Various Kinds of Resources of LIDL

TASK 3

P4 Sources of internal and external finance

In order to run a business properly, a company requires money in a sufficient manner. The term finance entails the management of a desired amount of money and allocation from different sources (LIU and YAN, 2015). For instance- If an organisation sells its products or services to people then they are considered as a source of obtaining finance. It can be distinguished in two broad terms that are:-

Internal Source of finance: Rather than induce loans from banks and investors, a company can get necessary funds from internal sources i.e. use its own money for financing operations. In context with LIDL, this kind of finance helps in saving money on payments of interest or getting free from being accountable to investors. It uses the following sources to generate finance in business-

• Retained Profits: This source is used by such companies that operate business on a large level with shareholders and stock. They used to recycle profit as working capital instead of using the same for paying it as dividends.
• Sale of Assets: In this context, the management of LIDL can sell such assets to other companies like machinery, equipment, transport and more which have no use in business. It will help to cover a cash-flow emergency in quick manner.
• Reducing working capital: It is a type of strategy used to manage available cash in an adequate manner. Under this context, employers used to be more on longer payment terms rather than shorter billing items so that funds could be received faster.

External Source of finance: It states the process of arranging funds from outsiders rather than retained earnings from the internal activity of business (Xie-Kui and Dan, 2015). This source of financing can be segregated on the basis of long-term and short-term purpose that are-

• Long-term source: It includes equity shares, debentures, term loan, preferred stock, venture capital, leasing and hire purchasing. For big enterprises like LIDL, equity shares and debentures are considered as common source but costly as compared to finance on debt. Hire purchase is normally provided by suppliers to buyers with an alternative to buy assets of the company at the end of its term.
• Short-term sources: Bank overdraft, trade credit, factoring in debt etc. are defined as short-term sources of finance. As companies are required money for day-to-day operations in which requirement of cash is generated due to a gap between collection and payments. Therefore, to fulfil this gap, the management of LIDL used to take bank overdrafts. While trade credit is given by suppliers or creditors which allows a firm in delaying its payment for certain period of time (LIU, SU and QI, 2012).

P5 Interpretation on contents of a balance sheet, trading and P&L account 

Interpretation: From this financial statement, it has been interpreted that LIDL Company as compared to last year, has not achieved much success in terms of sales performance and revenue.

TASK 4

P6 Use of budget for financial control

A budget in a firm provides a road map which describes the entire detail of estimated outcomes through which the manager of a firm can make decisions as per set goals (Junyi, 2014). It helps in three main aspects of business that are:

Planning: When a budget reflects expected sales in a certain period then the manager can analyse the costs of the same and determine resources or raw materials needed for that. For instance- if sales of a business are increasing 4% over budget for a specific time then management can add this in further calculation.

Forecasting: The budget of the previous financial year helps managers prepare a budget for the following year by applying strategies that were helpful in the last year for gaining profitability.

Continuous improvement: With the weekly performance of the business in terms of sales, managers can evaluate ways through which improvement may be done (Chen, Nasongkhla and Donaldson, 2015). Budget helps them in providing clues as to where they need to concentrate more to improve financial performance.

P7 Financial State of LIDL

This statistic reveals the profit gained by LIDL from 2014 to 2017. It shows that the operating profit of this company dropped continuously i.e. amounting to 68 million euros in 2017 which was nearly about 2 million euros less as compared to 2016.

CONCLUSION

It has been concluded from this report that behind the success of every organisation, management plays an important role who helps in allocating different resources as well as managing them in a proper way. It includes human, physical, technological and other non-financial resources which have played different role in the operating functions of business. Along with this, financial resources are considered as the most essential initiatives without which the entire functions of a company cannot operate. So, various kinds of financial sources are also described in this assignment.

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