Concept of Profit and Cashflow and difference between profit and cashflow

B10408
BUSINESS
FINANCE

EXECUTIVE SUMMARY
This assignment completed in two parts; first consists of concept of income
statement, financial position indicators, cash flow indicators and various KPI’s.
The report will explain how net profit affected, what are the causes of over
expenditure and measures to control it. The case of Mediterranean Delights Ltd
(‘MDL’) will highlight the main issues related with recording transactions and the
reflective case study of this company will reveal core idea of accounting theories.
The selected company is operated in South of England and have business
objective of expansion over all geographical locations of London.

Table of Contents
PART 1............................................................................................................................................4
1. Explaination:............................................................................................................................4
A. Concept of Profit and Cashflow and difference between profit and cashflow:....................4
B. Concepts of working capital, receivables, inventory and payables:.....................................5
C. Effect of changes in working capital on cash flow statement:.............................................6
2. Affect of Mediterranean Delights Ltd (‘MDL”) management on its financial results.............7
3. Recommendation of steps to improve MDL cash flow through better working capital..........9
PART 2..........................................................................................................................................11
1. Concept of budgeting and its purpose of preparation:...........................................................11
2. Application of traditional and alternative budgeting approach for planning cost of Second
sight plc..........................................................................................................................................13
3. Analysis of best approach.......................................................................................................14
REFERENCES..............................................................................................................................15

PART 1
1. Explaination:
A. Concept of Profit and Cashflow and difference between profit
and cashflow:
Profit: It shows the performance of company recording during a year. It is
used as key performance indicators by firms to analyze whether company
performs well or not as compared to previous year. It is calculated through
deducting all variable and non-variable expenses from net revenues. It is
primary objective for every business to maximize net profit every year for
expanding its business (Bendell and Doyle, 2017).
Cash flow: It is net inflow of cash into organization; it only records cash
transactions which makes it highly liquid statement. Generally it tracks the
movement of cash within organization; managerial accounted get an idea of
key areas where heavy amount of cash is eliminated. After evaluation; finance
accountant able to calculate whether company is capable for controlling its
costs or not. It records transactions in the form of three different activities viz.
operating, financing and investing. These different activities are discussed
below:
Operating activities: These activities includes cash from operations; net profit
is adjustable to non-cash items and changes in working capital to know how
much cash is used or generated from operating activities.
Financing activities: These are all transactions related with issuing share
capital, payment of dividends and any other right issues within its existing
customers.
Investing activities: It includes all potential opportunity taken by business
owners through investing in another business to receive dividend or profit
after selling investments.