Financial Aspects and Cash Flow Management

BUSINESS FINANCE
Contents
EXECUTIVE SUMMARY.........................................................................................................................3
MAIN BODY..............................................................................................................................................3
Section (i)................................................................................................................................................3
(ii) Concepts used to present the financial aspects to manage the impact of concepts upon financial
results......................................................................................................................................................5
(iii) Analyze and recommendation about steps that are needed to be taken in order to improve the cash
flow.........................................................................................................................................................6
PART 2.......................................................................................................................................................7
EXECUTIVE SUMMARY.........................................................................................................................7
(I) Importance of budgets and different methods of traditional budgeting...............................................7
(ii) Implementation of budgets to forecast cost for significant business..................................................9
(iii) Analyzing whether a traditional or alternative budgetary system is appropriate to all or any parts of
the business in its planned future form..................................................................................................10
CONCLUSION.........................................................................................................................................10
REFERENCES..........................................................................................................................................12

EXECUTIVE SUMMARY
Companies should successfully maintain their financial status and this can be done by the
implementation of essential techniques. In addition to these techniques and processes, businesses
also need to be aware of main financial principles such as income, cash flow and much more.
The report is divided into two sections. The first section of the project report outlines various
economic terms, including income, cash flows, stocks, etc. These aspects are defined in detail in
order to give an understanding of their function. In addition to the project report the effect of
working capital adjustment on the cash flows is summarized.
MAIN BODY
(i)
(a) Define Profit and Cash Flow and show how and why they are different
Profit- Profit is the income earned by the owner as an accounting part of a beneficial sales
process. Profit is a measure of efficiency, which is a significant consideration of the owner in the
trading cycle (Jordà, Schularick and Taylor, 2016). All corporate entities have a common goal of
making a higher profit in order to beat their competitors.
Cash flow- Cash flow (CF) means that a business, organization or individual has increased or
reduced value of cash for a particular time period. In finance, the term cash flow is the volume of
cash (currency) that is produced or absorbed over a period of time. The operation and financial
reporting of an organization rely on a number of CF sources.
Difference between cash flow and profit:
Basis Cash flow Profit
Mean On the other hands, it can be defined
as in and out of cash for a particular
time span.
The difference between the income
generated and the total cost value can be
defined as cash flow.
How to
measure
When making a statement on cash
flow, cash management accountants
Company accountants generate a profit
statement to calculate the amount of

are involved in businesses. earnings.
(b) Define Working Capital, Receivables. Payables and Inventory.
Working capital- In general, a difference between the current assets and the company's
current liabilities can be described as working capital. This capital is too valuable for companies
to take important decisions for everyday tasks and operations (Loughran and McDonald, 2016).
Without this capital, businesses can find it difficult to control their daily expenses. Working
capital is an operating liquidity tool accessible to a corporation, entity or some other agency, and
in specific government agencies Working capital, combined with fixed assets such as plants and
equipment, has been considered part of working capital.
Receivables- Account receivables are legitimate credit reports for goods that have not
been paid for but purchased by a corporation and/or the services offered by customers. They are
usually invoices issued by a client and sent to the customer for payment within an appropriate
time. Businesses measure the ratios of accounts receivable so that they can find out the value
they have to pay out to clients and other debtors to administer the receivables.
Payables- The payables are distinct from those in receipt, as if the company has more
payables it says it is responsible for paying more debt. In order that accounts payable can be
reduced to a minimal degree, businesses will be required to pay their payables in a shorter time.
Inventory- Inventories can be defined as the value of any product form stored in factories
for the production of new goods. In general, three types of inventories exist, such as raw
materials, work under way and finished products. The accountants apply a broad variety of
methods to calculate the valuation of the stored goods such as first-in-first out, last in first out
and weighted average.
(c) Effect of fluctuation in working capital on cash flows.
The word working capital is related to current assets and liabilities, as mentioned above.
The cash is a significant factor and the improvements in working capital have a direct effect on
company cash flow (Nyman, 2016). Eventually, accountants measure the increase in working
capital in order to generate cash flow from business operations. Current assets often benefit from