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Business Finance Introduction

   

Added on  2020-06-04

11 Pages3246 Words295 Views
BUSINESS FINANCE

Table of ContentsINTRODUCTION...........................................................................................................................1PART 1............................................................................................................................................11. Explanation of financial problems..........................................................................................12. Concepts subject to managing financial results......................................................................33. analysation and recommendation about the steps taken to improve company's cash flow.....4PART 2............................................................................................................................................41. Capital budgeting purpose and key steps, investment appraisal methods..............................52. Compare the alternative investment option with practical example.......................................73. analysis and recommendation subject to project plan.............................................................8CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9

INTRODUCTIONBusiness finance is a process which is being used by the managers and senior levelauthorities to make finance plans and strategies. This report is prepared for financial analysis ofproject plans of Root and Cook Ltd (Meaning of business finance, 2018.). In the first part of thisproject, investment plan is analysed in various parts. Concept of working capital managementand hypothetical numbers are illustrated in this context. Second part of covers investmentinvestigation and compare the best investment option among two such as Reading or Bristol.PART 11. Explanation of financial problems(a) Meaning of cash flow statement and profit and their differenceCash flow statement: Organisations prepare cash flow statement at the end of the year toanalyse the flow of cash during the year (Anandarajan, Anandarajan and Srinivasan, 2012). Cashflow statement is prepared on the basis of three activities such as cash flow from operatingactivities, cash flow from financing activities and cash flow from investing activities.As per above scenario, RCL wants to raise funds from the repay of its debts and externalliabilities. . As per the scenario given above, RCL raised funds by issuing shares of worth £10million which is 30% of its share. It is practically presented in the cash flow statement. Cash flow statement of RCL for the year ended 31st March 2017 ParticularAmount (£)Cash flow from financing activityissue of 30% share capital 10000000Income and expenditure statement: It is also considered as a profit and loss statement.Organisations prepare this statement to determine profit and loss amount during the year. Profitand loss statement present the financial performance of organisation (Harrison, 2013.).Profitability is measured with around two major activities such as profit and loss from operatingactivities or profit and loss from non-operating activities.In the above case scenario, RCL Ltd. earned £18 million last year before interest and tax.It is presented in the profit and loss statement given as below: Profit and loss statement of RCL Ltd. for the year ended 31st March 20171

ParticularsAmountRevenues:operating profit earned during the yearExpenditure:Administration expensesSalariesLess: Interest and taxesNet profit £18,000,000----Profit and loss statement as well as cash flow statement; both are different from eachother. Cash flow statement majorly defines the cash inflow and cash out flow withinorganisation. Whereas, profit and loss statement defines the profitability and financialperformance ducting the year. (b) Meaning of Working capital and meaning of receivables, inventories and payablesWorkingcapital: WC indicates towards the difference between current assets andcurrent liabilities (Brooks, 2014). It is calculated by deducting current liabilities form currentassets. It helps to determine the amount of working capital required for the particular duration.Working capital ratio is calculated as (current assets / current liabilities), it is also known ascurrent ratio. If results come over 2; it means organisation is not investing in assets. If resultscome in between 1.2 or 2.0 then it is considered as optimum position. Receivables: This is one of the types of current assets. Receivables indicate towards thepayment to be collected from clients and customers. All the debts and unsettled transactions areconsidered as receivables (Baños-Caballero, García-Teruel and Martínez-Solano, 2014). This isalso considered as debtors and shown in balance sheet. As per the above scenario of RCL Ltdowed £12 million in respect of series of large orders by D&R last year. Complete investmentamount of £12 million will be considered as receivables.Payables: It indicates towards the amount to be paid to creditors. Account payables arethe part of current liabilities which are also presented in the balance sheet. It is considered asshort term debts and liabilities which are required to be paid within a year. For example: aninvoice of £5 million from a supplier will be considered as account payables. It will be presentedin balance sheet in current liabilities. 2

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