Business Finance Analysis | Case Study

Running head: BUSINESS FINANCE ANALYSIS
BUSINESS FINANCE
Name of Student
Name of the University
Author notes

BUSINESS FINANCE ANALYSIS2
Executive Summary
The purpose of this study is to understand the concepts of working capital, profit, cash flow,
as well as to evaluate how working capital impacts the cash flow of the organization. This
study also discussed how Mediterranean Delights Ltd could improve their cash flow using
effective working capital management. It is found that MDL can slow down its accounts
payable and collect its receivables early to improve its cash flow. It can be perceived that the
working capital can be improved in other ways, which includes effective inventory
management, collecting outstanding invoices on time, and availing tax incentives. This report
also discusses the traditional budget system of Second Sight Plc and other alternatives budget
processes. The strengths and weaknesses of each budget process have been discussed in the
study. It has been found that from all of the budget processes, activity-based budgeting is
most effective yet costly. It has been found that the activity-based budget system is more
effective for Second Sight Plc over the traditional budget system that it was following.
Activity-based budgeting should be implemented in the company to budget for their new
project effectively.

BUSINESS FINANCE ANALYSIS3
Table of Contents
PART 1.......................................................................................................................................4
Introduction................................................................................................................................4
i ) Definitions and concepts....................................................................................................4
a) Profit and cash flow...........................................................................................................4
b) Working capital, inventory, receivables and payables.......................................................5
ii) Application of concepts....................................................................................................6
iii) Analysis and recommendation.............................................................................................7
Part 2..........................................................................................................................................9
Introduction................................................................................................................................9
i) Budget system.................................................................................................................9
Traditional budget..............................................................................................................9
Rolling budgets................................................................................................................10
Zero based budgets...........................................................................................................10
Activity based budgeting..................................................................................................11
ii) Applications of different budget methods.................................................................11
iii) Analysis.....................................................................................................................12
References................................................................................................................................14

BUSINESS FINANCE ANALYSIS4
PART 1
Introduction
This report will be based on Mediterranean Delights Ltd. Mediterranean Delights Ltd
operates 30 delicatessens through the part of South England. MDL supplies various chains of
restaurants with its imported products. This report will discuss the profit and cash flow as
well as working capital, receivable, and payable. The concepts of the same will be applied
throughout the report to assess the way the organisation is being managed. The company has
debt and other issues, which will be analyzed afterward. This report will review the situation
of MDL to understand their financial position.
i) Definitions and concepts
a) Profit and cash flow
Net income, also known as profit, is the amount of earnings that surpass over the
expenses for a certain period. Profit is the amount of income that exceeds the amount that is
left to the business after all of the necessary expenses are subtracted for the period. In the
corporate sector, the profit is paid in the form of dividends to the shareholders (Warren,
Jonick and Schneider 2020).
On the other hand, cash flow is the difference in the amount of cash accessible at the
beginning of a year and the amount of cash at the end of the year. Cash flow tends to be
positive if the closing balance of cash flow is greater than the opening balance; otherwise, it
becomes negative. Cash flows upsurge with the sale of more goods, sale of an asset, taking a
loan, and reducing the cost of products (Soboleva et.al 2018).
The primary difference between profit and cash flow is that the profit is the amount of
revenue earned by the business owner that may not increase cash immediately wherein cash