Financial Aspects and Budgeting in Business Finance

This report discusses the evaluation of financial accounts, working capital management, and budgeting in business finance. It covers topics such as profit and cash flow, working capital and receivables, inventory payables, and the impact of cash flow on working capital management. It also explores the concepts used to present financial aspects and the implementation of budgets to forecast costs. Additionally, it compares traditional and alternative budgetary systems. Suitable for students studying business finance.

BUSINESS FINANCE

Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART A...........................................................................................................................................1
i) Evaluation of financial accounts.........................................................................................1
ii) Concepts used to present the financial aspects to manage the impact of concepts upon
financial results.......................................................................................................................2
iii) Assessment and recommendation subject to effective working capital management......3
PART B............................................................................................................................................4
EXECUTIVE SUMMARY.............................................................................................................4
i) Purpose of making budget...................................................................................................4
ii) Implementation of budgets to forecast cost for significant business.................................6
iii) Traditional or substitute budgetary system.......................................................................7
CONCLUSION................................................................................................................................8
REFERNCES...................................................................................................................................9

EXECUTIVE SUMMARY
The first part of the report execute the financial aspects used in presenting the financial
information of an entity. Key financial elements as profit, cash flow and working capital are
extracted to execute the entities financial position.
PART A
i) Evaluation of financial accounts
a) Profit and cash flow and their difference
Profit: The phrase revenue could be described as an excess of income over spending throughout
a specific time period (Hill, 2016). It is also recognised from net profit as well as the main goal
of all businesses is to obtain higher profitability. Essentially, every corporation occurs for profit
in the whole corporate world.
Cash flow: it is characterized as just a virtual cash or profit ideology from one group for another.
This includes two mainly in-and-flow definitions (Adah, 2016). Cash flow involves certain
operations that generate cash. When money inflow is the activity that is connected to money
outflow.
Difference between profit and cash flow
Profit Cash-flow
The excess income over expenses is recognised
as profit.
It presents the formation of liquidity with
operations.
It contains both the cash and non-cash items
while calculating profitability of organisation.
Transactions which are cash natures are only
considered cash flow.
b) Working capital and meaning of receivable, inventory payables
Working capital: This can be characterized as a type of resources that businesses utilizes
to compensate with daily activities. It is calculated by either a cookie cutter approach that
Receivable: It is characterized as both the transactional accounts and receivable amount
of cash due because of a corporation for the movement of goods or facilities for whom the
amount was not paid by clients.
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Payables: The payables were those through which businesses owe financial support or
goods as just a credit (Hazzan, Lapidot and Ragonis, 2015). Business entities are responsible for
compensation after making a credit transaction and are known as debtors.
Inventory payable: It is also called as stocks and measured by different types of
strategies like last in first out method (LIFO) that means purchase of inventory lastly would be
sold first and first in first out method (FIFO) that states purchase of inventory firstly would be
sold firstly. Weighted average method is used to aggregate the price of inventory. Few type of
inventories are Raw stock, Work in progress (WIP) stock and finished goods stock.
c) The impact of change in cash flow upon working capital management
Working capital also recognized as operating capital (Izurieta, 2015). Variations in operating
capital may have an effect on corporations ' cash fluctuations. Because each fluctuation in
working capital may result to liquidity fluctuations. The cash flow from net cash will reduce if
the yield of total current assets increases. Operating capital is the distinction between current
assets and liabilities. And also if an investment's balance declines, cash flow from operating
would enhance.
ii) Concepts used to present the financial aspects to manage the impact of concepts upon
financial results
Profit: the firm is in quite favourable condition as the firm earned income for Bright
Lawns Ltd was 50,000,000 pounds. Operating income only amounted to 5 million pounds.
Account receivables: Accounts receivable for Bright Lawns Limited are the key
shareholders through those they have taken advance payments for products delivery. As they
received a total of 1.5 million pounds from C&P.
Cash flow: The flow of money among two entities could be described (Simon, 2015). As
for above Bright Lawns Private company, due to the change in existing assets and liabilities, the
profitability can be affected. Unlike the short-term loans, they are rising although the clients
obtain payment in advance.
Accounts payable: The debts of company stated as £18 million from £16 million the year
before. This will impact upon the capital adequacy of company. This includes certain
organizations that are responsible to pay payments to every income as a result of previous credit
purchases (Park and Jang, 2013). To the above-mentioned Bright Lawns Limited company, those
who buy their goods on loans and ensure to pay that back may be their record receivable.
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Inventory: There will be several categories of inventory levels in the above-mentioned
Bright Lawns Private company, including raw materials, finished products and ongoing
development. It is because they are engaged in cylinder and suitable manufacturing.
iii) Assessment and recommendation subject to effective working capital management
This is critical for businesses to boost their cash flow in order to improve their capital base.
Here, the following steps to boost cash flow are shown as follows:
Effective inventory assessment: That's crucial for businesses to maintain a close watch on
storage product in factories. That's because if the amount of inventory is not properly evaluated,
businesses can-purchase the components that can trigger cash flow. As for above Bright Lawns
Private company, buying feedstock for manufacturing as per the requirement is essential for
them (Gowthorpe, 2005).
Timely payment to suppliers or creditors: In relation, deposit to vendors may also lead to
improve in company cash flow (Hou, Van Dijk, and Zhang, 2012). If payments are made to
vendors on scheduled time than it is effective for business entities to build a transparent image
and enhancing goodwill in market. It would also be good for businesses to save the extra cash. It
is hard to pay their vendors on schedule, for example for this product, and it can be increased due
towards this cash flow.
Small expenditure control: A further way to influence cash flow is to regulate low
spending or money owed to businesses with less than one year (Sassen, 2017). When corporate
entities manage its limited costs, they may be growing overall cash flow from net cash. Such as
the above Bright Lawns Limited company, of order to regulate the amount of money flows, that's
necessary to improve their brief-term loans.
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PART B
EXECUTIVE SUMMARY
Report summarizes the various types of financial planning methods and the relevance to
businesses. Additionally, abstracts document on critical evaluation of the conventional and
option fiscal scheme.
i) Purpose of making budget
Budget
Main objective of making budget is to assess the requirement of further resources and their
estimated cost. the phrase budget could be described as a prediction of upcoming revenue as well
as expenditure over a specified period of time (Ntuli, 2017). Expenditures are perfectly portioned
for a timespan of further than a year. It is not crucial that budgets are used only by businesses
whereas it is prepared for resources by several families and individuals. Budgets formation
is useful in the commercial aspect to make effective preparation and managing of the economic
resources accessible. Some intent of planning the budget is shown to be the following:
Functioning and scheduling budgets: It is important in plotting even though, with the
assistance of budgets, businesses can efficiently intend the distribution of economic resources to
separate business operations. If a corporation is planning a year plan consisting of possible future
income and expenditure. Based on this calculation, the organization must develop planning to
achieve goals or priorities. Budgets play a key role throughout budgeting largely since they
comprise of data on expected spending and income.
Budget position in managing: It also assist the company to supervise strategic planning
process. with the help of businesses can evaluate the actual results with the help of projected
profits & expenditures. Because of this, companies can be aware of all those operations whose
spending is higher than the spending planned. Thereby, businesses can completely control their
spending with both the help of expenditures.
(a) Standard financial planning approach: It can be described as a budgeting method where
new plans are drawn up through making certain adjustments to the budget of past years. And,
particularly in this method, the policies of the last years are used as a basis for planning the plan
(Fernández, Paz-Saavedra and Coto-Millán, 2019).
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(b) Alternative budgetary techniques: there are some alternative options are there which
are defined as follows:
Zero-based budget: It is a form of budget which is overlooked to plan the plan in last
year's budget details (Khan, 2015). Economic actions are included in this expenditure
planning after justification. its disadvantages and benefits are listed as follows:
Advantages:
 This plan helps and provide right assessment of income and spending data in order
to support every operation.
 In this budgeting method, staff on each level are implicated in the preparation of
both the budget due to the large data aspect.
Disadvantages
• Preparing this spending plan is a moment-consuming process.
• It will become a complex process because of the participation of further
employees.
Rolling budgets: It can be described as a type of expenditure ready for the next
bookkeeping timespan to displace the expenditures of the last few years. Often recognized as the
continuing plan or eternal expenditure is the rolling budget. This spending plan does have the
following pros and cons:
Benefits:
 This spending plan helps to plan and regulate effectively.
 A revolving budget also encourages businesses to spend it wisely.
Drawbacks:
 Besides the benefits, this spending plan also has some disadvantages as it devours
so much cost and time.
 In certain cases, incorrect preparation and regulate may result in irregular updates.
Budget dependent on operation: This is a kind of spending plan which is created before
taking into account the budget operations of past years. Taking into account overheads, this plan
is planned using exercise-based accounting. The following are its drawbacks and benefits which
are as follows:
Advantages:
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• This strategy focuses primarily towards overhead costs that assist to control
total spending.
• Besides being helpful in better decision-making for businesses, this data
provides price-related information.
Drawbacks:
• The planning for an exercise-based cost model requires a separate amount of
time.
• This proposal is also not simple for us all to grasp.
ii) Implementation of budgets to forecast cost for significant business
Both types of financial planning methods, such as conventional and alternative methods,
are helpful in the commercial aspect. Because each approach's spending plan have some specific
tasks that guide businesses in managing capital costs effectively. Such financial planning
methods can be beneficial for proper administration of resources, for example in the context of
Boat World Plc above.
Traditional budgeting method: Budgets from past years were used to prepare new
expenditures in this strategy. Such financial planning strategy was used by the boat world plc for
a long time to handle their financial and economic activities. In the Netherlands and Germany, it
is planning to introduce a new outlet. Their business activities include supplying consumers with
boats on lease and they have been popular for several years. Modern financial planning approach
to future cost control can be beneficial in this area. Like their first year's income was £ 250
million, which demonstrates that conventional financial planning strategy helps them control
their resources. This budgeting strategy could be useful for them in sense of new business
launches at new areas as they will be able to know increasing projects will generate income and
which one does not.
Alterative budgeting technique: •
Rolling Budget: Companies are preparing this spending plan to displace the spending plan from
last years (Jasuta, 2016). It could not be ideal for boat world plc as they will begin their company
at a new place and choose this plan for existing businesses.
ZBB: Expenditures are ready from a new edge and it may be an ideal budget for this boat
world plc. the entity can be guided by this expenditure planning to start a new subsidiary at a
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new place. Furthermore, this state budget precision can assist them to properly allocate their
financial cash to buy new planes and hire new employees.
ABB: This is considered as an activity based budgeting and it also helps in ascertaining the
flow of expenditures as per different activities. Activities is included in this budget as per
exercise-based system assessment. When they implement this plan in their operations and
services in the sense of boat world plc, therefore total spending will be regulated. This is because
starting a new business venture at another venue is a major concern when it comes to handling
expenses that can be addressed using this plan.
iii) Traditional or substitute budgetary system
The budgetary system is mainly associated in both type of costing aspects as the traditional
and substructure budgetary system. To businesses, the conventional and alternate solutions to
both expenditures are useful. It depends on how well they use info from these expenditures from
their finance department.
Conventional or traditional budget approach: This budgetary approach may be acceptable for
long-term market-placed businesses (Jasuta, 2016). As in the above-mentioned boat globe plc,
they have been using this many-year expenditure strategy and are also effective. Here, it is
important to understand this for business projects this plan cannot be successful. Because the
plans are planned according to this method. This suggests that it is possible to use this strategic
strategy for all business operations.
Alternative budgetary approach: Different types of plans is included in this budget
strategy like:
ABB: For whatever business activities, this spending plan may be effective especially for
activity costs. Like boat world limited plc, this spending plan to regulate operations and activities
costs.
ZBB: Due to its precision, the null-based expenditure budget can also be used for all
business activities. It is perfectly suited for business entities. Like some kind of restricted boat
world, this spending plan can also be useful as they plan to open up a new subsidiary at various
places.
Rolling budget- It could be applied in boat world limited company, just like the conventional
budgetary strategy, since it is ideal for existing business organizations (Khan, 2015). This
budgeting method is used for entire corporate activities and events as it eliminates the plan of the
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previous period. Although the above business has existed for 25 years, it can be applied for their
branch opening because this budget requires the spending plan of the last bookkeeping cycle.
CONCLUSION
Based on the above-mentioned project document, it was stated that funding is necessary for
all businesses. Companies are unable to conduct their business operations and activities
throughout the absence with enough resources. The plan report is split into two sections where
first section focuses on the problem of cash flow with alternatives to be addressed through the
control of working capital. Furthermore, the second section of the design document focuses on
different methods to budgeting like conventional and new strategies. In the dimension of the
given research study, as well as the adequacy.
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REFERNCES
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Implementation in Nigeria?. International Journal of Economics and Financial
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BANK EFFICIENCY: EVIDENCE FROM UK AND IRELAND. Finance Research
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Gowthorpe, C., 2005. Business accounting and finance for non-specialists. Cengage Learning
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Hazzan, O., Lapidot, T. and Ragonis, N., 2015. Guide to teaching computer science: An activity-
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Hill, L .E., 2016. Pioneering a rolling forecast: a North Carolina health system that switched
from a traditional to a rolling budget process found the conversion offered a unique
perspective of its financial picture. Healthcare Financial Management. 70(11). pp.58-
63.
Hou, K., Van Dijk, M. A. and Zhang, Y., 2012. The implied cost of capital: A new
approach. Journal of Accounting and Economics. 53(3). pp.504-526.
Izurieta, N. P. V., 2015. El Ecuador y el proceso de cambio de la matriz productiva:
consideraciones para el desarrollo y equilibrio de la balanza comercial. Observatorio de
la Economía Latinoamericana. (207).
Jasuta, L., 2016. Rolling capital: managing investments in a value-based care world: a rolling
approach to capital planning offers healthcare providers flexibility and efficiency, which
ultimately improves patient satisfaction and helps control costs. Healthcare Financial
Management. 70(6). pp.82-90.
Khan, M. M., 2015. Sources of finance available for SME sector in Pakistan. International
Letters of Social and Humanistic Sciences. 47. pp.184-194.
Ntuli, M. G., 2017. An evaluation of bank acquisition using an accounting based measure: a case
of Amalgamated Bank of South Africa and Barclays Bank Plc. Banks and Bank Systems.
12(1). p.160.
Park, K. and Jang, S. S., 2013. Capital structure, free cash flow, diversification and firm
performance: A holistic analysis. International Journal of Hospitality Management. 33.
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Sassen, S., 2017. Finance and business services in New York City: international linkages and
domestic effects. In Deindustrialization and Regional Economic Transformation(pp.
132-290). Routledge.
Simon, R., 2015. Sensitivity, specificity, PPV, and NPV for predictive biomarkers. JNCI:
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