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(PDF) Business Finance - Assignment

   

Added on  2020-10-22

12 Pages3497 Words418 Views
Business Finance

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................1PART 1............................................................................................................................................11. Defining meaning of:..............................................................................................................1a. Profit and Cash flow along with their differences...................................................................1b. Working Capital, Receivables, Inventory and Payables.........................................................2c. Changes in Working Capital affects Cash flow of the company............................................32. The company manage is affecting its financial results. .........................................................33. Improving company’s cash flow through better Working Capital management....................4PART 2............................................................................................................................................51. Addressing the following:.......................................................................................................5a. Element of Financial Performance..........................................................................................5b. Calculating financial ratio.......................................................................................................6c. Interpretations..........................................................................................................................72. Recommendations for financial performance improvement...................................................8CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................10

INTRODUCTIONBusiness Finance is a broad term which refers to procurement and effective utilization offunds, cash, resources for carrying on the business operations and processes in a cost effectivemanner. It emphasizes on raising of funds from different sources and investing them as per setdefined goals and objectives. The report is about UberTools Ltd producing power tools. Thereport will provide the meaning of Profit and Cash flow along with their differences. It will alsodefine Working-capital, Receivable, Inventory and Payables meaning. How any changes inworking capital affects cash flow and measures taken for improving the cash flow will be discussin report. The report will disclose the financial statement of Madagascar Industries Ltd which isproducing jewellery by using imported gemstones from Madagascar and South Africa.Furthermore, calculation of financial ratios such as Sales Growth, Gross Profit Margin, Liquidityratio etc. and their interpretation for assessing the financial performance will be disclose. MAIN BODYPART 11. Defining meaning of:a. Profit and Cash flow along with their differences.Profit – The word profit is also known by term Gain. Profit in simple words, is the amount offinancial gain which is remaining after meeting all the business related expenses. The amount ofrevenue which is earned from conducting a business activity or trade, remains after meeting allcosts, expenses required for smooth functioning of the business organisation (Shackle, 2017). Acompany earns money from trade or business activity after making payment of all the costswhich is incurred for carrying on manufacturing, production processes as required for makingsells of goods and services.Cash Flow – The cash flow of a company depicts the movement of money, cash or fund in andout of business. It defines as the net amount of between cash available at the beginning of aperiod and the amount of cash available at the end of that period (Reid and Myddelton,2017).With the help of Cash flow, the company is able to assess its liquidity, solvency positionand also reflects the financial performance of the company.Difference between Profit and Cash Flow:1

S. No.BasisProfitCash Flow1Objective It shows the profitabilitysituation of the company orof a project.It reflects the liquidity as well assolvency position of the company.2ComputationWhen all the businessexpenses or costs arededucted from revenueamount, profit is ascertained.When all the cash outflows ofcompany are subtracted from thetotal cash inflows, net cash flow isdetermined.3PreparationMethodProfit is assessed by makingcomparison between the salesrevenue of current year withthe previous year.Cash flow is prepared on the basisof Income Statement and Balancesheet.b. Working Capital, Receivables, Inventory and Payables.Working Capital - Working capital is the amount of money available with the companyfor meeting its day-to-day business operations and cash requirements for making payment.Working capital helps in measuring the liquidity, solvency, profitability position of the companyfor a specified period of time (Working Capital, 2019). It indicates the short term financialposition of the business organisation by measuring the overall productivity, operationalefficiency.Receivables – Also known as Accounts Receivables. The term receivables basicallymeans the amount or proceeds in the form of payment received by the company from itscustomers who have purchased goods, products and consumed services on the credit basis (Min,2016). Receivables are in the form of bills or invoices which is raised by the company against itscustomer and is then delivered to them for making the payment which is due within thestipulated time period.Inventory – The term inventory means the quantity of goods, stock or materials whichavailable with the business organisation for making sales or for meeting the customerexpectations. Correct valuation of inventory helps business in earning more profit as thecompany is able to ascertain the quantity of stock it is holding and thus can reorder it beforestock out situation arises.2

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