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Business Finance Report of Eye Watering PLC

   

Added on  2020-01-16

17 Pages4064 Words68 Views
Finance
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Business Finance1
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TABLE OF CONTENTSINTRODUCTION ..........................................................................................................................4PART 1............................................................................................................................................41 Differentiating between profitability and cash flow.................................................................42 Application of Working Capital Management..........................................................................63 Measures to improve Working Capital Management...............................................................8PART 2............................................................................................................................................9I. Understanding the stages of capital budgeting process and investment appraisal methods.....9ii. Application of these methods to the project under consideration.........................................11iii. Analyzing most appropriate method for decision making...................................................13CONCLUSION..............................................................................................................................14REFERENCES..............................................................................................................................152
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Illustration IndexIllustration 1: Source : The crocodile of the moat : The Float(Part II)............................................7Index of TablesTable 1: Payback of both project...................................................................................................11Table 2: ARR of both projects.......................................................................................................12Table 3: Net present value of both projects...................................................................................12Table 4: IRR of both projects.........................................................................................................123
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INTRODUCTION Finance is a tonic to bring a new life into the business and its operations. Wild FrontiersBuilders Limited, being engaged in works contract related to property maintenance is runninginto profits despite the fact of facing liquidity crunch. Working capital being most important partof business finance functions facing issues therefore measures to be adopted are explained.Further Report is applying capital budgeting decision regarding launching the new projects byEye Watering PLC, a company engaged in designing video games. Applying investmentappraisal methods will depict a clear picture and helps in deciding the acceptance or rejection ofthe project. However selection of best alternative or combination is directly related toprofitability as the projects involve huge cash flow and also great caution as the projects areirreversible and long period of time is involved.PART 1To : ShareholdersFrom : Accountant Respected shareholdersThis is to draw a clear picture of Wild Frontiers Business Limited in front of you. Thisreport explains the cash flows and profitability of the business . Further working capitalmanagement issues currently faced by the company and feasible remedies are recommended toimprove the liquidity crunch of the company.1 Differentiating between profitability and cash flowCash flow is lifeline of business and profits are heart of business therefore both are verycrucial concept with different identity and existence in the business. Cash flow refers to flow ofcash from the business or into the business. Net cash flow is calculated as net cash inflow less allthe cash outflows from the business. Profitability refers to all the revenues after deducting directand indirect expenses and considering all the incomes whether realised or not. Cash flowrepresents only the transactions which involve cash as a component such as cash sales, salarypaid to employees, cash purchases, payment of certain expenses etc. Cash flow and profitabilityare both two very different concepts it is not necessary that business generating cash is alwaysprofitable or a profitable business is always keen on generating cash(Novy-Marx, 2013). 4
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