Budget Report for Hamble Ltd: Cash Budget, Sources of Finance, Financial Ratios, Flexible Sales Budget, and Factors Affecting Demand

This report provides insights into the budget report for Hamble Ltd, including cash budget, sources of finance, financial ratios, flexible sales budget, and factors affecting demand. It also includes a comparison of financial performance between Norwich Ltd and Salford Ltd.

Budget report

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
PART A......................................................................................................................................3
1. Cash Budget.......................................................................................................................3
2. Examining the cash budget................................................................................................3
3. Sources of finance available to Hamble Ltd......................................................................3
4. Raising finance through the issue of shares.......................................................................4
PART B......................................................................................................................................5
1. Computation of financial ratios..........................................................................................5
2. Analysis of the ratios..........................................................................................................6
PART C......................................................................................................................................7
1. Flexible sales budget for quantities of 200,000 units and 300,000 units...........................7
2. Factors contributing to increase or decrease in demand....................................................7
CONCLUSION..........................................................................................................................7
REFERENCES...........................................................................................................................8

INTRODUCTION
For every business organization, the preparation of the budget report is vital and is
very crucial for managing the funds of the organization. It helps in dealing with the money of
the business adequately. This report gives a comprehension about the kinds of examination
which are completed for taking business choices with respect to Hamble Ltd.
PART A
1. Cash Budget
2. Examining the cash budget
It can be analyzed from the above that the company should look at its sales as in
May month, it has declined sharply and in addition to this, the expenses incurred are also high
which has led to affecting the cash flow of the business. Hamble Ltd can effectively manage
its cash flow position through the way of handling the cost in respect to the payment made to
the suppliers as it will help in reducing the negative effect it has on the cash inflows. Apart
from this, can also try to received payment from its debtors on credit sales by implementing
attracting strategies or discounts which will help in generating more cash inflow.
3. Sources of finance available to Hamble Ltd
Source of finance Advantages Disadvantages
Personal investment  It generates no debt
obligation.
 Usage of personal
savings might result

 There is no
requirement to pay
any bank charges or
interest.
 It generates no
obligation for the
owner.
into the situation of
out of money for
meeting personal
requirements.
Retained profits  This is set aside for
the business needs
only.
 There is no need to
pay it back.
 After using it, there
is no way to recover
it back.
Government subsidiaries  This is a quick and
easy mode of
gathering money
(Amornkitvikai and
Harvie, 2018).
 It offers better
interest rates as
against the bank
loans.
 The businesses might
not be able to secure
high amount of fund.
Bank Loan  It can be accessed
quickly.
 Business can take
huge amount of
money at a time.
 It might attract
higher interest rates.
 Getting bank loan
may be difficult for
new or loss-making
entities.
Venture capitalists and
business angels
 In this, large amount
of fund can be
raised.
 It also offers advice
and consultancy as
well.
 The owner might
give away a share of
the entity.
 They might have
different vision in
contrast to the
business.
It is highly recommended to Hamble Ltd to use a combination of both bank loan and the
Venture capitalists and business angels since it offers valuable guidance and direction for the
running the business effectively.
4. Raising finance through the issue of shares
Advantages
 There is no need to repay shareholders amount.
 Huge amount of fund can be raised.
 The company can pay dividend only when it generates enough profits.
 It has high liquidity.

 In case of rational dividend policy, then it will consequently lead to creating huge
reserves pertaining to its developmental program.
Disadvantages
 It requires lot of formalities and is a time-consuming process.
 It requires incurring various costs in respect to issue.
 It results into selling its ownership.
PART B
1. Computation of financial ratios
Profitability ratios Norwich Salford
Gross profit margin (
Gross profit x 100
Sales revenue
)
27.6% 19.7%
Operating profit margin (
Operating profit before interest and tax x 100
Sales revenue
)
15.0% 6.1%
Return on capital employed (
Operating profit before interest and tax x 100
Capital/Equity + non-current liabilities
)
67.1% 138.4%
Asset turnover (
Sales revenue
ASSETS
)
3.30 2.43
Efficiency ratios - Days Nor
wich
Salf
ord
Inventory days (Average Inventories (Open Inv +Clos Inv)/2 x 365
Cost of sales) 78 99
Receivable’s collection period (Trade receivables x 365
Sales revenue) 32 65
Payable’s payment period (Trade payables x 365
Purchases) 26 34
Working capital cycle = Inventory turnover (DAYS) + receivables collection
period (DAYS) – payables payment period (DAYS) 84 129
Liquidity ratios x:1 Norwich Salford
Current ratio (Current assets
Current liabilities) 3.83 3.60
Acid test (Current assets – inventories 1.39 1.62

Current liabilities)
Gearing Norwich Salford
Gearing ratio ( Non-current liabilities
Capital/Equity + non-current liabilities 3.3% 42.7%
Interest cover (Operating profit before interest and tax
Interest payable (or finance charges)
62.60 6.35
2. Analysis of the ratios
Profitability Ratios:
In regard to the profitability ratios, the Norwich is having very sound position in
contrast to the Salford (SUTHAR, 2018). This is mainly due to reduction in cost of goods
sold even though the revenue of Norwich is lower than that of Salford.
Efficiency ratios:
On account of efficiency ratios, every one of the proportions were extremely strong
for Norwich which has subsequently led to the lower working capital cycle. Then again,
Salford is getting the cash from its receivables exceptionally late and is additionally making
early installment to its providers which isn't suitable. This has influenced the working capital
pattern of the Salford which is exceptionally high.
Liquidity ratios:
The current asset and acid test ratio of both the companies are good but slightly high
(Endri and et.al., 2020). This is because company has effectively managed its current assets
against its liabilities.
Gearing ratios:
The gearing ratio of Norwich is very less and favorable in comparison to the Salford
and also the interest coverage ratio is also good which highlights its capability for meeting its
interest obligations on time.
Thus, from the above it can be concluded that Hamble Ltd should make an
investment into Norwich Ltd as the financial performance and position of it is good.

PART C
1. Flexible sales budget for quantities of 200,000 units and 300,000 units
Budget Budget for
200000
units
Budget for
300000
units
Production (units) 2,50,000 2,00,000 3,00,000
£/unit £s £s £s
Sales Revenue 13 3250000 2600000 3900000
Less: Variable produce costs 3.5 8,75,000 7,00,000 10,50,000
Less: Variable production
overheads 0.6 1,50,000 1,20,000 1,80,000
Less: Fixed production costs 7,00,000 7,00,000 7,00,000
Less: Fixed administration costs 11,60,000 11,60,000 11,60,000
Profit 3,65,000 (80,000) 8,10,000
2. Factors contributing to increase or decrease in demand
Factors for increasing/decreasing demand
 Pandemic can be the reason which has resulted into increase in the demand.
 For the 250000 units profit is average, product quality can be the reason for the
increase in the demand.
 The decline in the wrong estimation of the sales and cost might be the reason for the
less demand.
CONCLUSION
It can be inferred that the Hamble Ltd should make an investment into the Norwich
Ltd as it is performing better than the Salford Ltd. Also, flexible budget is being prepared
under different units. The cash budget has helped in determining the cash position of the
business.

REFERENCES
Books and Journals
Amornkitvikai, Y. and Harvie, C., 2018. Sources of finance and export performance:
Evidence from Thai manufacturing SMEs. The Singapore Economic Review. 63(01).
pp.83-109.
Endri, E., and et.al., 2020. Financial performance evaluation: Empirical evidence of
pharmaceutical companies in Indonesia. Systematic Reviews in Pharmacy. 11(6).
pp.803-816.
SUTHAR, K., 2018. Financial Ratio Analysis: A Theoretical Study. International Journal of
Research in all Subjects in Multi Languages, Gujarat, India.