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Business Finance- Assignment

   

Added on  2020-10-23

11 Pages3312 Words175 Views
BUSINESS FINANCE

TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1PART 1............................................................................................................................................11. a) Profit and cash Flow and their Difference .........................................................................1b) Working capital and the meaning of receivables, inventory and payables.............................2c) Changes in working capital affect cash flow .........................................................................22) Application of concepts to Uber Tools Ltd ...........................................................................33) Steps that should be taken to improve company's cash flow through better working capitalmanagement................................................................................................................................4PART 2............................................................................................................................................41. a) Elements of financial performance.....................................................................................4b) Calculation of Ratios..............................................................................................................5c) Application of result based on result ......................................................................................62) Analyse and recommendation for assessing the financial performance of business .............7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................9

INTRODUCTIONBusiness finance refers to the way the business can acquire funds for its operations. Itinvolved the money and credit involved in the business. It is required to make provision of fundsso that it can be used whenever the funds are required in business. This assignment will includethe Uber tools Ltd that owns and operated a factory in Newmarket producing powers tools. Thecompany’s last year turnover was £400 Million. Further, this assignment will provideunderstanding about profit and cash flow and how these two are different. Also, it will explaininformation about changes in working capital and its effect on cash flow along with financialperformance of the company on the basis of financial ratios.PART 11. a) Profit and cash Flow and their Difference Profit of the company provide understanding about the revenue earned by the companyduring a financial year. Profitability of the company is determined on the basis of preparing theincome statement which provides understanding about the profits earned by company through itsbusiness activities (Burns and Dewhurst, 2016). The company’s profit is the net income earnedby firm by deducting the operating and trading expenses from the sales. Without adequate profit,a firm cannot survive in the long run (What's more important, cash flow or profits, 2018). Cashflow refers to the cash inflow and outflow through the operating, financing and investingactivities performed by company. Difference between profit and cash flow Profit Cash Flow It is the money left over the sales bysubtracting the cost.It represents the money from differentactivities which consist of operating,financing and investing.Timing in acquiring cash is differentbecause sometimes the cash is notreceived by customers due to delaypayments (Jordà, Schularick andTaylor, 2016).It is calculated before the money isreceived.It is based on cash basis of accounting It is an accrual concept (Finance,1

2015).b) Working capital and the meaning of receivables, inventory and payablesWorking capital is the money which is available within the firm from performing its day-to – day operations. It is used to calculate the liquidity of the firm on the basis of its workingcapital requirement. It is calculated by subtracting the current liabilities from the current assets. Itincludes the account receivables, payables and inventory (Bendell and Doyle, 2017). Balancesheet is used to identify the amount of working capital. Balance sheet is prepared to measure theposition and liquidity of the company by comparing assets and liabilities of the firm.Account receivables: It is shown in the current assets of the balance sheet. This accountshows the amount which is due from the customers that purchased the goods on credit.Account payables: It is an account which is shown on the liabilities side and providesinformation about the amount which is unpaid to the suppliers or vendors of company forpurchasing the goods and services on credit (Canales, 2016).Inventory: It is the amount of goods which is present with the company for selling and itincludes three stages which consist of raw material, work in progress and finished goods(Inventory, 2018). It is recorded in current asset section as it is held with the company for lessthan one year.c) Changes in working capital affect cash flow Working capital of the company have their impact on the cash flow because if there areany changes in the working capital it will be reflected through the cash flow. Changes in workingcapital affect the cash flow from operations.The following are the changes which will affect the cash flow:Increase in assets: If there is any increase in the assets, the cash flow from operationswill decrease.Decrease in assets: If the assets side of the balance sheet is decreasing, then the cashflow from operations will increase.Increase in the balance of liability: There is a direct relation between the cash flow andliabilities which means increase in liabilities will result in increase of cash flow fromoperations (Kraemer-Eis and et.al., 2018).2

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