Business Finance: Components, Analysis, and Recommendations

Business Finance

Contents
Introduction..............................................................................................................................................3
Task 1 3
Explain:................................................................................................................................................3
Analysis of management of company financial results in the wake of above components................5
Recommendation to improve company’s cash flow through better working capital management.....6
Introduction..............................................................................................................................................7
Task 2 7
1. Monthly Cash budget from 1st January to 1st April, 2021................................................................7
2. Observations and recommendations to the management of Thorne Estate Limited.......................8
References..............................................................................................................................................11

Introduction
Business finance is that function of business which pertains to draw up activities that
are related to financial health of the business. It includes recording and assessing information
of financial nature for the business (Zherlitsyn and Kravchenko, 2016). This task is about
preparing a report for shareholders explaining the meaning and differences of the various
components related to the financial accounts and working capital management of Trend Ltd
(“TL”). On the basis of this information, financial results and operational management of the
company is analyzed to recommend steps that company management can take to improve cash
flow through better working capital management.
Task 1
Explain:
1. Profit and Cashflow
Profit: Profit in a business is an accounting term that is used to represent net income
over expenses. Net expenses over income are known as loss. Profit are one of the basic
benchmarks that an investor looks for whenever seeking information of a company to
ascertain potential investment in it. It is further divided to pay out dividends to
shareholders and remaining amount is retained in business.
Cashflow: Cash is basic necessity of business operations and cashflow refers to the
net movement of the cash in and out of the business during a specific period of time (Akan
and Tevfik, 2020). It can be both positive and negative in a business. Positive cashflow
refers to surplus of inflow over outflow while negative cashflow refers to surplus of
outflow over inflow. Cashflow in a business is ascertained through cashflow statement in
an organization. Cashflow statement is further divided into operating cashflow, financing
cashflow and investing cashflow.
Difference:
Particulars Profit Cashflow
Term Accounting term and created
only for accounting in books
of account.
Physical term as involved
with checking physical
movement of cash and
cash equivalents.
Focuses on Tracking income and
expenses
Tracking inflow and
outflow of cash

Recorded on Accrual Concept Cash Concept
Includes Both cash and non-cash items Only cash items
2. Working Capital and its components – receivables, inventory and payables
Figure 1 Components of Working Capital, 2021 Source: WallStreetMojo
Working Capital: Working capital is an accounting concept which is used to denote
difference between the current assets and current liabilities of the company. It is calculated
by deducting current assets from current liabilities as well as through working capital ratio
which is also known as current ratio (Chung and et. al., 2016).
Receivables: These are part of current assets and includes all the debtors that
company have during its operational process. It also includes the amount that is due to
business to bills of exchange. These are managed through receivables’ management cycle
which is aimed at ensuing timely collection and avoidance of bad debts.
Inventory: These are also part of current assets and includes the stocks of all the raw
materials to the finished products that the company deals into. Inventory management forms
an integral part of the working capital management so that its ordering, handling and
delivering cost is optimized and company is saved from wasting any resource.
Payable: These are part of current liabilities and includes all the creditors that
company have during its operational process. It also includes the amount of bills of
exchange that is due to business to pay off. These are managed through payables’
management cycle which is aimed at ensuing timely payment so that credit worthiness of
company remains good.