Understanding Financial Information and Management of Cash

FINANCE

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................1
PART 1: FINANCIAL RATIO ANALYSIS...................................................................................1
Ratio Analysis..............................................................................................................................1
Interpretation and reasons for change..........................................................................................1
Why the calculation of the receivables collection period not relevant........................................3
PART 2: UNDERSTANDING FINANCIAL INFORMATION AND MANAGEMENT OF
CASH...............................................................................................................................................4
2.1 Meaning and difference between the profit and cash flow....................................................4
2.2 Meaning of working capital, receivables, inventory and payables........................................5
2.3 Presenting the changes in working capital affects the cash flow...........................................5
2.4 Analysis of the traditional and the alternative budgetary system and its appropriateness for
the business..................................................................................................................................6
REFERENCES................................................................................................................................8

MAIN BODY
PART 1: FINANCIAL RATIO ANALYSIS
Ratio Analysis
The ratio analysis for the period ended 31st December 2019 are as follows:-
2019
S.NO RATIOS FORMUALAS
CALCULATI
ON
1 Gross Profit Margin Gross profit / Revenues * 100 7.51%
Gross Profit 1540
Revenues 20510
2 Operating Profit Margin Operating profit / Revenues * 100 3.17%
Operating Profit 650
Revenues 20510
3 Current Ratio Current assets / Current liabilities 0.54
Current Assets 1570
Current Liabilities 2920
4 Quick Ratio
(Current assets – Inventory) /
Current Liabilities 0.25
Current Assets 1570
Inventory 850
Current Liabilities 2920
5 Inventory Holding Period Inventory / Cost of Sales * 365 16.35
Inventory 850
Cost of Sales 18970
6 Payables Payment Period Trade Payables / Cost of Sales * 365 40.41
Trade Payables 2100
Cost of Sales 18970
Interpretation and reasons for change
The interpretation of the above ratios pertaining to the financial year ended 31st
December 2019 and the reasons for change from 2018 to 2019:- Gross profit margin- The gross profit margin of the company shows the percentage of
the efficiency that the company has in managing its operations. It is calculated by
1