MOD003319 Business Finance - Assignment
Added on 2019-12-17
12 Pages3199 Words393 ViewsType: 393
Finance
|
|
|
Business FinanceModule Code: MOD003319
PART 1The Difference between Profit and Cash FlowCash flows are the difference between the cash that the business receives and payments while profitability is the dissimilarity between the income and expenditure. Profitability is not n appraised regarding cash accounted for or expense incurred. As with the case of wild frontier limited, it is evident that the company is not using its cash flows wisely for the benefit of its shareholders and business continuity (Damodaran, 2010). The company invested 2000 pounds to take owners to go and watch West Ham FC and bought VW Amarok worth 32000 pounds. This expense is not incurred to generate profit for the business.Operating Cash FlowOperating cash flows deals with cash activities in the business operations whether the cash transduction is created income or expense incurred at the time of the transaction. About wild frontier limited, the company is having tied up capital in store inform of inventories. The impact of high tied upon capital in the store is that the business will have less cash flow to finance its daily operations. As a result, wild frontier limited should ensure that there is an efficient inventory management to ensure that there no too much tied up capital in the form of inventory.Non-Cash IncomeThe company may be profitable as a result of non-cash income, but the expense may portray no effect on cash holding for the business. A company will account for income when realised under accrual method (Henderson, 2015). When a company collects cash for the last financial period, any cash realised will spur growth in cash of the business with no effect on profitability. Failure of the business to collect cash from debtors may depict liquidity risk
From the case of Wild frontier builders, the company has poor debtors collection p-policy. Since debtors take a long time to pay their debt while at the same time the company is having poor creditors control policy. Since it is evident that the company's having An overdraft with owed cash from building project that was undertaken by vultures estate and weasel properties in which case, the company is in six months delay of repaying creditors, which they call for legal action against wild frontier builders.Growing profitability.The concept of working capital management is important since company focus on the debtors and credits management to guarantee effective working capital. Nevertheless, other external factors such as legal institution and business performance or internal ethics such as organisation structure may affect the working capital. The wild frontier builders is a family owned company with 20 staff members with business being controlled by Neil Geezer who owns 25% shareholding and is the son the founder. The remaining 75% owned by three sisters (Kim, Courtney, and Chloe). The business structure for wild frontier is the risk about business expansion and profitability since, the company is having poor capital management and poor cashmanagement since it is evident that the company incurred 2000 pound to taker owners to watch west ham FC and bought VM Amarok worth 32000 pounds. All this cost are not business related cost considering the fact that the business has not paid its supply for the last six months and are considering suing the company and the company is also having in months bank overdraft. This isa sign of company poor cash flow management (King, 2006). The Importance of Working Capital Management for Wild Frontier Builders Ltd There benefit of working capital to wild frontier builders is that the daily operations of the business will effectively be managed and hence reduce the liquidity risk and facilitate capital
growth. Working capital is an understandable notion since it is linked to some cost of living and thus may be understood in a personal way. The importance of working capital for wild frontier builders is diverse, and they may be the dissimilar amount for dissimilar companies. This is as a result of many aspects including dissimilar collection and payment policy, the timing of asset purchase and the opportunity for business writing off some of its debts and some instance of capital expansion that the company will undertake (Shi, 2001).It is evident that Wild Frontier Builders Limited are having poor cash flow management, which depicts a serious cash flow problem for the company. In this regards to saving the company from the liquidity crisis, wild frontier builders need to ensure that there is effective working capital, which calls for improved debtors and creditors management and correct of use of cash to generate more income to the business. Working capital is important in accounting strategy with the focus on the maintenance of sufficient equilibrium between current asset and liabilities of the business. Effective manage of cash flow will make wild frontier builders limited to cover its financial commitment and provide the methodology of aiding the company in boosting its earning. The management of working capital by wild frontier limited would mean that the inventory control system is managed as well as the debtors and credits management will be effective. An efficient working capital management many at times employs the key performance ration such as the working capital ratio, inventory turnover ratio and the debtor collection period ratio. What steps should be taken by Wild Frontier Builders Ltd to improve the company's working capital managementWild frontier builders must depict a contingency plan that will cover the unseen events while the market leaders may control the unforeseen also. The company must have risk control process that
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
Business Finance Report of Eye Watering PLClg...
|17
|4064
|68
Capital Budgeting - Assignmentlg...
|11
|3700
|182
BUSINESS FINANCE INTRODUCTIONlg...
|13
|4312
|400
MSC Accounting and Finance: Financial Analysis and Cash Budgetinglg...
|11
|2104
|252
(Solved) Business Finance- Assignmentlg...
|14
|4171
|160
Financial Management in the Hospitality Industry: Planning, Budgeting, and Reportinglg...
|13
|3076
|128