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Business Finance: Assignment

   

Added on  2020-10-22

13 Pages3644 Words464 Views
Business Finance

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1MAIN BODY ..................................................................................................................................1PART 1............................................................................................................................................1a. Explaining meaning and difference of Profit and Cash flow..................................................1b. Stating the meaning of Woking Capital along with Receivables, Inventory and Payables....2c. Changes in Working Capital affecting Cash flow...................................................................32. The way company managed affecting financial results..........................................................33. Steps taken to improve company's Cash Flow through better Working Capital Management......................................................................................................................................................4PART 2............................................................................................................................................51...................................................................................................................................................5a. Elements of Financial Performance........................................................................................5b. Ratio analysis..........................................................................................................................6c. Ratio analysis interpretation....................................................................................................82. Assessing the financial performance of business....................................................................9CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................11

INTRODUCTIONBusiness Finance is a term which defines the process of employing and effectiveutilization of money, funds and capital in the business organisation for achieving the set desiredgoals and objectives in a cost effective manner thereby maximizing the profits. Every businessrequires financial assistance for carrying on its business operations smoothly. Finance isconsidered as the blood of every business organisation. Hence, in business unit, manager plays avital role in developing competent framework and thereby contributes in performanceenhancement. The report is based on UberTools Ltd, which is engaged in a business ofproducing power tools. The present report will provide a deeper insight about the aspects ofProfit and Cash flow and how they differ from each other. Further, it also depicts the manner inwhich Working Capital management influences the level of cash flow. Furthermore, the reportwill explain about financial ratios and its uses for assessing the financial performance as well asfinancial position of the business organisation in the context of Madagascar Industries Ltd.\MAIN BODY PART 11.a. Explaining meaning and difference of Profit and Cash flow.Profit also known by term Gain, is defined as the amount of money earned after makingall the payment and meeting cost expenses incurred from conducting a trade and businessactivity during a specified period. It is used for measuring the success level of businessorganisation in terms of profits earned Cash Flow refers to the net amount of cash available with the company i.e. the differencein cash amount which is available at the beginning of a period and at the end of the period(Weber, 2018). It depicts the cash inflow and outflow that a business entity has during a period.Cash flow of a company is based on three activities:1.Operating Activities – It considers all activities which are carried on for conducting thebusiness operations and processes. It includes Net Income plus or minus the increase and1

decrease in the Current assets & liabilities and business expenses made for completingoperational activities (Weber, 2018).2.Financing Activities – These activities of business is related to increase or decrease inLong term debts, liabilities, owner's capital, repurchase of company's share or activityrelated to issuance of dividends (Weber, 2018).3.Investing Activities – This activity emphasizes on increase or decrease in the investmentmade by the company either in fixed assets, long term investment etc (Weber, 2018).The main difference between profit and cash flow of the business organisation is that Profit isconsidered as the Net income or revenues as earned by the company after meeting all theexpenses of that period in a definite time period whereas the Cash flow calculates the netincrease or decrease in the cash opening and closing amount or helps in determining the changein cash balance from period to period (Weber, 2018).b. Stating the meaning of Woking Capital along with Receivables, Inventory and Payables.Working Capital is defined as the amount of money which is required by the company formeeting its day to day business operations. Net working capital is calculated by taking all thecurrent assets and current liabilities of the business. It helps in assessing and measuring theoperating efficiency, liquidity, profitability and financial health of the company (Samiloglu andAkgün, 2016).Receivables – Also known as Accounts Receivables is defined as the payment which companyhas not yet received. It refers to payments which will be received by the company from itscustomers on purchasing of its goods & services on credit basis which a short term ranging fromdays to months. Inventory – It represents the product which is owned by company. It also defines the plan of howto use such inventory in carrying on production or operational process for next year. Theinventory of a business can be of nature such as raw materials, work in progress or finishedgoods. In working capital calculation, inventory is considered as part of Current Assets(Samiloglu and Akgün, 2016).2

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