Profit and Cashflow: Concept and Difference

B07591
BUSINESS
FINANCE

EXECUTIVE SUMMARY
This report consists of two parts; in first part the report focuses on profit and loss
statement, balance sheet, cash flow statement and working capital. These concepts
have been explained with specific formula and calculations. Also the affect of working
capital adjustments on cash flow statements is discussed. In first part the case study of
Mediterranean Delights Ltd (“MDL”) is taken, it owns and operates 30 delicatessens
throughout the South of England. The core activity of this company is delivering food
items to various restaurants of South England.

PART 1
1. Concept of Profit and Cashflow and difference between profit and cashflow:...........4
2. Concepts of working capital, receivables, inventory and payables:...........................5
3. Affect of changes in working capital on cash flows:...................................................6
4. Affect of Mediterranean Delights Ltd (“MDL”) management on its financial results:. .7
5. Steps to improve Mediterranean Delights Ltd (“MDL”) cash flow through better
working capital:..................................................................................................................9
PART 2
1. Concept of budgeting and its purpose of preparing:.................................................11
2. Application of traditional and alternative budgeting approach for planning cost of
Second sight plc:.............................................................................................................13
3. Analysis of best approach:........................................................................................14
BIBILOGRAPHY..............................................................................................................15

PART 1
1. Concept of Profit and Cashflow and difference between profit and
cashflow:
Profit: It is the remaining amount left with the business after paying all direct and
indirect expenses such as factory overheads, direct labor, direct material, selling
and administrative expenses, fixed overheads and production overheads from
the revenue and incomes (Bendell and Doyle, 2017). To get net profit after
interest and taxes, company needs to deduct same from total profit earned by the
company during a year. It consists of all cash and non cash transactions
occurring during a year. This amount transferred to retained earnings if not
shared among shareholders.
Cashflow: As the name indicates, these statements show how cash is moving
within a business. It separates whole business transactions into three different
activities: Operating activities, Investing activities and Financing activities (Burns
and Dewhurst, 2016). The main reason behind this division is to analyze cash in
and out.
Operating activities shows cash generates or used in operations. This part
consists of net profit.
Under Investing activities; all cash transactions related to buying or selling of
fixed assets or properties considered under this portion, additional to this any
interest or dividend received from investments done in other business also
considered under this activity.
Financing Activities: This part covers only those activities which are related to
shares and equity like generating cash through issuing new shares, paying
dividends and paying long term loans.