Budget Report: Analysis, Financing Sources, Ratio Calculation, and Conclusion

This report analyzes the budget of Hamble Ltd., a food packaging and distribution company, including financing sources, ratio calculation, and a conclusion. It discusses the company's performance, funding options, and financial ratios. The report also compares two companies and suggests acquiring Norwich Ltd. It concludes with a flexible budget and the impact of the pandemic on demand.

Budget Report

Table of Contents
Introduction-................................................................................................................................................3
Part-A-.........................................................................................................................................................3
Part-B-.........................................................................................................................................................6
Part-C-.........................................................................................................................................................7
Conclusion-.................................................................................................................................................8
References-..................................................................................................................................................8

Introduction-
In this report, Hamble ltd. is analyzed. It is a food packaging and distribution company. It is
operated across London and south east of England. Company wants to expand its business in one
year. Company wants to acquire an existing business that operated in south east of England and
midlands. In this report three scenarios are discussed. In first report company’s budget report is
produced and there is in depth discussion over that. Various funding options that can company
adopt are evaluated. In second scenario financial ratios are calculated and financial performance
of two companies is observed as company wants to acquire an existing business. In third scenario
it is observed that why there is decrease in consumer demand due to pandemic. What
improvements should be done by company to increase sales.
Part-A-
(1) Budget Report-
Budget Report
Months April May June July August September Total
Income
Credit Sales 9500 8000 6000 11000 12350 14000 60850
Cash Sales 600 620 900 500 350 800 3770
Cash in hand 90 90
Total income 10100 8710 6900 11500 12700 14800 64710
Expenses
Credit Purchase 5800 8000 8700 6300 5200 5000 39000
Borrowings 1000 1000
Over heads 2200 2200 2200 2200 2200 2200 13200
Current Liabilities 100 100
Delivery Vehicles 1250 1250
Total Expenses 8000 10300 12150 9500 7400 7200 54550
Total Income 2100 -1590 -5250 2000 5300 7600 10160
(2) Discussion of budget report-

From the above budget report it can be observed that in the month of May and June Company
did not perform well but in the other months company performed well because there is a positive
cash flow. In the month of May and June Company suffered losses because of more liabilities.
Company should focus on reducing its liabilities. Company’s total income is 64710 and total
expenses are 54550. It means more expenses are affecting the company’s total income.
In the month of May, Company needs to pay its current liabilities and in June company has
expenses related to delivery vehicles. Company has policy of replacing delivery vehicles in every
2 years. This expense causes loss in June. Company faced losses in month of May so in next
month company should be focused on decreasing the liabilities. Company’s changed focus
instead of decreasing liabilities, company replaced delivery vehicles which is an additional
expense for the company. In august and September, company performed well when it is
compared to other months.
(3) Financing Sources-
Company can finance itself with various sources which are as follows-
Bank loans-
Company can take loan from bank in order to raise finance. Banks offers many advantages to its
customers. Main advantage is company does not need to share its profit with bank. There is tax
benefit given by government on the loans which are taken for business purpose.
Personal Investment-
Personal investment’s main advantage is that company has long term commitment to project and
it is ready to take risk. If risk of the project is higher then, return will be higher. There is
disadvantage also that if company faces project failure then it will be facing losses.
Venture Capital-
It is a financing tool for company. Wealthy investors like to invest in company for long term
growth. Main disadvantage is that ownership of founder is reduced. Financing cost is expensive.
Government Subsidiaries-

Government also provides financing to the businesses but company should meet all the criteria
for that. Government offers better interest rates that is an advantage but these loans are not
enough to secure the level of funding.
Angels-
These are the wealthy investors who directly invest in the company which is owned by others.
There is no need for company to return back the invested capital if business fails. Disadvantage
is if business is sold then angel investor wants their profit portion.
From the above analysis, it can be said that company should find its angel investors who can
invest in business. It is not risky.
(4) Raising finance through issue of shares-
Advantages-
 Liabilities can be avoided by issuing shares to the investors. Those liabilities are-
 High interest rates on loan
 Obligation to direct revenue toward loan payment
 According to investors point of view it makes the business less risky.
 It has very high liquidity.
 It helps in attracting investors.
Disadvantages-
 When share are issued, it means company is selling its ownership. It is also known as
diluted ownership.
 Control over company is reduced.
 There is legal risk involved in issuing shares.

Part-B-
1. Ratio Calculation-
Financial ratios
Norwich
Ltd.
Salford
Ltd.
Liquidity Ratio
Current Assets 2020 4427
Current Liabilities 527 1230
Current Ratio=current assets/current liabilities 3.833017078 3.599186992
Quick Assets 730 1990
Current Liabilities 527 1230
Quick ratio = Quick Assets/current Liabilities 1.385199241 1.617886179
Profitability Ratio
Gross Profit 2300 2220
Revenue 8320 11250
Gross Profit Margin = gross profit/revenue*100 27.64423077 19.73333333
Operating profit 1252 685
Revenue 8320 11250
Operating Profit margin = Operating
profit/revenue*100 15.04807692 6.088888889
Net Profit 1170 585
Revenue 8320 11250
Net Profit margin = Net profit/revenue*100 14.0625 5.2
Efficiency Ratio
Revenue 8320 11250
Total Assets 2522 4625
Asset turnover ratio=Revenue/Total assets 3.298969072 2.432432432
Equity 1930 1945
Net income 1170 585
Return on equity= Equity/net income 1.64957265 3.324786325
Solvency Ratio
Debt 592 2680
Equity 1930 1945

Debt-Equity Ratio= Debt/Equity 0.306735751 1.377892031
Debt 592 2680
Total Assets 2522 4625
Assets-debt ratio= Debt/ Total assets 0.23 0.57
2. Ratio analysis-
Liquidity ratio- From the above table it can be observed that liquidity of both the companies is
quite good. Both the companies are not using their assets properly. This is the main reason
behind high current ratio and quick ratio.
Profitability Ratio- When it comes to profitability, Norwich performed extremely well when it
is compared to Salford ltd. Norwich has higher profit margin than Salford.
Efficiency Ratio- When efficiency of both the companies are compared. It is observed that
Norwich ltd. is more efficient than Salford. Asset turnover ratio of company is higher than 2.5 it
is a good sign for company.
Solvency Ratio- Solvency of both companies are compared and it is observed that Norwich has
less liabilities than Salford. It indicated that Norwich is performing better than Salford ltd.
From the above analysis, it is observed that company should acquire Norwich ltd. because
company’s financial performance is better than Salford ltd.
Part-C-
Flexible Budget
Sales (units) 200000 250000 300000
Revenue 15384 3250 23076
Variable production cost -57142 -875 -85551
Variable production
overheads -333 -150 -500
Fixed Production Cost -700 -700 -700
Fixed Administration cost -1160 -1160 -1160
Net Profit 156049 250365 235165

3. Pandemic can be the reason of increase in demand and demand can be decreased due to
quality of product. it is observed from above table that for 300000 units there is less
profit. For 250000 units profit is average. Wrong estimation of sales and cost can be a
reason for less demand. Planning and control should be proper in order to get proper
results. Product quality can be a reason for increase in demand.
Conclusion-
From the above report, It can be concluded that Hamble Ltd., food packaging and delivery
company should reduce its expenses according to its budget report. Company should acquire
Norwich Ltd. because it is performing better than Salford ltd. Flexible budget is also calculated
in third scenario.
References-
 Climate Change Committee, 2020. The Sixth Carbon Budget: The UK's Path to Net Zero.
 Burton, M. and Stewart, M., 2011. Promoting budget transparency through tax
expenditure management: A Report on Country Experience for Civil Society
Advocates. U of Melbourne Legal Studies Research Paper, (544).
 Dull, M., 2006. Why PART? The institutional politics of presidential budget
reform. Journal of Public Administration Research and Theory, 16(2), pp.187-215.
 Lawson, A., Booth, D., Harding, A., Hoole, D. and Naschold, F., 2002. General budget
support evaluability study phase 1: final synthesis report.