Business Finance: Managing Funds for Better Performance

This report provides an overview of business finance, including topics such as cash flow, profit, working capital, and cash budget. It explains the differences between profit and cash flow, the meanings of receivables, inventory, and payables, and how changes in working capital affect cash flow. The report also offers recommendations for improving cash flow through working capital management. The case study focuses on Trend Ltd, a manufacturer of gym clothing and footwear. The report includes a cash budget for the months of January to April for Thorns Ltd.

Business
Finance

INTRODUCTION
Business finance is about how businesses managing its funds for running their activities.
It is about funds & credit employees for business. Business finance is about need for purchase
assets, raw material, goods for running business activities. It is about managing funds for
businesses. Business finance includes financial statements which includes balance sheet, cash
flow, income statement. Cash flow has various activities which includes operating activity,
investment activity, financial activity. Balance sheet has various elements which is liability,
assets. Income statement has various elements which includes liabilities, assets. This report is
about business finance. The company which is includes for this report is Trend Ltd. It is
manufacturer for gym clothing, footwear businesses. This report includes topic which are profit
& cashflow, working capital, meaning for receivables, inventory, payables, how change in
working capital affects cash flow, how business manage financial results, recommendation for
improving cash flow by working capital management. Apart from this it includes topics which is
cash budget, analysis for businesses (Akan and Tevfik, 2020).
TASK 1
A. What is meant by Profit and Cash flow and how they are different
Profit: Profit is an remaining incomes after all costs are paid and it is usually defined
when they are describing any firms activity. It includes labour, interest and taxes that firm should
be provided. Profit is a rewards for any firm and it is useful for business owners that they are
investing in any activity of enterprise. In case of Trend Ltd, profit is important for firm because
profitability impacts whether a firm can secure their financing and attract many investors to fund
its operations that would be helpful for growing their business. It is an income which is
distributed to owner if they work in profitable areas and it is measure for which the owner can
consist of major part in interests.
Cash flow: It is an statement where they can identify whether cash inflow and outflow in
an enterprise. It measures how firm can manage their position of cash and how well firm can
generate its pay debt obligation and maintained fund for upcoming obligations expenses. It is
mainly used for increase or decrease in amount of money where business, institution or
individual can invest any fund. The amount of cash where firm can used receives or gives the
payment to creditors. With relation to Trend Ltd, managers used this cash flow to identify how
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much inflow and outflow of cash in an enterprise and it is mainly determine for pay their debts
obligation, return their money to shareholders, pay their expenditures and provide framework to
against upcoming challenges. If firm has negative cash flow then there is reducing their assets.
There are three types of activities in cash flow statement are as follows:
Operating activities: It should describe flow of money which is involve directly with
production or sold of goods and services and it reflects how much cash are generated in an firm
products or services.
Investing activities: This term describe that how much cash has been generated for
several investment that would be related to various specific activities for a particular period of
time.
Financing activities: This activity shows that how much net cash flow which is used for
fund for its capital and it includes various transactions are debt, equity and dividends.
Difference between cash flow and profit:
Profit Cash flow
It is a income that firm deduct all cost and
remaining part is famed as profit.
Cash flow determine how much cash inflow
and outflow in a firm at a given point of time.
Profit is more indicator for firm success
(Anglemark and John, 2018).
Cash flow is more important for firm because
they can keep their firm activity in day to day
operation of business.
They can survive large period of time without
surviving any negative income
There is lack of cash flow which leads to swift
dying
B. What is meant by Working Capital and, the meanings of Receivables, Inventory and Payables
Working capital: This term consist of difference between current assets and current
liability and it is indicate for short term financial position of firm. This capital indicated that
liquidity level of firm mange day to day transactions which covers inventory, cash, payables,
receivable and short term debts. In case of Trend Ltd, if there is proper management of working
capital is an essential fundamental of financial health which indicates whether can firm has an
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adequate cash flows to convert into short terms debts and expenses. In business, short working
capital is available for meet their current financial need and involve short term obligations of
firm.
Account receivables: It is an payment that firm can receive from its customer to sell
their various products or services on credit basis. It is that amount of money that clients owes in
terms of written agreement obligations. This is typically gathered after some weeks and recorded
on assets that required firm's balance sheet. With context to Trend Ltd, it is important for firm
because they can measure and identify those money which customers owes to business for
various goods and services that are already provided. To analyse a firm which will helpful for
investors that they should gain a better sense of firm overall efficiency and financial health of
enterprise.
Inventory: It is a amount of various tangible goods and services that they offers for
customers and this term can be available for sales of goods and raw materials which is used for
produce goods and they are available for sale. Stock can be referred from one place to another
place and it is ensure that there is high stock on hand and identify where is storage. With relation
to Trend Ltd, it can saves money and allows customers to meet their current needs and wants.
They knowing what they have and how to manage stock supply chain properly and they should
decent place items in right people at right place at a right time.
Account payables: When firm purchases good and services on credit basis which needs
to be paid on a very short period of time. It is expected that paid off within a year or specific
operating cycle and it is represents that firm obligation to pay off short term debt by its creditors
and suppliers. It is mainly shown in liability side in balance sheet. In case of Trend Ltd, it is
important for organisation because it is a procedures which would be ensure that all invoices are
due to tracked properly and paid all time. This will be helpful for making and missing payments
twice.
C. How changes in Working Capital affect Cashflow
Changes in working capital affects cash flow statement because firm's working capital are
should be reduce since there is cash portion of current assets are also reduced. If there is positive
working capital defines that cash inflow should be sounded and if there is negative working
capital then firm can spend more cash so that they bought working capital in firm. If a
transaction are increase then current assets and current liabilities are same amount so there is no
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changes in working capital. For instance, if firm purchase a fixed assets such as plant and
machinery, land and building firm cash would also reduced. Working capital of firm are also
would decreased since there is a cash portion of current assets are decreased but liabilities of firm
remain fixed because of long term debts of company. Changes in working capital and impact on
cash flow also affect firm capability but it is important to identify those changes that will impact
on profitability and productivity in an business enterprise.
If a firm can purchase stock with cash then there would be no change in working capital
because stock and cash both are current assets (Gopal and Schnabl, 2020). Moreover, cash flow
of firm can reduced if they purchase of inventory. Sometimes changes in working capital cannot
affect in increase or decrease in cash flow because when working capital is insufficient then firm
capability are decreased. If there is available for more than need an working capital the fund
should attract cost and hence it leads to loss and decrease cash flow of firm. When changes in
working capital are important for firm then cash flow fluctuations is generating an earning
forecast for various methods of cash flow. There is negative working capital display that firm can
rely upon their short term lend to finance their operations of business. If there is increase in
working capital which indicated that management are investing in short term financial position
of firm.
Recommendation
Keep net working capital ratio for check: Businesses should set goals for better
working capital ratio. Working ratio helps for knowing how business plans for growth for its
necessary liabilities, assets. Businesses using for knowing how it managing activities for pay
debts for assets.
Improve businesses inventory management: Businesses assets includes inventory for
businesses working capital. It using inventory for managing sale, generating sale, generating
income.
Manage expense better for improve cash flow: Cash flow is necessary element for
businesses. Working capital management is about managing cash flow for expense which
includes bill, purchase. Cash flow helps for knowing which expenses gives more cash for
businesses (Mian and Sufi, 2018).
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Automate process for business finance: businesses hire employee for manually
handling financing process. Automate account using for eliminate expenses for generating profit.
It need for strong employee which helps for track cash outflow, cash inflow for businesses.
Incentivise receivable: Businesses has manage relation for customers for knowing
business is able for fulfil debt. Businesses which is automate helps for knowing customers who
pay for businesses. It helps for knowing which customers gives money for businesses (Parle and
Laing, 2017).
Establish penalty for late payment: It is process for knowing which customers pay late,
manager generate element which is penalty. Customers pays for late funds for businesses.
Work for vendor who gives better deal: Businesses generate better relation for vendor
those gives better discount for purchase for businesses. These gives offer for better payment.
Businesses believe vendor for their value which helps for better performance which helps for
higher profitability for businesses.
Track businesses performance for data analysis: Businesses track performance by
knowing data which activity generate profit. Businesses financing opportunities helps for track
data for potential fund investor. Businesses managing data for knowing profitability which helps
for better performance which helps for higher profitability for the businesses (Sauer and
Wiesemeyer, 2018).
TASK 2
Cash budget for months 1st Jan to April:
Cash budget is about cash flow for businesses which it using for managing its funds
activities for generating higher profitability. This budget is using for know about businesses has
necessary cash for continue its activities. Cash budget gives views for businesses it needs cash
which helps for determine efficient cash. These cash inflow, outflow includes expenses, revenues
, loan payment, receipts. Cash budget is estimation for businesses cash performance how it using
cash for generating higher profitability. Management usually generate cash budget for sales,
purchase, capital budget. These budget helps for cash budget for better knowing how much cash
it need for businesses. Management using cash budget for managing cash flow for businesses.
Cash budget is using for financial budget which includes investments, debt, interest income for
the businesses. It has various elements which is sources for cash, using for cash. It is about,
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sources for cash element includes beginning cash balance, cash receipt for cash sales, account
receivables, sale for assets. It is about, using for cash elements includes cash expense, account
payable, purchase for assets. Cash budget helps businesses for managing its activities for
managing funds which they use for sales activities for generating profit (Tenca, Croce and
Ughetto, 2018). It helps businesses for knowing how much cash it need for managing business
activities which gives profitability (Stewart, 2018).
Thorns Ltd. Views cash budget for January to April which views various expense, receipt
for businesses. It views various fluctuation for cash expense, receipt. Cash receipt are views for
94000, 63000, 99000, 164000 for January to April. Cash expense is views for 30550, 30550,
43250, 127750. profit which businesses has views expense subtract by various receipt. Profit for
businesses views for 63450, 32450, 55750, 36250 for January to April.
Analysis: As per above data cash budget for Throne Estates Limited, it views their c ash
flows for January to March is fluctuate. In context to January, it was 63450 which is reduce by
3250 for February. For March it is views for 55750 which increase for better performance (Torfs,
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2020). It views their cash budget needs for reduce expenses, increasing cash receipts which is
generate by increasing sales. The above businesses needs increase cash sales, reduce expenses,
generating more businesses income (Walker, Pekmezovic and Walker, 2019). Cash budget
views cash flows for businesses (Wilson, Kacer and Wright, 2019). Cash budget is about
managing cash for business activities which helps for better performance which helps for higher
profitability for the businesses (Ylhäinen, 2017).
CONCLUSION
From the above report it has been concluded that business finance is about managing
funds for running business activities. Cash flow is about which includes operating, investing,
financing activity which businesses using for generating higher profitability. Profit is about
expenses subtract income which views profit which earns businesses for their activities. Working
capital is about which includes current liabilities, current assets. Account receivables is about
amount which customers pay for their purchase. Inventory is about which business has for sales.
Payable is about amount which businesses has pay for their purchase. Cash budget is about
which views cash payment, cash receive for running activities for businesses. Business finance
managing funds for running their activities which helps for better performance which helps for
higher profitability for the businesses.
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REFERENCES
Books & journals:
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