Working Capital Management and Budgeting Approaches

Business Finance

TABLE OF CONTENTS
PART 1............................................................................................................................................1
INTRODUCTION...........................................................................................................................1
1. a. Explaining the meaning of profit & cash flow and the different between both..................1
1. b. meaning of working capital, receivable, payables and an inventory..................................2
1.c. In what way changes in the working capital affects the cash flow......................................3
2. Applying the concepts, showing ways in which management of an enterprise may affect
financial results...........................................................................................................................3
3. Analysing and recommending the steps for improving cash-flow of the company with
better management of working capital........................................................................................4
CONCLUSION................................................................................................................................4
PART 2............................................................................................................................................5
INTRODUCTION...........................................................................................................................5
1. Purpose of framing a budget with description of traditional budgeting tools and modern
methods of budgeting..................................................................................................................5
2. Application of traditional and alternative budgeting methods................................................8
3. Analysing the method of budgeting that is most suitable for the business.............................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

PART 1
Executive summary
In the dynamic business arena, company is required to exert effectual control on expenses
and thereby ensures optimum use of monetary resources. It can be summarized from the report
that aspects pertaining to profitability and cash flow differs from each other. Further, it can be
presented from the evaluation that by taking into account working capital \management practices
Brightlawns Ltd can meet day to day operations effectually.
INTRODUCTION
Business finance is associated with the procurement and utilization of fund which in turn
helps in carry out organizational functions and operations effectually. The present report is based
on the case scenario which will provide deeper insight about the aspects of working capital
management. It will also shed light on the manner in which profit and cash flow differs from
each other. Besides this, report will also highlight the strategies that can be employed for
working capital management.
1. a. Explaining the meaning of profit & cash flow and the different between both
Profit- It refers to the amount of the money earned which exceeds expenses for a particular
period (Aktas, Croci and Petmezas, 2015). In other words, it is described as the financial benefit
that is been realized at the time when the revenue is been generated from the business activity
that exceeds an expenses, taxes and the cost involved in sustaining an activity.
Cash flow- It means a net amount of the cash that an enterprise disburses and receives at a
specific period of time. Positive level of the cash flow should be maintained for the firm to
remain within the business.
Cash flow Profit
It referred as outflow and inflow of the cash for
a specific business.
It is defined as the revenue generated after
deducting expenses.
It represents the money from the various
sources.
It means the money that is left over from the
sales revenue where once the cost has been
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deducted.
It is affected by timing of payment in and out
of an entity.
Profit is computed before a money is been
received.
Cash flow is very critical for survival of an
organization.
However, profit is not counted as crucial in
respect of firm's survival.
1. b. meaning of working capital, receivable, payables and an inventory
Working capital- It is defined as the difference between current assets of an entity like
inventory, accounts receivable etc. and its current liabilities such as trade payables, short term
borrowings etc. It is considered as a measure of operational efficiency, liquidity and its current
financial health. In other words it also means that the money available for funding the routine
operations of the business and maintaining adequate cash flow within a workplace.
Receivables- It means the account receivables or the debts that are owed to the company
by their their customers for the goods and services which had been used or delivered but are not
yet paid. Receivables are been recorded at time of the sale of the good for which the payment is
due on part of the buyer or debtor.
Payables- When the company buys goods on the credit basis for which the payment
needs to be paid back within a short period of the time, it is called as accounts payable. It is been
treated as liability and is recorded under the head of current liabilities. It refers to the short term
payment of debt which is required to be paid for avoiding any default (Talonpoika and et.al.,
2016). Accounts payable means a liability due in relation to a specific creditor when he or she
orders for the goods and services on credit.
Inventory- It means an accounting term that reflects the goods that had been gone
through several stages of production being made for the sale including the finished goods and
work in progress. Moreover, it means a common thought of the finished goods that an enterprise
accumulates before selling it to the end users. It can also be described as the raw material that is
used for producing a finished goods as it go through the process of production or the goods in
transit.
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