subsidies since the government would like to keep healthcare accessible. (Askew, 2011) On the other hand, a long-term ten years financial bond of 5m that is paying 8% per annum with a value of 1 pound at an offer price of 0.80 is financially beneficial to Life Mimetics. Given to an existing investor, there is an allowance for him to convert the bond to ordinary shares. This can be costly for the company as the tax regulations stipulate that Life Mimetics might still continue to service the tax. However, the implication would be on financial costs because much of the income tax will be shared between Life Mimetics and the investor. In the case where the investor decides to opt out then the company may risk some of its shares thus ending up in a loss. The non-financial costs of terminating three research scientists will be costly to the company as a research industry. To find other workers with the same experience will be costly both financially and non-financially. Considering this as an opportunity cost would be detrimental to the company because the human resource is the most crucial part of the medical research business. Any tax implications are minimal for the case of firing three research scientists. (Askew, 2011) Importance of Financial Planning Life Mimetics Ltd financial planning provides management with the primary benefits that are essential to the company's operations. By monitoring the cash flows, it will give the management an overview of spending and expenses patterns. Mainly, planning of tax expenditures helps to provide the control with the making of proper financial decisions. The choices include pricing, costing and budgetary decisions that are either long term or short term. The accounting rate of returns and payback periods will be decided by the management, including unit cost calculation. The administration of Life Mimetics will also agree on forming a desirable cushion in the form of assets due to the well structured financial planning reports. The investment opportunities for the companies will be given consideration by the management, keeping in mind the role of savings in the growth of the enterprise. Decision Makers The key decision makers are the stakeholders and leaders of Life Mimetics. In the first instance, investors are important decision-makers who exchange the funding of the company with ownership. The things that an investor does directly affect the direction of the enterprise. Similarly. The other decision-making section arm is the direct management that includes the management and key executives such as CEOs and directors. (Justin, 2009). Basic Information Requirements of Stakeholders Life Mimetics Ltd must provide and present all corporate and financial information of the business. The rationale behind this is the information is used by the investors to discover the type and amount of securities they are dispatching. The information presented help in the interpretation of the securities. Furthermore, the information will be used by the investors to describe the problems that are affecting individual securities therefore making the decision to make larger investments. With the given amounts of securities that the investors supply, it is natural to receive the same measure of information for the returns that they can expect. The information is usually involved and needs to be broken down to enable the investors to receive granular reports. Impact of Financing Activities Financing activities is usually the last section in the cash flow statement, and it documents the cash flows that result from financing activities of the company. The creditors and owners of the sources of income are usually stipulated in the form of cash flows. Some examples of financial activities include the issuance of bond, redemption of the bonds, treasury stock or obtaining of funds from investors. Example: The following cash flow information belongs to KLM company: Liabilities and Stockholders’ Equity: 2013 2012 Accounts payable 66,000 80,000 Bonds payable 220,000 300,000 Common stock 440,000 120,000 Retained earnings 412,000 272,000 Total 1,138,000 1,138,000 1. Financing activities usually impact the financial statements in how they treat the debt and dividends on stock. The reports of the economic activities are a statement on how they affect the cash at hand. In the IFRS policy and regulations, businesses can treat both the financing activities and cash flows, and they must be stipulated from one financial period to the other. (Justin, 2009).There are other economic activities that do not have any impact on cash, and they are denoted as non-cash financing activities. Conclusion Financing to a business is quite critical to the success of any company as noted in the discussion above for the case of Life Mimetics Ltd. It offers a cushion to the running of the business in addition to the enterprise's assets. According to Justin, financial planning is imperative to all the stakeholders and should be regulated, to provide standard financial reporting. There are various bodies that offer the policies in financial statements such as the IFRS and the US GAAP. Furthermore, from the case of the accounts payable, it can be constituted in the calculation of the funds that are taken to the suppliers and can be documented in the cash outflow. (Justin, 2009). References Askew, D. (2011). Financial statements in Business: Taxation Law. Acton: Australian National University. Justin A. (2009). Principles of Financial Statements ( Rock view Review). Task group, 8. Read More