Different Aspects Associated with Managing Working Capital and Cash Flows | Business Finance

Running head: BUSINESS FINANCE
Business Finance
Name of the Student
Name of the University
Author’s Note

1BUSINESS FINANCE
Table of Contents
Part 1..........................................................................................................................................2
Executive Summary...............................................................................................................2
Answer to [i]..........................................................................................................................3
Requirement [a]..................................................................................................................3
Requirement [b].................................................................................................................3
Requirement [c]..................................................................................................................4
Answer to [ii].........................................................................................................................5
Answer to [iii]........................................................................................................................5
Part 2..........................................................................................................................................8
Executive Summary...............................................................................................................8
Answer to [i]..........................................................................................................................9
Purpose of Budgeting.........................................................................................................9
Traditional Budgeting........................................................................................................9
Rolling Budget.................................................................................................................10
Zero-Based Budget (ZBB)...............................................................................................10
Activity-Based Budget (ABB).........................................................................................11
Answer to [ii].......................................................................................................................11
Answer to [iii]......................................................................................................................12
References................................................................................................................................14

2BUSINESS FINANCE
Part 1
Executive Summary
The main aim of this part of the report is the analysis of different aspects associated with
managing working capital and cash flows. Analysis displays that there is a difference
between profit and cash flows as business is adequately profitable does not always means that
it has adequate cash inflows. Managing working capital includes proper management of its
main components such as inventories, receivables and payables. Since cash conversion cycle
that is a part of cash flow in connected with managing working capital, changes in working
capital affects cash flows. Companies are needed to effectively manage the components of
working capital for better management of cash flows.

3BUSINESS FINANCE
Answer to [i]
Requirement [a]
Profit which is also called as net income refers to the part that remains from sales after
the payment of all expenses. It is not possible for a business to survive unless it is profitable.
On the other hand, cash flows can be regarded as the money that flows out and in the
company from three core activities which are operating, financing and investing. This is the
money required by the businesses for meeting current business obligations.
As per the above discussion, profit and cash flows are two separate financial
parameters having significance in running a business. The definition of profit can be provided
as sales revenue less expenditures; and outflows and inflows of cash of a business is
considered as cash flow. Therefore, these two parameters are different from each of them.
There is not any immediate increase in cash due to earning revenue; and there is not always a
decrease in cash due to incur an expense. It indicates towards the notion that being profitable
does not mean that a firm automatically have sufficient cash flows (Aktas, Croci and
Petmezas 2015).
Requirement [b]
Working Capital – The definition of working capital can be given as current assets as
current liabilities. A net investment in the short-term assets is represented by working capital.
Continuous inflows and outflows of these assets can be seen in the businesses for continuing
the day-to-day business operations. Variation in the components of working capitals can be
seen in different industries; and there is interrelation in various elements of working capitals.
Receivables – Selling goods or services to the customers on credit leads to the generation of
receivables as the dues from these customers will be received by the company. Key