Business Finance - Analysis of Sales, Gross Profit and Cash Flow

This article provides an analysis of sales, gross profit and cash flow of a firm in the month of January, February, March and April. The article reveals that the firm had observed a wonderful financial position in the month of January, but was unable to maintain such a position in the following months. The article also suggests recommendations to improve the financial position of the firm.

Running head: BUSINESS FINANCE
Business Finance
Name of the Student:
Name of the University:
Author Note

1BUSINESS FINANCE
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................3
References..................................................................................................................................5

2BUSINESS FINANCE
Answer to Question 1
As it can be observed from the calculations and the analyses carried out in the
spreadsheet, the firm enjoys a good financial position in terms of revenue generated by sales
of products and services in the month of January. This is because the variance deduced in the
month of January is a negative figure (-670) revealing that the sales of products and services
in the month of January is more than estimated by an amount of 670. However, this scenario
changes in the month of February as it can be observed from the table prepared that the
variance results in a positive figure. A positive variance in case of sales implies that the
actual sales has been less than what has been estimated. The month of March observes a huge
positive variance of 612 implying that the firm has missed the targeted amount of sales due to
the occurrence of any contingencies by a significant amount of 612. Lastly, the month of
April however, observes a turnaround as the variance is only 82.
In case of the cost of sales table prepared, the cost incurred in the production of the
respective goods and services have been calculated and the amount has been deducted from
the revenue gained in that particular month in order to reach the respective amounts of gross
profit. The gross profit in the month of January reveals a positive variance of 433 indicating
that the gross profit incurred is less than the budgeted figure by an amount of 433. Secondly,
the month of February however turns around by incurring a gross profit that is more than the
estimated figure by a precise amount of 289. The months of March and April both reveal a
negative variance of (- 605) and (- 199) indicating that the firm is in a stable position and in
incurring revenue more than what is expected by the management1.
1 Sponem S, Lambert C. Exploring differences in budget characteristics, roles and
satisfaction: A configurational approach. Management Accounting Research. 2016 Mar
31;30:47-61.

3BUSINESS FINANCE
The financial statement of cash flow, prepared for the purpose of business also reveal
that the payments received in the month of January has been more than the estimated amount
by an exact amount of 737. However, this trend falls in the month of February, March and
April as the variance amounts to a positive figure of 174, 673 and 90 respectively. This
proves that the firm, in the month of January had observed a wonderful financial position
both in terms of sales and in terms of revenue. However, as revealed by the computed figures
of variance it is unable to maintain such a position in the following months. This is because
the variance results in a positive figure indicating the expected receivables to be more than
what was actually received. The cash position of the company is not at all in a healthy
position except in the month of January, which reveals an amount of 36. The following
months of February, March and April reveal a negative cash position. This indicates that the
liquidity position of the company is not at all good and measures should be taken to improve
such a condition.
Answer to Question 2
The variances in case of salesreceivables and gross profit indicate that the firm had
incurred less than what was estimated. This could be due to a number of resources like not
ensuring optimum utilization of the available resources; rise in the price of the labor cost or in
the cost of production. Secondly, changing tastes and preferences of the consumers;
utilization of equipment, technologically not sound enough to execute the desired job, that is,
no up gradation of infrastructure; and lastly, inefficient employees2.
The only recommendation in such a situation is that the management of the salon
should implement internal controls in order to find out the particular issue that is resulting in
2 Udeh IA. Audit budget potentials. Review of Business. 2015 Jul 1;36(1):35.

4BUSINESS FINANCE
such a highly fluctuating graph. Enough initiative on the part of the management should be
taken in order to improve the required infrastructure and ensure optimum utilization of the
resources. This would also help in reducing the total cost of production. The firm should also
make it a point to operate and innovate its products and services in accordance to the
changing demands and preferences of the consumers. Lastly, monetary rewards and
incentives should be declared by the management in order to boost employee morale.

5BUSINESS FINANCE
References
Sponem S, Lambert C. Exploring differences in budget characteristics, roles and satisfaction:
A configurational approach. Management Accounting Research. 2016 Mar 31;30:47-61.
Udeh IA. Audit budget potentials. Review of Business. 2015 Jul 1;36(1):35.