Business Finance

Business Finance

Table of Contents
PART 1............................................................................................................................................3
EXECUTIVE SUMMARY ............................................................................................................3
MAIN BODY...................................................................................................................................3
1. Explain the following terms.....................................................................................................3
2. Apply the above concept and show that how company managed which further affect the
financial results............................................................................................................................4
3. Recommend some steps which helps in improving the cash flow of the company for better
working capital management.......................................................................................................5
CONCLUSION................................................................................................................................6
PART 2............................................................................................................................................6
EXECUTIVE SUMMARY ............................................................................................................6
MAIN BODY .................................................................................................................................6
1. Purpose of preparing budget and explain the traditional as well as alternative budgets.........6
2. Demonstrate the application of budgets which used to plan future cost management for the
business........................................................................................................................................8
3. Analyse that whether traditional or alternative budgetary method appropriate for business. .9
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

PART 1
EXECUTIVE SUMMARY
This report based on the accounting concepts such as profit, cash flow, working capital,
inventory etc. How organization able to managed these changes which further affect the financial
results of the company. In order to cover this content, this project report based on Bright lawns
Ltd (BLL). Along with this, recommend some steps to improve the cash flow with the help of
working capital management.
MAIN BODY
1. Explain the following terms
(a). Difference between profit or cash flow:
Profit: This term define as financial benefit which generated with the help of performing
operational activities of the business (Pettit and Singer, 2014). In the organization, profit will be
measured on three major basis such as gross profit, operational profit and net profit which is the
final one. It further help the manager to evaluate actual performance of the business with the help
of analysing overall revenue of the company.
Cash flow: It is the movement of cash in terms of in or out from the business which
affect the liquidity of the company and it further affect the production. All the business related
activities recorded in the cash flow statements such as income, expenses, payment of mortgage
interest, any investments, borrowings etc.
Basis Profit Cash Flow
Meaning It is the financial gain which
organization get from business
activity. Profit is the value which
remains after deducting all the cost of
business operations.
Inflow or outflow of cash represented
the operational activity. Different
between inflow or outflow of cash
represent the liquidity of the company.
Measure It is used to measure the success of
business in terms of profit.
It is used to measure the flow of cash in
the organization in terms of inflow or
outflow.

Formula Profit = Total revenue – cost of good
sold
Cash flow = Cash inflow – cash outflow
(b). Explain the following term:
Working capital: It is the term which used in the organization in order to fulfil their day
to day requirement of fund (Atrill, McLaney and Harvey, 2014). Difference of current assets or
current liability known as working capital which required by every organization.
Formula: Working capital = Current assets – Current liability
Receivable: In this process, company will receive payment from its customers who
purchase goods & services on credit. In context of business, it is the amount which owned by the
customers but not yet paid by the clients.
Inventory: It is the stock of the company which consider to be finished goods but
inventory also describe that raw material which used to produce final goods. Basically there are
three time of inventory which used by the organizations such as raw material, work in progress
and finished goods.
Payable: It is the amount which owned by business from its suppliers and it will be
mentioned in the liability side as account payable. It is the obligation which organization have to
pay as soon as possible.
(c). How change in working capital affect the cash flow:
Working capital change because of various reasons, so organization have to make sure
and try to minimise the impact on cash flow. In context of business, if debtors not pay the
amount then it will increase the balance of currents assets (Aktas, Croci and Petmezas, 2015). On
the other hand, there are various items which required to write off and it further affect the cash
flow of the company.
If balance of assets side decreases because of then cash flow from operating activity also
decreases because. On the other side, when balance increases then it also affect the cash flow
operating activity. Any kind of changes in the working capital line will directly affect the cash
flow of the company.

2. Apply the above concept and show that how company managed which further affect the
financial results
In context of Bright Lawns Ltd, company follow all the above mention mention concepts
where last year turnover of business exceed from £ 50 million. Company managed by the Simmo
who is grandson of the founder. Last year operating profit of the company was £ 5 million before
interest and tax. Debt of the company increased to £ 18 million from £ 16 million last year
recorded and Simmo suggest that, company required more investment from the shareholders in
order to reduce the debt of the company (Harris, 2015). Bright Lawns Ltd owned £ 1.5 million
pound for the order which placed by C&P last year.
3. Recommend some steps which helps in improving the cash flow of the company for better
working capital management
In order to improve working capital management, company improve their cash flow
statement ans all the transactions related to it. There are some important steps which Bright
Lawns Ltd should follow in order to improve their performance of business operations. Some of
the recommendation discussed below:
 Earning additional profit: In order to improve or increase cash flow of the company,
manager of Bright Lawns Ltd have to find the way to earn additional profit and it will be
possible through better working capital management. Business have to increase their
operational activity in order to maximise profit margin.
 Issue common stock or preference stock for cash: Company have to issues shares in
order to improve cash flow for better working capital management (Aktas, Croci and
Petmezas, 2015). In order to perform their day to day activity they required sufficient
working capital and it will possible when company have enough liquidity to perform its
operational activity.
 Borrow money on long term basis: Bright Lawns Ltd have to make sure that, they
borrow money for long term duration because short term debt will increase the obligation
to pay in shorter time which is not possible sometimes. Management have take loan for
longer period which provide them enough time to repay.
 Replace short term debt with long term debt: Company have to replace short term debt
with long term debt which improve the cash flow of the company for better working

capital management. With the help of it, manager formulate their strategy accordingly
because Bright Lawns Ltd already have enough debt so they need more time to repay it.
 Selling long term assets for cash: In order to increase the liquidity of the company,
organization have to sell their long term assets for the cash. Because, in order to perform
well in their operations they required working capital and it will be possible when
company sell their assets for the requirement of cash.
 Identify non valuable activity: Bright Lawns Ltd have to identify those activities which
does not provide value for the company. It will save the cost which improve cash flow for
better working capital management.
In addition, when company effectively manage their inventory and account receivable
then it will further help in increasing liquidity of the company. It will turn into improving
working capital management of Bright Lawns Ltd. Along with this, if business negotiate with
suppliers on more favourable terms then company having benefits with large cash balance.
CONCLUSION
From the above discussion, it has been concluded that accounting principles and standard
should followed by the every organization in order to analyse their business activities. Business
evaluate the profit and cash flow to measure the actual revenue which company generate from its
business operations and what changes they required to manage working capital which affect the
cash flow of the company.
PART 2
EXECUTIVE SUMMARY
This report summarised the budgetary system which include traditional as well as
alternative budget that used by the organization in order to formulate their strategies through
estimating future revenue of expenses. This report based on the BoatWorld Plc which is an
international leisure company or offer boats on rent to the holiday makers.
MAIN BODY
1. Purpose of preparing budget and explain the traditional as well as alternative budgets
Purpose of preparing budget:
 Is to forecast the income as well as expense of the company.

 Purpose of preparing budget is to make effective decision which help the organization to
maximise their productivity as well as profitability (Atrill, McLaney and Harvey, 2014).
 With the help of budget, organization able to minor their business performance which
required in decision making process.
Traditional Budget: It is the method of preparing budget where organization taken last
year budget for the base. Current year budget prepare with the help of few changes in the
previous budget (Atrill, McLaney and Harvey, 2014). Manager of the company adjust the
expenses according to the market or consumer demand, inflation rate, market condition etc.
Currently BoatWorld Plc follow this budget which has some advantage and disadvantage which
mentioned below:
 Strength: This budget provide a framework to control all the operational activities which
further useful in managing stability of the company. It is beneficial, if business wanted to
obtain finances which further help the investors to make financial plan before investing in
the company.
 Weakness: It might be inaccurate in terms of goals because manager of the company just
manipulate the projection not actually estimating each cost. It is less time taken in
comparison to zero base budgeting but it takes enough time to adjust budget as per the
actual results.
Alternative budgetary system: There are various alternative budgets which
organizations can follow in order to find accurate results. Some of the alternative methods
discussed below:
Rolling budget: This budget refer to the continually updated where business add new
budget period when most recent budget period completed. It is include the incremental extension
for the existing budget. Every organization has budget which always extend one year into the
future. Some of the advantage or disadvantage mentioned below:
 Advantage: Planning & controlling will be based on accurate budget and it will reduce
the uncertainty of the budget because they concentrate on short term budget. It always
extended in the future approx 12 months.

 Disadvantage: It is more costly in comparison to traditional budget as well as time
consuming process. It will demotivate the employees if they spend more time on
budgeting.
Zero base budget: It is the method of budgeting where all the expenses justify from the
zero base. In this budget, all the estimation start from the initial process where previous budget
information no longer useful. It help the business to provide accurate cost which further
beneficial for manager to formulate strategies (Walasik, 2017). Some advantage or disadvantage
mentioned below:
 Advantage: It help the business to justify each expanses for every new period and focus
on the resources which required to perform their task of achieve business objectives. It
helps in reducing the waste activity which increase the overall product cost.
 Disadvantage: It is very costly and complex process to produce budget because they
have to estimate each item from the base activity. It is not so useful in manufacturing
company and it will take enough time to plan this budget.
Activity based budget: This budgeting method developed after estimating each cost of
the overheads (Drury, 2016). It is an management accounting tool which does not consider the
past year information of budget. Its advantage or disadvantage mentioned below:
 Advantage: It help the organization to set their priorities according to the projects which
further helps in planning & managing the delivery of services in the future. It helps in
spotting the area which required high fund for the further actions.
 Disadvantage: If, estimation of cost increases then it will lead to increase the cost of
overall products. It also required various information in order to estimate accurate cost
and enough time to estimate cost or prepare budget.
2. Demonstrate the application of budgets which used to plan future cost management for the
business
BoatWorld Plc currently follow the traditional budgeting method where they use previous
budget information in order to develop new budget for the period. Alternative budgeting method
is beneficial for the company because they open a new outlet in the two location.
In context of BoatWorld Plc, management follow the above mention all the concepts
from last 25 years. Company has last year revenue around £ 250 million , market capitalization is
around £ 300 million and have obligation to pay £ 50 million. In order to maximise their

production or profitability, company plan to open a new outlet in Netherlands and two in
Germany where they purchase 30 boats to support the expansion of business. Above mention
information beneficial for the company at the time of preparing budget.
By using zero based budgeting BoatWorld Plc have to formulate strategy from the initial
stage which is beneficial for the company. It help the business to get accurate results for further
decision making process.
In order to change their budget on regular basis, company can follow the rolling budget
which include some changes as per time and market situation. BoatWorld Plc can follow it and
make continuously changes through adjusting cost of the product as per the requirement.
By using activity based costing, company estimate each cost as per the activity which
required to achieve business goals & objectives. BoatWorld Plc determine the cost as per the
marketing, selling or distribution activity.
3. Analyse that whether traditional or alternative budgetary method appropriate for business
Traditional as well as alternating budgeting methods both are beneficial for the company
as per the required of business operations. In context of BoatWorld Plc, still company follow the
traditional budgeting method but it is suggested that, they have to follow zero based budgeting
method for their new outlets (Weetman, 2018). One is in the location of Netherlands and two in
the Germany, so it good to implement this alternating method of budgeting in the business
organizations. Company have multiple option, but this method is beneficial which provide
accurate results which further help the managers to formulate strategies accordingly and make
sure to male policies and plan accordingly.
Zero base budgeting method is beneficial for the new operations because it does not
required any previous information because business have to estimate each cost from the initial
process. Each and every estimation required lot of time as well as efforts of the managers to
build this budget and they make sure that all the activities perform accordingly. For their UK
operations, BoatWorld Plc follow the traditional budgeting method but their new outlet they
adopt zero based budgeting method which is situated in Netherlands or Germany.
CONCLUSION
From the above discussion it has been concluded that, there are various methods of
budgeting which help the managers to formulate budget according to the requirement of business

operations. Traditional budget currently used by the BoatWorld Plc and for their new outlet they
follow zero base budgeting because there is no previous budget so they have to start from the
zero base. It is time taken process but it will provide accurate cost of the product which help the
managers to make effective decisions and formulate further strategies.

REFERENCES
Books & Journals
Aktas, N., Croci, E. and Petmezas, D., 2015. Is working capital management value-enhancing?
Evidence from firm performance and investments. Journal of Corporate Finance/. 30.
pp.98-113.
Atrill, P., McLaney, E. and Harvey, D., 2014. Accounting: An Introduction, 6/E (Vol. 6).
Pearson Higher Education AU.
Drury, L., 2016. Mine water supply assessment and evaluation of the system response to the
designed demand in a desert region, central Saudi Arabia. Environmental monitoring
and assessment. 188(11). p.619.
Pettit, R. R. and Singer, R. F., 2014. Small business finance: a research agenda. Financial
management, pp.47-60.
Walasik, A., 2017. A Compulsory Corporate Finance: Reflections on the Scope and Method.
In New Trends in Finance and Accounting (pp. 643-652). Springer, Cham.
Weetman, P., 2018. Financial reporting in Europe: Prospects for research. European
Management Journal. 36(2). pp.153-160.