Business Finance: Profit, Cash Flow, Working Capital, and Cash Budget

Business Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART A...........................................................................................................................................1
1) A) Meaning of profit and cash flow and description of their difference................................1
B) Explanation of working capital, receivables, payables and inventory...................................2
C) Explanation of changes in working capital effect cash flow..................................................3
2) Company is being managed might affect its financial results................................................3
3) Recommendation related to effective working capital management......................................4
EXECUTIVE SUMMARY.............................................................................................................4
PART B............................................................................................................................................4
1. Prepare a monthly cash budget for four months.....................................................................4
2. Any observations or recommendations that would make to the management of Thorne
Estates.........................................................................................................................................6
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
Business finance is raising and arranging of funds by business entities and conducted day
to day work in which consist of handling cash receipts and disbursements, borrowing from
commercial banks on daily basis. It is consisting of various types of funds like short, medium
and long term and the volume is different from business to business (Igoni, Onwumere and
Ogiri, 2020). It is mainly based on the Trends Ltd which is manufacturing gym clothing and
footwear. Along with it supplies large design companies under their own brands. In this report
covers various topics like profit, cash flow, working capital, receivables, payables and inventory.
Along with analysis financial results and provide recommendations.
PART A
1) A) Meaning of profit and cash flow and description of their difference
Profit: It is defined as the gain amount that generated by business from any operational
activity. Whenever a shopkeeper sells a item so motive is to gain some advantages from
purchaser in the name of profit. In other words, it is the amount of income left over after all the
important and matched expenditure are less in particular financial year. Profit means a business
excess revenues left over after all expenditure have been paid for the period (Al-Kabi and Jirjees,
2019).
Cash flow: It is the money that is flowing in and out of business in a month. Therefore, it
does seem some times that cash flow only goes one way out of the business and also flow both
ways. Cash is coming from various clients when they are purchasing products from company and
cash is going out of business in the form of payment of expenditure such as, rent or mortgage. It
is categorising by business into various activities like operational, investment and financial
activities.
Difference between profit and cash flow
Particular Profit Cash flow
Meaning Net amount is available after
deducting all the expenses from
revenues
Money that flows in and out of a
business in certain period of time.
Time It is calculated by company in a It is computed by business in
1

year to get net amount in
business.
monthly, quarterly and yearly basis.
Method The profit & loss statement is
prepared by business in tow
methods like absorption and
marginal method.
The cash flow statement is produced
by business in two way like direct
and indirect method.
Purpose The main reason to calculate
profit of business to identify
actual financial performance and
identify daily expenditures (An,
Duan, Hou, and Xu, 2019).
It is calculated by business to
analysis actual cash inflow and
outflow in a financial year. On the
basis of cash position take
investment decision effectively.
B) Explanation of working capital, receivables, payables and inventory
Working capital: It is presenting differences between current assets and current
liabilities over a financial period. It can be understood as the capital required by the firm for the
financing of current assets and it presents the funds available to business entity to finance on
daily operational activities. This term supports in gauging the operating liquidity of an entity like
how effectively an organisation is able to cover shorter debt with short term assets.
Receivables: It support for the amount of payment that was not received. This means an
organisation has increased their credit policy to its customers. Accounts receivable is due amount
that has a business right to collect in certain period of time and sold goods or services on credit.
It is mainly owed is recorded in its general ledger account that named as accounts receivables.
This amount represents in balance sheet at the current assets section as part of report (Zhang and
et.al, 2019).
Payables: If a business entity purchase goods on credit that require to be paid back in
short period of time that known as accounts payable. This term consider as current liability
which is presenting in the balance sheet under the head of current liabilities that require to be
paid to neglect default. It is defined as liability due to a certain creditors when it order goods and
services without paying cash.
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