Business Finance: Meaning of Profit and Cash Flow, Working Capital, Receivables, Payables, Inventory, and Cash Flow Management

Business Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART A...........................................................................................................................................1
1) A) Meaning of profit and cash flow and description of their difference................................1
B) Explanation of working capital, receivables, payables and inventory...................................2
C) Explanation of changes in working capital effect cash flow..................................................3
2) Company is being managed might affect its financial results................................................3
3) Recommendation related to effective working capital management......................................4
EXECUTIVE SUMMARY.............................................................................................................5
PART B............................................................................................................................................5
1. Prepare a monthly cash budget for four months.....................................................................5
2. Any observations or recommendations that you would make to the management of Thorne
Estates.........................................................................................................................................7
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
Business Finance defined as external monetary assistance utilize whenever an
organization runs short of capital. The funds enable individual to manage routine operational
activities, expand market reach, obtain raw material, invest in infrastructure and many similar
necessities (Beekes and et.al., 2016). It provide funds for business working capital requirement,
capital requirement and also provide diversification of funds. In this report covers meaning of
profit and cash flow their difference, changes in working capital, meanings of receivables,
inventory and payables. Moreover, provide suggestions for the improvement of cash flow for
better working capital.
PART A
1) A) Meaning of profit and cash flow and description of their difference
Profit: The term of profit defined as financial benefit that realised when revenue
generated from business activity exceeds the expenditure, costs and taxes consist of in sustaining
the activity in question. It is mainly used by the business to present business activity and reward
to business owners for investing. In the other words, when incomes are greater than expenditure
so it is known as profit and it is essential part of any business that presents growth and strong
performance.
Cash flow: It is net amount of cash that an entity acquire and pay out in certain period of
time. A positive cash flow presents good management of cash and maintain liquidity in business
and a negative cash flow indicates higher cash out flow. Cash flow mainly represents the money
coming and going out of an entity in particular period time. It is providing relevant cash flow to
analysis the quality of income (Boschmans and Pissareva, 2018).
Difference between profit and cash flow
Particular Profit Cash flow
Meaning It is a overall amount in which
producers generate after deducting
the production costs.
It is defined as net amount of cash
and cash equivalents being
transferred into as well as out of
business.
Time For the calculation of profit not This statement is developed by the
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required particular time period. It
is calculating by the organisation
on monthly, weekly and yearly
basis.
business at the end of fiscal year that
present actual situation of cash flow
in business.
Calculation It is calculating by various
methods by using managerial and
accounting techniques. Along
with it is calculated by profit and
loss statement in which mention
all the income and expenses
(Cowling, Liu and Zhang, 2016).
It is calculated by record each item
in cash flow statement and
categorised different activities into
different functions like operation,
financial and investment. By this
statement manager recognise net
cash flow activity.
Purpose The main purpose of profit to
maintain sustainability in business
entity and present financial health
effectively.
The main reason to identify actual
financial performance of an entity
that supports to generate cash
appropriately.
B) Explanation of working capital, receivables, payables and inventory
Working Capital: It is the amount invested in short term asset of an entity that is
represented by stocks, short term receivables and cash balances in which deduct short term
liabilities. It is defined as differences of current assets and current liabilities. In current assets
consist of cash, stock of raw material, accounts receivables and in current liabilities, bills
payable, bank and many others. Working capital is a measurement tool which is utilised to
present liquidity of business and presents the differences between operating current assets and
current liabilities.
Trade receivables: These are amounts billed by a business its customers when its
delivers goods and services them in ordinary course of business. This is commonly used by
collections staff to collect overdue payment from customers. For an invoice to be added trade
receivables, full payment must be expected within one year. It is total amount owing by company
for goods or services it has sold, which are reflected in invoices that company has issued its
clients, but has not yet received payment (Heil, 2017).
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