Business Finance: Cash Budget, Company Features, Corporate Governance, Gearing

This report covers the preparation of cash budget for Kashi textile, features of a company, advantages and disadvantages of forming a public company, importance of cash, existence of corporate governance, principles of good governance, and gearing and its advantages and disadvantages.

Business Finance

TABLE OF CONTENTS
TABLE OF CONTENTS.................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Preparing cash budget for Kashi textile......................................................................................3
TASK 2............................................................................................................................................4
Meaning of a company and its features.......................................................................................4
Advantages and disadvantages of forming a public company....................................................5
The crucial importance of cash to a business. Difference between cash and profits earned by a
business.......................................................................................................................................7
Reason for the existence of Corporate Governance....................................................................7
Principles of good governance as described by the Corporate Governance Code......................8
Gearing and its advantages and disadvantages and Interest of banks in companies level of
gearing.........................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business finance is being referred to as the fund needed by company to manage its
operation and earn profits. Without the use of finance, the company cannot operate in better and
effective manner. The present report is based on case scenario of Kashi textiles wherein the cash
budget will be prepared for the company for next three months based on transaction provided.
Further in another task, the discussion relating to company and its features along with benefit and
drawback of public company will be highlighted. In addition to this the importance of cash and
existence of corporate governance will be outlined. As last the gearing and its advantages and
drawbacks will be evaluated along with the reason why bank is interested in knowing level of
gearing of any company.
TASK 1
Preparing cash budget for Kashi textile
The cash budget is being referred to as the estimation of cash flow relating to the business
for a particular period of time. This is necessary for the reason that when the company prepares a
cash budget then this provides a base to the company that how much estimated cash they can
generate within the company. in case the cash budget will not be prepared by the company then
this will be affecting the working efficiency and operational activity of business to a great extent
(Plaskova and et.al., 2020). the use of cash budget is important for the company because it assist
the company in maintaining financial stability of company. This is because of the reason that it
provides for the net amount of cash which will be left by company after paying off all its
expenses.
Particulars Jan Feb March
Receipts £ £ £
Capital 25000 22362 20430
Sales 4500 6890 5670
TOTAL RECEIPTS 29500 29252 26100
Payments
Computer 1980
Drawings 700 700 700
Purchases (Show working notes) 328 2152 4282
10% same month 328 512 410

50% next month 1640 2560 2050
40% in 2 months’ time 1312 2048 1640
Accountants fees 250 250 250
Delivery charges 100 100 100
Telephone costs 425
Other expenses 250 250 250
Hire charges 250 250 250
TOTAL PAYMENTS 7138 8822 10357
Net Receipts / (Payments) 22362 20430 15743
Balance brought forward 22362 20430 15743
Balance carried forward 22362 20430 15743
With the analysis of the above cash budget it is clear that the company is in position of
earning good amount of profit within the next three months. The reason underlying this fact is
that when the company will be having cash surplus then this will improve the working efficiency
of the company. Also, with the above cash budget it is clear that the total expenses of company
are on increasing trend. Along with this increase, the total cash receipt of company is also
increasing which is good for the company. hence, it can be stated that Kashi textile is going to
improve its cash surplus within the coming next two months. It is good for the performance of
company because in actual when the approximate performance will be made then it will improve
the working of company to a great extent.
TASK 2
Meaning of a company and its features
A company represents a group or association of people formed to do a business. It is a
legal entity. People in a company can be either natural, legal or both. All the members in a
company share common interest and unites in order to achieve their objective (Finck 2018). A
company can be limited or unlimited, private or public, limited by guarantee, having share
capital or community interest company.
Features:

 Incorporated Association -To come into existence company has to be registered under the
companies act and it has to fulfil all the requirements of documents, shareholders, directors
and share capital to be said as a association that is legal (What Is A Company? Meaning,
Features, & Types Of Companies, 2021). Artificial legal person -A company in the eyes of law is a artificial person that has all the
rights to acquire and sell any property and enter into contracts under its name and it can also
sue and be sued by other. Separate Legal Entity -A company has an existence that is different and not dependent on its
members. It implies that it is only the company who is responsible for the repayment of
creditors. The members of the company can not be sued for the actions of the company. Perpetual Existence -Companies existence does not depend on the existence of its
shareholders, directors or employees. Common Seal -As an artificial person company uses its own common seal on behalf of its
signature. Any document that has common seal on it legally binds the company. Limited Liability -A company may be limited by shares or by guarantee. Limited by shares
company’s shareholders’ liability is only limited to the amount of shares unpaid by them.
Limited by guarantee company’s members’ liability is limited to the amount they have
agreed to pay.
Advantages and disadvantages of forming a public company
Advantages Raising capital by issuing shares to public
A public limited company enjoys the ability to raise share capital if it is listed on a
exchange that is recognized. This ability allow company to raise funds from the public. People
interested in company buy its shares. This is the reason of capital of a public being much higher
than that of a private limited company. Funds from hedge funds, mutual funds and other
institutional traders are also attracted as the company’s stock are listed on the exchange. Spread of risk
Public offering of shares gives the opportunity to the company to spread the risk that
comes from ownership over a large number of shareholders. The early investors of the company
may have the advantage of selling some of their share at a higher price as compared to the
amount invested by them and earn profits along with reserving their substantial stake in the

company. Acquiring capital from a large number of persons results in avoidance of counting on
few people.
 Finance opportunities
A public company is always in a better state when it comes to raise funds from potential
sources of finance other than raising funds through public issue of shares. Being a public limited
company that maintains its shares on stock exchange listings results in improvement of credit
worthiness of the company (Pinato and et.al., 2020). Hence, it is easier to get funds by corporate
debt. Raising funds through corporate sources is beneficial in a sense that it reduces the
expenditure incurred on payment of returns to shareholders. Banks and other financial institution
prefer public limited company over private limited company to extend them finance,
 Opportunities for growth and expansion
In the previous points it is discovered that public limited company have ease in raising
funds. Availability of sufficient funds allow public company to undertake new projects to
produce new products in new markets. Expenditure on building assets to provide enhanced
support to the organization is convenient to do. Sufficient funds are available also for research
and development and for paying existing debt.
Disadvantages Greater regulatory requirements
The legal and regulatory rules and laws that has to be abide by a public company are
more difficult than that of a private company in order to protect the shareholders. In addition a
listed company has to follow the rules of the market. Understanding of the rules consumes extra
time, effort and appointment of specific staff or advisers. Requirement for transparency
Both the private and public limited companies’ details are available via companies house
in the public domain. The level of transparency required is higher for the public limited
companies. More detailed data regarding business and its performance has to be disclosed and
the information is accessible to everyone.
 Issues related to ownership and control
It is difficult to have have control on who is the company’s shareholder, to whom the
directors are accountable to. Possibility of loss of control related to the direction of the company
from the original directors is always existing.

 Vulnerability towards takeovers
In a situation where majority of shareholders agrees to a bid, company becomes
vulnerable to takeover. Shares of a public limited company are highly freely transferable this
allows potential bidder to build up advance shareholdings in order to launch attempt of bid.
The crucial importance of cash to a business. Difference between cash and profits earned by a
business.
Cash is the physical money available in the for to notes and coins and money in the bank
of the business. It is very crucial for a business to manage its cash as it enables it to pay for
the bill (Afrifa and Tingbani, 2018). Without cash it is not possible for a business to
survive. Key for a successful is having cash and its efficient and effective management.
Cash is needed to make payments to suppliers, employees and overheads.
Profit is the revenue that is left with the business after deduction of all of its expenses.
Profit is the indicator that indicates the success of business in accomplishing its overall
goals and objectives while cash is needed on daily basis to retain and run the business in
market successfully (Rosyafah, 2021). In a long term subsequent lack of profits for years
have a negative impact towards the cash flow of the company.
Reason for the existence of Corporate Governance
Corporate governance is a way by which a company is directed and controlled through a
system of rules, practices and processes. An essential feature of corporate governance is to
brought up balance in the varied interests of different stakeholders of the company (Bhagat and
Bolton, 2019). In order to attain the objectives of a company corporate governance provides
framework, all the steps of management right from planning to formation of action plans are
enclosed in this framework (What is corporate governance? ,2022). Below are the reasons for its
existence:
Increases Transparency
Now companies know that having verification of financial outcomes only by auditors is
not sufficient. So companies bring measures to increase transparency so that they can avoid
regulatory authority to interfere and mandate a costly framework for regulating the business.

When regulatory authority implements measures to ensure transparency in place of companies,
its profits declines, compensation to executive and CEO turnover rises.
To Avoid Market Shocks
Usage of aggressive accounting strategies and engagement in fraudulent activities by firm
weaken the whole economic system. Corporate governance prevents such a situation from
happening.
Shareholder Activism
Ensuring sustainability in business operations is a global initiative now. Corporate
governance ensures compliance with environmental and other social concerns by the business
enterprises. Focus on management and disclosure of risks to environment is increasing in
companies. Attitude of being socially responsible have benefits that are harder to quantify than
the other fields that have advantages because of increased transparency.
Reduce Conflicts of Interest
Corporate governance provides relief to companies from the conflicts arising as a result
of variations in interest. These conflicts of interest come from the positions that are responsible
for maximization of profitability in promotion of self accountability.
Principles of good governance as described by the Corporate Governance Code
Transparency
Stakeholders believe in being more certain by having more information. Companies that
are more transparent about their actions on operations and also in regard with finance earns trust
by the public. At all levels of operation transparency is important for business enterprise. It is
more crucial at top management level, the level at which all major decisions are taken and plans
are formulated in accordance (Asumadu, 2019). A relationship of trust builds up by providing all
the information to the stakeholders and gives easy funding access.
Accountability
It means willingness or obligation towards the acceptance of one’s own actions.
Accountability is often seen with negative perspective and misunderstood as Blame Game.
Although accountability provides answer to more questions along with pointing out the
responsible person for an event. Accomplishments are also recognized through accountability. It

provides confidence to the shareholders. It ensures accountability of management to the board
and board is accountable to shareholders.
Independence
Independence means ability in making decisions freely without any influence. It is
essential for the smooth functioning of the company. The companies appoint independent
directors so that decisions taken are with integrity and from a mind whose judgement is based on
the best interest of the stakeholders.
Gearing and its advantages and disadvantages and Interest of banks in companies level of
gearing
Gearing shows dependence of a company on debt in its capital structure. Gearing is same
as leverage. Capital structure of a company is broadly divided into two: debt and equity. Liability
is represented by debt and ownership of assets of the company is represented by equity
(Muthoni, 2019). To what extent does operations of the company depend on its debt is
represented by gearing. Regular payments of interest and repayment of debts on becoming due
by the company is must.
Advantages Accumulation of wealth -Gearing helps in accumulation of wealth by allowing investment of
larger amount than a company could have invested with usage of its own money. Paying low income tax -Interest and all the other costs of gearing are tax deductible that has
potential of reducing taxable income (Gurbaxani and Dunkle, 2019). When borrowed money
is used for investing in investment that produce income it is generally tax deductible. Better usage of existing equity -Using existing portfolio for borrowing funds releases equity
and implementation of portfolio that is more diversified is made possible. Tax deductions can be brought forward -Prepaying interest may allow to bring forward tax
deductions. This is beneficial in scenario where a company is expecting its current year
income to be higher than that it will have in following year and interest rates are expected to
be higher in future.
Disadvantages

 Losses are magnified -It may happen that the investment gains are lower then the costs
incurred in gearing. In such a case the borrower may become insufficient to pay the interest
of the loan. And it may require borrower to sell its assets to pay for the service of loan. Loan cost and risk of interest rate -Costs related with loan changes with a change in its
interest rates and fees. Requesting for termination of a loan may induce extra charges too. Capital Risk -In case of non performance of investment as expected the borrower may
require to sell it and suffer capital loss. Income Risk -Borrower or investor can not reply on income generated by the investment to
service the as this source may not be always sufficient (Ghosh and et.al., 2019). They must
have any other source of regular income that is sufficient for both their living and service of
loan. The situation where this source of income gets affected because of any reason should
also be considered. Legislative Risk -reduction in tax benefits of gearing can also be affected by changes in tax
legislation and regulatory framework.
CONCLUSION
Based on this report meaning of business finance have been clear. This report outlined
how cash budget is prepared by the company. It has explained the meaning of a company and
pros and cons in formation of a public company. In addition, importance of cash and its
difference with profit have also been highlighted. Corporate governance and principles by
corporate governance code have been evaluated. Further, Gearing concept with its advantages
and disadvantages have also been analyzed.

REFERENCES
Books and Journals
Afrifa, G. A. and Tingbani, I., 2018. Working capital management, cash flow and SMEs'
performance. International Journal of Banking, Accounting and Finance. 9(1). pp.19-43.
Asumadu, E., 2019. A study on the principles of corporate governance with special to reference
to the code of best practices issued by sec Ghana. International Journal of Research in
Social Sciences. 9(8). pp.466-476.
Bhagat, S. and Bolton, B., 2019. Corporate governance and firm performance: The
sequel. Journal of Corporate Finance, 58, pp.142-168.
Finck, M., 2018. Blockchains: regulating the unknown. German Law Journal. 19(4). pp.665-
692.
Ghosh, A. and et.al., 2019. Gearing Up of Corporate Social Responsibility With Artificial
Intelligence: An Indian Forecast. Anwesh. 4(2). p.56.
Gurbaxani, V. and Dunkle, D., 2019. Gearing up for successful digital transformation. MIS
Quarterly Executive. 18(3).
Muthoni, G. G., 2019. Does gearing influence on corporate performance? Evidence from
Kenya. International Journal of Management and Sustainability. 8(1). pp.1-9.
Pinato, D. J. and et.al., 2020. Presenting features and early mortality from SARS-CoV-2
infection in cancer patients during the initial stage of the COVID-19 pandemic in
Europe. Cancers. 12(7). p.1841.
Plaskova, N. S. and et.al., 2020. Controlling in cash flow management of the company. EurAsian
Journal of BioSciences. 14(2). pp.3507-3512.
Rosyafah, S., 2021. Profit, Cash Flow, Dividend and Stock Return. Kaav International Journal
of Arts, Humanities & Social Science: A Refereed Peer Review Quarterly Journa, 4, pp.27-
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Online
What Is A Company? Meaning, Features, & Types Of Companies, 2021 [Online]. Available
through: <https://www.feedough.com/what-is-a-company-meaning-types-features-of-a-
company/>
What is corporate governance? ,2022 [Online]. Available through:
<https://www.icaew.com/technical/corporate-governance/principles/principles-articles/does-
corporate-governance-matter>