BUSINESS FINANCE TABLE OF CONTENTS INTRODUCTION 1 PART 11

PART 1 1 1.a Profit and cash flow Profit is the revenue which is being generated b y the business by performing various business operations. It is receivable and the amount of money which is being paid by the customers is the amount which will be received by the firm in the future (Kraemer-Eis et. It is receivable and the amount of money which is being paid by the customers is the amount which will be received by the firm in the future (Kraemer-Eis et

BUSINESS FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1.a Profit and cash flow ..............................................................................................................1
b. Working Capital and meaning of receivables, Inventory and payables ................................2
c. Changes in working capital affect Cash flow .........................................................................2
2. Application of concept to UberTools Ltd..............................................................................3
3. Analysis and recommendation to improve cash flow through better working capital
management ...............................................................................................................................3
PART 2............................................................................................................................................4
1. a Elements of financial performance .....................................................................................4
b. Calculation of ratios ...............................................................................................................5
c. Application of the result .........................................................................................................5
2. Analysis and recommendation ...............................................................................................6
CONCLUSION ..............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business finance is related to the funds which are required by the organisation of fund
their operations. With the help of finance the firm is able to source and utilize the funds
effectively and efficiently. In this study UberTools Ltd will be consider that own the factory in
the new market of producing power tools. In this assignment the difference between profit cash
flow will be provided. It will also include the meaning of working capital. Also, It will provide
understanding about the effect on cash flow due to changes in working capital.
PART 1
1.a Profit and cash flow
Profit is the revenue which is being generated b y the business by performing various
business operations. It is identified by preparing the income statement which consist of the
income and experiences for the period. It is necessary for the firm to acquire profit for the future
growth and success of organisation. The profit is earned by company by providing its products
and services in the market (Burns and Dewhurst, 2016). It is identified by meeting the expenses
incurred less revenue generates which provided with the profit earned during the period.
Business success and failure is measured by the profit generate by the firm if the firm has
increase the profitability over the years that means it if growing and if the profits are fluctuating
of decreasing over the years the firm is leading towards failure of business. Whereas Cash flow
include the cash inflow and outflow for the period. It is used to identify the cash requirement of
the business (Kraemer-Eis, Lang and Gvetadze, 2015). The cash flow during the period is
determined on the basis of the cash flow statement which include the cash inflow and outflow
for the period on the basis of operating, investing and financing activities.
Difference between cash flow and profit
Profit Cash flow
It is a revenue generated by business by
performing its operations
It is the cash inflow and outflow for the period
It is based on accrual concept It is based on cash accounting concept.
The profit is identified by preparing the income It is identified through the cash flow statement
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statement
b. Working Capital and meaning of receivables, Inventory and payables
Working capital is the amount of capital which is required in the firm to perform its day
to day operations. It is defined as current assets less current liabilities. It is the money available
with the firm for performing its business activities with the help of working capital the business
is able to measure its liquidity position , efficiency and the performance of the firm. Working
capital include the cash, inventory, account receivables etc (Jordà, Schularick, and Taylor,
2016). The working capital assist in growth and success of the business which help the firm in
increasing the performance and its profitability by utilizing the working capital in the effective
way to generate revenue. It include the followings :
 Receivables : It is the amount which will be received by the company from its customers
that has purchases good on credit. The receivable shows the amount which is being
unpaid by the customers and will be received at the future pint of time. The unpaid
balance amount is show ion the current assets of the balance sheet. It represent the line of
credit which is extended by the company.
 Inventory : It is the accounting term that refers to the goods which are in the different
stages for being ready to sale. It is the goods which are being used by organisation for
providing to the customers in the future. It is the largest current assets of the firm
(Kraemer-Eis and et.al., 2018). The inventory include raw materials, work in progress
and the finished goods.
 Payables : It is the amount which is not paid by the company to its creditors for
purchasing goods from the suppliers on credit. It is shown on the current liability of the
balance because it is the best for the company which is required to be paid in the future
pint of time. It is the obligation for the company to pay the current liabilities such as
payables. It assist in understanding the liquidity position of the firm.
c. Changes in working capital affect Cash flow
Working capital is the amount which is required by the business for performing its day to
day operation which help in the growth and success of the business. The changes in working
capital is caused due to increase or decrease in the current assets and liability of the firm. The
changes in working capital may leads to positive or negative working capital which is reflected
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in the cash flow statement (Maxwell, 2017). Positive working capital is when the firm has more
current assets than the current liabilities. whereas negative working capital is when the firm have
less current assets and more current liability. The changes in the working capital may affect the
cash flow by the following ways :
 Increase in current assets : It will increase the cash flow from operating activities
because cash will be increased which will lead to positive working capital.
 Decrease in current assets : It will leads to less use of the cash which will reduce the
amount of the cash flow.
 Increase in current liability : It means the payables have been increase which will
reduce the cash balance and thus the cash balance will be reduced.
 Decrease in current liabilities : It will increase the cash flow as there is reduction in the
payables.
From the above its can be said that there are positive working capital when there is
increase in current assets and decrease in current liabilities and vice versa.
2. Application of concept to UberTools Ltd
The profit earned by the UberTools Ltd was reasonably beneficial as it earn operating
profit of £36 million but on the contrary the company debts have been increased to £350 million
from £250 million. It is identified that UberTools Ltd is having the two main customers which
include D&R DIY Ltd and BricoFrance SA. The outstanding amount from the D&R DIY Ltd is
equal to £12 million as it has placed the large order last year. It is working capital for the
UberTools Ltd is changes due to changing in the current assets and current liabilities.
There have been increase in the current liabilities in the last year which means the cash
flow statement is changed negatively because of negative working capital (Ylhäinen, 2017).
Also, there is an outstanding dispute of £35 million for BricoFrance which means there have
been reduction in the current assets due to non payment of the outstanding amount from the
receivables. The company have invested 18 Million in the design company which have lead to
outflow of the cash.
3. Analysis and recommendation to improve cash flow through better working capital
management
From the above application it is analysed that the UberTools Ltd is having more debts
that the assets which means the profitability and liquidity position of the firm is affected. It is
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also analysed that the there is outstanding amount which is not being paid by receivables of this
company which leads to reduction in the working capital (Block and et.al., 2018). So, it is
recommended to the company to manage the working capital for improving the cash flow of the
business. Working capital management is used to increase the company's profitability and and
to ensure that the firm have sufficient liquidity to pay out its short term obligations (Working
Capital Management (WCM), 2018). It assist in monitoring the current assets and current
liabilities of the company to improve the cash flow of the business (Storey, 2016). It is
recommended to the firm to increase their current assets or maintained that level of current assets
which is sufficient to meet the short term obligation of the firm.
Working capital management involved monitoring the cash flow, inventory, receivables
payables etc. With the help of working capital ratio the firm is able to understand it working
capital requirement on the basis of which it can improve the cash flow (Brooks, 2019).
Moreover, the firm by lowering the collection period of the receivables that can increase the
cash inflow which will help in increasing the cash balance. The management of inventory can
also help in improving the cash flow.
PART 2
1. a Elements of financial performance
The financial performance of the firm is measured on the basis of the statement which are
prepared by organisation that include the financial information of the period. It consist of
income statement , balance sheet and cash flow statement. The income statement is prepared
which assist in identifying the profitability of the business on the basis of elements which
include income and experience for the period. Income refers to the revenue generated by the firm
by performing its various business activities (Foroohar, 2016). Whereas expenses are those
which are incurred by the business during the period for performing their business activities.
Balance sheet is the statement which shows the financial position of the firm on the basis
of the elements which consist of assets and liabilities. Assets are the the owner property of the
business which can be used by the firm to generate profit and pay their firm's obligation. It
consist of current assets, fixed assets. On the other hand liabilities are the obligation of the
business which are required to paid in the future point of time (Roberts, 2015). Cash flow
statement record the information about the cash inflow and outflow for the period from the
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operating activities, financing activities and investing activities which help in identifying the net
cans inflow and outflow of the period.
b. Calculation of ratios
Particular Formula 20X9 20X0 20X1
Sales 360 396 459
gross profit 230 252 272
Sales growth sales y2- salesY1 /sales y1 10 15.91
Gross profit margin Gross profit / sales *100 63.89 63.64 59.26
Operating profit 108 101 49
Operating profit
margin Operating profit / sales*100 30 25.51 10.68
current liabilities 29 48.00 102.00
Non current liabilities 186 252.00 360.00
Total debts 215 300 462
Shareholder equity 304 347 344
gearing ratio debt /equity 70.72 86.46 134.30
finance expense 9 12 16
interest coverage ratio
(times)Operating
profit /finance expense 12 8 3
Current assets 65 114 94
stock 14 36 43
Liquidity ratio current assets- stock /current liabilities 1.8 1.6 0.5
Net profit 79 72 26
Return on equity net profit/shareholder funds 26.0 20.7 7.6
Total assets 518.0 647.0 806.0
Return on capital
employed
Operating profit /total assets- current
liabilities 22.09 16.86 6.96
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c. Application of the result
The sales growth ratio shows the increase in the sales over the period which assist in
identifying the growth of the company and its increment tin the performance. The result shows
that in 20X0 the sales grow by 10% and in 20X1 it increased by 15.9%. Moreover, The gross
profit margins shows the profit generated by the firms by performing its various activities. It is
calculated by dividing the gross profit on sales. The gross profit in the years 20X9 was 63.89%
which was reduced in 20X0 to 63.64% and in 20X1 it reduced to 59.26% which shows that the
gross profitability is decreasing over the years.
Operating profit margin which is calculated shows the percentage of operating profit
earned by the firm which is decreasing over the years. Gearing ratio shows the relation between
debts and equity which shows that in 20X9 the gearing ratio was 70.72 which is increased over
the years High gearing ratio shows that the firm is using the debts to pay for its operational
activities. Liquidity ratio calculated shows that it is reducing over the years which is not good for
the firm. This ratio shows the liquidity position of the firm by comparing the current assets with
of current liabilities. Return on equity shows the return generated on the equity capital which is
decreasing over the years. The return on capital employed refers to the return generated through
the capital employed by the firm which shows downfall over the years that is not beneficial for
the firm. The result shows that the profitability of the firm is decreasing over the years which is
not good for the growth and success of the firm. Moreover, the return on equity and capital
employed is showing downfall which shows the return earned by the firm on the equity and
capital employed in the business is reducing.
2. Analysis and recommendation
From the above application and calculation is has been analysed that the financial
performance of the firm is reducing over the years which is not good for the growth and success
of the firm. It is Analysed that the business liquidity position is also not good as shown by the
liquidity ratio which is decreasing over the years that means the firm is not able to pay off its
obligation. On the basis of the finding it is analysed that the firm in order to increase it
profitability must reduce the expenses which are increasing over the years that leads to reduction
in the profitability and performance of the firm. It is recommended that the firm should monitor
the performance of the business by preparing the budget which will assist in reducing the
expenses and increasing the profitability of the firm.
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It is analysed that the firm is using more debts that the equity to fund its operation which
is increasing the obligation for the firm which will affect the liquidity position of the
organisation. It is recommended to the organisation that it can monitor its financial performance
by forecasting about the income , expenses etc. through help of preparing budgets. It is
recommended to the board that its should use equity funds rather than using debts funds because
it is reduce the obligation of the firm and will help in increasing the financial performance and
position of the firm. With the help of monitoring the cash flow and reducing the expenses the
firm is able to enhance its profitability and performance which will assist in enhancing the
financial performance of the firm. The firm by monitoring its performance through help of KPI
can enhance its performance and profitability which will assist in the growth and success of the
business.
CONCLUSION
From the above study it has concluded about the business finance that is related to
sources which are used by the business to fund their operations. In this assignment it has shown
understanding about profit and cash flow whereas profit is the revenue generate by performing
firm's operation whereas cash flow is the inflow and outflow of the cash. It has given
information about the effect on the cash flow due to changes in the working capital due to
increase of decrease in the current assets and current liabilities. Moreover, it has included
information about the ratios which assist in identifying the financial performance o0f the firm.
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REFERENCES
Books and journals
Block, J.H. and et.al.,2018. New players in entrepreneurial finance and why they are there. Small
Business Economics. 50(2). pp.239-250.
Brooks, C., 2019. Introductory econometrics for finance. Cambridge university press.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Foroohar, R., 2016. Makers and takers: The rise of finance and the fall of American business.
Crown Books.
Jordà, Ò., Schularick, M. and Taylor, A.M., 2016. The great mortgaging: housing finance, crises
and business cycles. Economic Policy. 31(85). pp.107-152.
Kraemer-Eis, H. and et.al., 2018. European Small Business Finance Outlook: December
2018 (No. 2018/53). EIF Working Paper.
Kraemer-Eis, H., Lang, F. and Gvetadze, S., 2015. European small business finance
outlook. EIF Research & Market Analysis.
Maxwell, D., 2017. Valuing Natural Capital: Future Proofing Business and Finance. Routledge.
Roberts, R., 2015. Finance for small and entrepreneurial business. Routledge.
Scholes, M.S., 2015. Taxes and business strategy. Prentice Hall.
Storey, D.J., 2016. Understanding the small business sector. Routledge.
Ylhäinen, I., 2017. Life-cycle effects in small business finance. Journal of Banking &
Finance. 77. pp.176-196.
Online
Working Capital Management (WCM). 2018.[Online]. Available through
:<https://www.investopedia.com/terms/w/workingcapitalmanagement.asp>
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