Business Finance: Concepts and Application in Mediterranean Delights Ltd

Business Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
PART 1...................................................................................................................................3
1. Explanation about following terms:...................................................................................3
a..............................................................................................................................................3
b..............................................................................................................................................4
2. Application of above discussed concepts in context of Mediterranean Delights Ltd:.......4
3. Analysis and Recommendations:.......................................................................................6
PART 2...................................................................................................................................7
EXECUTIVE SUMMARY.............................................................................................................7
1..............................................................................................................................................7
2..............................................................................................................................................9
3..............................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

EXECUTIVE SUMMARY
The concept of Business Finance refers to the resources, monies, investments and
obligations involved in business processes. The key role for managers and business operator is to
control employed resources and to use resources efficiently in business (Cole, 2013). The study
as a whole has two sections, the first providing a detailed review on multiple business concepts
such as accounts receivable, accounts payable, cash flows and profit in context of Mediterranean
Delights Ltd.
PART 1
1. Explanation about following terms:
a.
Profit: It is also termed as the “net income,” as the amount of earning that exceeds cost in an
accounting period. Profit is a measure of profitability which is the owner's major interest in the
income through market production. Profit is one of the major sources of economic well-being
because it means incomes and opportunities to develop production. It is the reward generated by
business owners for their initial investment. Profit is further classified in three parts are as
follows- gross profit, operating profit and net profit (Hussain and Scott, 2015).
Cash Flow: It is the financial statement that provides aggregate data regarding of all cash inflow
(amount received) and cash outflow (amount paid) of an organisation during an accounting
period. It is essential to summarize the amount of cash and cash equivalent entering and leaving
a company. It is believed to be the most effective among all financial statements as it is helpful
in operations, investment and financing cash flow. This statement of cash flow acts as a bridge
between the income statement and balance sheet by showing the movement of money in a
business.
Difference between cash-flows and Profit:
S. No. Basis of difference Profit Cash Flow
1.) Definition It consists the positive
difference between total
revenue and total costs.
It consists of the money that
flows in and out of business
on accounting period.
2.) Firm Survival It is critical for firm's survival. It is not so much critical for

the firm to survive as compare
to profit.
In business entity may also face a situation where it earned profits but also has negative
cash flows. Thus it is clear that profit shows company's profitability level while cash-flows
shows short-term liquidity situation of corporation (Jansen, 2016).
b.
Working Capital: It is also termed as Net Working Capital (NWC). It means the difference
between current assets and current liabilities. If these assets are less than these liabilities, its
working capital deficiency. The increase in assets from liabilities leads to working capital
inefficiency. This refers to an indicator of short-term financial position of an organisation and
also measures its overall efficiency (Wilson, 2016).
Receivables: The account receivables are the balance of money due to firm for goods and
services delivered to customers, still to be paid in future. It is any amount of money owed by
customers for purchases made on credit. Companies record account receivables as assets on their
balance sheets as its legal obligation for customer to pay debt. It is one of a series of accounting
transactions dealing with the billing of customer for goods and services that they have ordered to
be paid in future.
Inventories: It is also termed as merchandise. The inventory is an accounting terms refers to
goods (raw materials, work-in-progress and finished products) which are ready to be sold at
profit- margin. It can be measured through valuation method by First In First Out (FIFO), Last In
First Out (LIFO) and Average Cost (AVCO).
Payables: The account payables are the amount due to vendors or suppliers form goods and
services received are not yet paid. It is the money owed by business to its suppliers, shown as
liability on company's balance sheet. These are distinct from notes payable liabilities, which are
debts created by formal legal instrument documents (Keuper and Lueg, 2015).
2. Application of above discussed concepts in context of Mediterranean Delights Ltd:
Profit:
Mediterranean Delights Ltd has reported business's operating profit figures of amounting
£5million that reflects that net sum earned by company from business before providing any sum
of tax and loan or debt interests. This positive sum amount of business operating profit is