Business Finance: Cash Flow, Working Capital, and Budgeting

Business Finance

TABLE OF CONTENTS
PART 1.......................................................................................................................................3
Executive summary................................................................................................................3
1..............................................................................................................................................3
Stating the meaning of cash flow and profit along with differences......................................3
Presenting the meaning of working capital, receivables, inventory and payables.................3
Stating how changes in working capital impacts cash flow...................................................4
2. Applying the concepts of working capital to the company for showing how it affects
company’s results...................................................................................................................4
3. Recommending steps to the firm that need to be taken for improving cash flow and
thereby working capital..........................................................................................................4
PART 2.......................................................................................................................................5
Executive summary................................................................................................................5
1. Stating purpose and types of budgeting.............................................................................6
2. Demonstrating the application of traditional and alternative budgeting methods.............9
3. Analyzing budgeting system which is appropriate for business from future perspective..9
REFERENCES.........................................................................................................................11

PART 1
Executive summary
In the current times, it is highly required for the business units to make optimum
utilization of funds that contributes in the attainment of goals. This part of the assignment is
based on MDL which owns 30 delicatessens in South of England. It can be summarized from
the evaluation that manager of MDL is required to make modifications in the existing
strategic and policy framework. By this, company would become able to improve both
working capital, cash-flows and thereby profitability as well.
1.
Stating the meaning of cash flow and profit along with differences
Cash flow: It implies for the inflow and outflow that associated with business
operations pertaining to specific time frame. Cash flow presents money that business entity
has at any given time for business activities. This element of financial management presents
the extent to which liquid assets of the firm are increased.
Profit: This means return that company has generated through selling products or
services. Profitability may be served as an indicator which reflects surplus after subtracting
all the expenditure from the revenue generated.
Difference between cash flow and profit is enumerated below:
Basis of difference Cash flow Profit
Meaning It implies for the money that
flows in and out with regards
to specific time period.
Profitability accounts for the
money or amount that
remains after deducting all
the expenditure.
Measurement Under cash flow, valuation is
being done by taking into
account inventory,
receivables and payment
It is measured or calculated
by deducting al the
expenditures from revenue.

period.
Time period Cash flow provides
information about company’s
success or failure in long run
(The Critical Differences
between Cash Flow and
Profit, 2020).
Unlike cash flows, in the
case of profit success can be
identified and evaluated
within short time frame.
Nature Cash flows can be increased
or bought through the means
of long term borrowings.
However, in this, profit can
be generated through the
means of only sound
strategic framework, policies
and effectual cash
management.
Sales Here, revenue is recognized
when debtors clear their
dues.
It recognized through the
means of invoices.
Taxation In this, tax is paid in terms of
installments.
Tax is calculated by taking
into account profit generated
during the period.
Fixed assets Recorded in statement at the
time of purchase which in
turn results into decrease in
cash flow.
In this, with regards to fixed
assets, profitability decreases
due to the inclusion of
depreciation charged on the
basis of it.
Presenting the meaning of working capital, receivables, inventory and payables
Working capital: It may be served as a measure which entails the current to which
company’s liquidity position is good. In other words, working capital serves information
about company’s ability in relation to managing daily operations. In order to avoid