Best Sources of Business Finance and Cash Flow Analysis for Victory Plc

This report covers the best sources of finance for Victory Plc, the difference between profit and cash flow, and how changes in working capital affect cash flow. It also includes a recommendation to improve cash flow and a cash budget for Bemus Limited.

BUSINESS FINANCE

EXECUTIVE SUMMARY
The report has been summarized the right issue is the best source of finance for Victory Plc.
Further, the report has been also stated the difference between the profit and cash flow. The
report has been further analysed how changes in working capital affect cash flow along with the
recommendation to improve cash flow and cash budget. Lastly, the report has been computed the
cash budget of four months for Bemus limited and recommend the strategy to improve cash
budget to Bemus.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
PART A...........................................................................................................................................4
Best sources of business finance for Victory Plc.........................................................................4
Difference between Profit and cash flow.....................................................................................5
Meaning of working capital (WC) and how changes in WC affect cash flow............................5
Analysis and recommendation of steps to improve cash flow of Victory Plc.............................6
PART B...........................................................................................................................................7
1. Preparation of cash Budget for the four months from 1st March 2022 to 30th June 2022........7
2. Recommendation to Management of David Bemus................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1

INTRODUCTION
Business Finance is a process of raising and utilizing funds by the business organization
(NGUYEN and NGUYEN, 2020). This report will cover best sources of finance have to be use
by Victory plc. The report has also cover difference between profit and cash flow and how
working capital affect cash flow. Further, the report prepares the cash budget and recommend the
steps to improve the same.
PART A
Best sources of business finance for Victory Plc
The three different option available to Victory Plc out of which they need to select one
option for raising funds of £100 million are as follows:
Non-current loan: This is the first option in which the company can take loan of £100
million at interest rate of 5% for 15 years. This is one of the way to raise funds the impact of
which company need not the share profits and also get tax benefits. But on the other hand, it will
cost Victory plc extra interest expense of £75 million (£100 * 5% * 15 years). Also, company
need to provide its assets on security (Visconti, 2020).
Debentures: Another way to raise funds is issuing 2.5% debentures of £100 million. This
is beneficial for company to acquire funds from this source as it provides tax benefits to them.
But, Victory Plc also need to pay fixed interest of £2.5 million every year to debenture holders
even in the case of loss incur by company.
Right Issue: Victory Plc can also raise funds to its existing shareholders in the form of
right issue and raise funds from them. Here, the organization need not to pay any fixed dividend
as dividend is payable to shareholders on profit earning only (Oh and Penman, 2021). It is
basically one of the fast sources of raising funds but the shareholding percentage of existing
shareholders may get diluted. It is because they have the option to either subscribe for right issue
or ignore it.
Best sources of finance:
After critically analysing the three most suitable sources of finance, it is advisable to the
management of Victory Plc that they should raise funds of £100 million from the Issue of Right
shares. It is because this is not only one of the fast sources but also the best sources of raising the

funds. Under this, Victory Plc can offer shares to its existing shareholders on discount which
further involves less rigorous rules and regulations. Further, it is best because the right issue
incurs low cost. It means the company need not the incur underwriting fees which they need to
pay at the time of issuing fresh shares from an IPO. Here, the management of Victory Plc can
provide option to its shareholders to maintain the same ownership. It means the existing
shareholders of Victory Plc can buy additional shares under right issue in proportion to its
existing shareholdings (Ni and et.al., 2019). Further, it is best because company can raise funds
without a form of debts and also BOD cannot misuse share issuing options. Thus, right issue is
best source of finance from where Victory Plc should raise funds.
Difference between Profit and cash flow
Generally, Profit and Cash flow both are most significant financial metrics which plays
important role in the success of the organization. Cash flow basically state the amount of money
come in and goes out of the business. While on the other hand, profit which is also known as net
income denotes the amount remains with the organization from the sales revenue after
subtracting all the expenses. The profit is computed based on accrual basis while cash flow is
prepared on cash basis. Profit is the net income after expenses are deducted from sales and cash
flows are the actual money going in and out of the business. Another difference between the cash
flow and profit is such that cash flow is depending upon the income statement but income
statement is not depending upon the cash flow statement. But on the other hand, it is important
for the company to understand the management need both profit and cash flow for the success of
the organization (Būmane, 2018). A business can have good cash flow and not high profit. Also,
a company can be profitable with not having adequate amount of cash flow.
Meaning of working capital (WC) and how changes in WC affect cash flow
Working Capital is basically the amount of funds the company requires to use for the
purpose of business day to day financing. It is difference between the current assets and current
liabilities of business. For example,
Impact of Changes in working capital over cash flow:
The changes in WC affects the cash in two ways such as if working capital increases, the
company’s cash flow decreases. While on the other hand, if working capital decreases, then

company’s cash will increase. For example, in the case of Victory Plc, their liquidity position is
highly affected because of the financial difficulty faces by one of its largest customer during
Covid-19. The impact of which they have created Provision for Doubtful Debts of £12 million.
This is basically a change in current liability of Victory Plc such as increase in current liability
by £12 million (Barnhill and Rundio, 2021). The ultimate impact of such change over the cash
flow of Victory Plc is that their cash flow will also be increases.
Another example includes, if the inventory of company goes up without making changes
in any other items, then in such case the impact of this increase in current assets will leads to
decrease in cash flow. It is because the organization has definitely spent cash from operation to
buy or purchase raw material. In this way, a change in working capital affects the cash flow of
the business.
Analysis and recommendation of steps to improve cash flow of Victory Plc
Improving cash flow of the business is quite challenging for the business. The steps which
is recommended to Victory Plc which they should adopt in order to improve their cash flows are
as follows:
 Giving customer incentives and penalty: It is recommended to management of Victory
Plc that they should provide incentives to their customers for the early payment of dues.
While on the other hand, the company also need to charge penalties for the late payment
of dues. This is need to be done in order to improve the credit policy of the business. For
example, giving 2% or 5% discounts to customers if they pay full amount in cash in the
month of sales (Li, and Gu 2020).
 Cutting Tax spending: This is also one of the steps that is recommendable to
management of Victory Plc the ultimate outcome of which their cash flow will get
improve. For example, Victory plc should invest funds in projects and investment plans
which are tax deductible (Gaber and et.al., 2019). The ultimate outcome of which the
company’s tax liability will decreases and cash flow will get improve.
 Considering leasing instead of buying: This steps indicate that Victory plc have to take
assets on lease rather than buying it in order to avoid heavy cash outflow and improve net
cash flows.

PART B
1. Preparation of cash Budget for the four months from 1st March 2022 to 30th June 2022
Monthly Cash Budget for the four months
From 1st March 2022 to 30 June 2022
Particulars March April May June
Cash In
Cash generated from sales 35100 69900 89250 89430
Total cash in 35100 69900 89250 89430
Cash Out
Cash paid to supplier on purchase 3450 35250 41300 34250
Overheads payment 22000 17500 16000 19500
Rent payment 0 36000 0 0
Payment for three delivery van purchase minus cash
received from sales of two older van 0 0 0 43400
Purchase of shop fittings 15000 0 0 0
Payment of installation cost 0 0 7000 0
Payment to tax liability 0 58800 0 0
Drawings 2106 4194 5355 5366
Payment of salary 2050 2050 2050 2050
Total Cash out 44606 153794 71705 104566
Net Cash flow -9506 -83894 17545 -15135.8
Balances
Opening 1380 -8126 -92020 -74475
Closing -8126 -92020 -74475 -89611
Working Notes:
Cash generated from sales:

March = £90000 * 40% = £36000
Cash discount of 2.5% = £36000 * 2.5% = £900
= £36000 - £900 = £35100
April = £110000 * 40% = £44000
Cash discount of 2.5% = £44000 * 2.5% = £1100
= £44000 - £1100 = £42900
= £90000 * 30% = £27000
= £42900 + £27000 = £69900
May = £75000 * 40% = £30000
Cash discount of 2.5% = £30000 * 2.5% = £750
= £30000 - £750 = £29250
= £90000 * 30% = £27000
= £110000 * 30% = £33000
= £29250 + £27000 + £33000 = £89250
June = £87000 * 40% = £34800
Cash discount of 2.5% = £34800 * 2.5% = £870
= £34800 - £870 = £33930
= £110000 * 30% = £33000
= £75000 * 30% = £22500
= £33930 + £33000 + £22500 = £89430
Cash paid to supplier on purchase
March = £34500 * 10% = £3450
April = £42000 * 10% = £4200
= £34500 * 90% = £31050
= £4200 + £31050 = £35250
May = £35000 * 10% = £3500
= £42000 * 90% = £37800
= £3500 + £37800 = £41300
June = £27500 * 10% = £2750
= £35000 * 90% = £31500

= £2750 + £31500 = £34250
2. Recommendation to Management of David Bemus
After analysing the above cash budget of four months, it is identified that in all the four
months the closing balance of cash is negative. It is because of the negative cash flow of the
Bemus Ltd organization and smaller opening cash balance of only £1380. Not only that, the
reason behind the negative cash flow of the organization is that the amount of net cash outflow is
higher than the amount of net cash inflow in all the four months. So, on this basis, it is
recommended to the Bemus Ltd that they should implement appropriate strategy in order to
improve the cash budget or cash flow in the business. This strategy are as follows:
 Firstly, it is recommended to management of David Bemus that they should apply proper
credit policy for their customers. It means they should make strict policy that every
customer has to repay all the dues in the month of sales and in case if they will pay on
EMI than they need to pay interest on it (Baderan and Karim, 2022). Along with this,
they should offer higher discount facility to customers that ready to purchase goods on
cash rather than credit. The impact of which the cash inflow will get increase which
further leads to higher cash balance.
 Further, it is also recommendable to the organization rather than buying delivery vans on
full cash payment, they should take it on lease. It is because if they will take the assets on
lease they do not require to pay higher amount in cash at a single point of time. The
impact of which the cash outflow from the organization get decreases and on the other
side net cash flow increases. Thus, it is advisable to the organization to take the delivery
van on lease rather than buying it.
 Lastly, it is also recommended to the Bemus ltd that they should pay its supplier less or in
EMI such as in more than two instalments rather than paying in only one instalment. It is
because this is one of the best way to reduce the heavy cash outflow at one point of time.
Further, offering electronic payment option to customers is also one of the best way to
collect the dues from the debtors quickly (Goodman, 2020). Thus, in this way, the
management of Bemus Ltd able to increase cash flow of the business and also manage
high closing balance for emergency case.

CONCLUSION
After summing up the above information and calculations, it is concluded that the cash flow
of both Victory Plc and Bemus Ltd is poor. In order to improve the same, the report has
recommended appropriate steps to the management of both organizations.

REFERENCES
Books and journals
NGUYEN, D. D. and NGUYEN, A. H., 2020. The impact of cash flow statement on lending
decision of commercial banks: Evidence from Vietnam. The Journal of Asian Finance,
Economics and Business. 7(6). pp.85-93.
Visconti, R. M., 2020. Cash flow forecasting of debt-free startups. Milán: Univerità Cattolica
del Sacro Cuore. Obtenida el. 10(04). p.2021.
Oh, H. I. and Penman, S. H., 2021. Income Statement Mismatching Conveys Information and
Has Not Reduced the Informativeness of Earnings Over Time. Columbia Business School
Research Paper, Forthcoming.
Ni, Y. and et.al., 2019. Cash flow statements and firm value: Evidence from Taiwan. The
Quarterly Review of Economics and Finance. 71. pp.280-290.
Būmane, I., 2018. The methodology of the statement of comprehensive income and its impact on
profitability: the case of Latvia. Entrepreneurship and Sustainability Issues. 6(1). pp.77-
86.
Barnhill, C. and Rundio, A., 2021. Developing a Cash Budget for the Savannah Squares. Case
Studies in Sport Management. 10(1). pp.42-45.
Li, Z. and Gu, J., 2020, February. Research on Artificial Intelligence Cash Budget of Electric
Power Enterprise Based on Evidence Reasoning. In The International Conference on
Cyber Security Intelligence and Analytics (pp. 308-314). Springer, Cham.
Gaber, M. M. and et.al., 2019. Optimizing Cash Flow of Construction Projects through Different
Bid Pricing Schemes. Journal of Engineering Research. 3(June). pp.66-75.
Baderan, U. S. and Karim, D. F., 2022. Cash Distribution Effectiveness during the Covid-19
Pandemic in Prosperous Village Abadi, Tolangohula District, Gorontalo
Regency. Journal of Community Health Provision. 2(1). pp.86-92.
Goodman, P. S., 2020. Europe's Leaders Ditch Austerity and Fight Pandemic With
Cash. International New York Times, pp.NA-NA.
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