Business Finance: Profit, Cash-flow, Working Capital, and Financial Results

Business Finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Task 1...............................................................................................................................................3
i. Explanation..............................................................................................................................3
a. Profit and Cash-flow...............................................................................................................3
b. working capital........................................................................................................................4
c. Change in working capital affects Cash Flow.........................................................................4
ii. Application of profit, cash-flow, working capital, receivable, inventory and payable and
the way company manage them affect on financial results. .......................................................5
iii Analysis and recommendation to improve the company's cash-flows...................................6
Task 2...............................................................................................................................................7
1. Cash Budgets for Four Months...............................................................................................7
2. Observations ...........................................................................................................................8
3. Recommendations...................................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
The Business financing deals with the procurement of the funds for the fulfilment of the
business capital requirements. The management of the funds is crucial to maintain and fulfil
finance need regularly. In this report two business case scenarios are highlighted. First case
represents the Trent limited business and its issues of the cash requirements and the second case
represents the Thorne Estates Limited funds requirements in 2021 (Walker and et.al, 2019).
Further it outline the importance and use of financial reporting and its application on the business
cases. The distinction between profit, cash-flows and working capital is discussed and a cash
budget is prepared with the recommendations for the business is given.
MAIN BODY
Task 1
i. Explanation
a. Profit and Cash-flow
Profits are the balance remaining after deduction of all sort of expenses and losses arises
for the business in the particular period. It is the income that is earned for the period after
deducting all expenses. Example: An organisation has a sales value for the period at £2000 and
the value of expenses arises for the period is £1500. So the profit earned during the period is
sales less expenses that is £500. Profits are categorised in two parts i.e. Gross profit and net
profit.
Gross Profit: it is the profit value that the organisation derived after the deduction of all costs of
production of products and services. The gross profit is provided in the income statements of the
organisation. It is calculated by deducting the cost of goods sold from the value of sales for the
period (Gencdal and Yıldırım, 2018).
Net Profit: it is the profit value that the organisation derived after the deduction of all the cost
that is arise from the business operations. The net profit is also provided in the income
statements of the organisation. It is calculated by deducting all the expenses of the business and
the end balance results in the net profit for the organisation. The net-profit is mostly defined as
Profit after interest,tax and dividend payment in the income statements.

While, Cash-flow are the value of cash or cash-equivalents that are flow in and out of the
business during the period of time. Normal business need cash requirements for the business
operations. Receipts and payments requirements for the period is made in cash and cash
equivalents. The inflow and outflow of the cash during the period is calculated and represented
in the statement of Cash-flows of the organisation.
b. working capital
Working capital is the difference value obtains from the deduction of the value of current
assets of the business from the value of the current liabilities of the business. The current assets
include debtors, cash and cash-equivalents, inventories, bill receivables, prepaid expenses. The
current liabilities include creditors, short-term loans, outstanding expenses, bills payable. The
working capital is seen as the operations requirements for the business for a year and also used as
the measurement of firm's efficiency of the operations, liquidity and financial health for the short
duration. The positive working capital is the indicator of the company's efficient workings and
seen as the potential of growth (Aytac and et.al, 2020).
Receivables
It is the amount that the company has to received from its customers for the products or
services offered to them. It is generally formed as the credit which is the company has to
received from the customers. The credit period is for short-period ranging from days to months.
It forms the part of current assets that are arises from the firm in the short run.
Inventory
It the amount of stock that the company produces in the period of a year. The value of
stock is seen as the current asset for the period as by selling inventories liquidity requirement for
the period can be fulfilled.
Payables
It is the amount that the company has to pay to the provider of the products and services.
It is the credit amount that is available to the company for the short-period. It forms the part of
the current liabilities that are arises from the firm in the short run.
c. Change in working capital affects Cash Flow
Working capital represent the difference between firms current assess and current
liabilities or net working capital that it used by company to met its short term expenses.
Company make use of working capital in order to meet its daily expense so that various