Improving Cash Flow through Working Capital Management

BUSINESS
FINANCE

Table of Contents
Executive Summary.........................................................................................................................3
TASK 1............................................................................................................................................4
(a) What is Profit and Cash flow and difference between cash flow and profit........................4
(b) What is working capital, meaning of receivables, payables and inventory ..........................5
(c) Impact of changes in Working Capital that can affect Cash flow.........................................5
(ii) Apply the concepts with relation to this company................................................................6
(iii) Analyse and recommend what steps should now be taken to improve this company’s cash
flow through better Working Capital management. ...................................................................6
EXECUTIVE SUMMARY ............................................................................................................7
TASK 2............................................................................................................................................7
1. Prepare a monthly cash budget for the FOUR months from 1st Jan to 30 April 2021...........7
2. key observations or recommendations of Thorne Estates Limited.........................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

Executive Summary
The term business finance is an activity that describe rising funds and allocation of
resources in business concern (Adomako, Danso and Ofori Damoah, 2016). Each and every
business require finance and it incudes raw material, equipments and assets to support their
financial activities. It is helpful for enterprise with formulation of cash, handling receipts and
payments that meets their financial needs of organisation. This report is generally about Trend
Ltd which manufacture gym clothing and footwear. Within Trend Ltd, finance is very important
for business organisation managers used finance in firm because of day to day transactions and it
ensure that how firm pay its bills and how can they spend money in a right time, where to invest
so that they grow in upcoming years.
TASK 1
(i) Explain:
(a) What is Profit and Cash flow and difference between cash flow and profit
It is a measure of money that firm can earn after all expenditure and revenues that a firm
generated in business action (Anabila, 2020). Profit in sort of operating profit, gross profit and
net profit. Sometimes profit shows firm revenue like how company uses or spend income to
raising their profits. Profit determine how much firm gain or produce something else and it helps
to calculate income and expense in enterprise.
Cash flow statement is a statement of inflow and outflow of cash in enterprise and check
how firm manage their cash in an efficient manner. In this, it include cash and cash equivalents,
marketable securities and bank balance of firm. Organisation check that how much money are
inflow and how much money are outflow in business during a particular period of time.
Difference between cash flow and profit:
Basis Cash Flow Profit
Meaning Cash flow is defines as inflow
and outflow of cash for a
specific period of time.
The term profit is a income
subtracted all expenditure in an
enterprise in particular time
period.

Important It is important for business to
identify the how much cash is
available in enterprise and how
much is outflow.
It measure income after
deducting all expenditure that
are related to to making a
goods and services.
Business Success Cash flow indicates to keep
their transaction on a regular
basisb (Berger and Roman,
2018).
Whereas profit, it indicate
whole success in enterprise.
Types In cash flow, it included three
kinds of activities such as
operating, investing, and
financing activities.
Operating profit, net profit and
gross profit are included in
profit.
(b) What is working capital, meaning of receivables, payables and inventory
Working Capital: The term working capital is difference between current assets and
current liabilities (Brooks and Oikonomou, 2018). It is a measure to meet short term obligations
of enterprise and determine financial health of firm. In current assets which include such as cash
in hand, receivables, inventory, land and building and many more. In current liabilities which are
named as creditors and account payables.
Account Receivables: It is a payment that firm receive from customers for goods and
services. It includes debtors, trade receivable or bills receivables and it is shown in asset side of
balance sheet. In an organisation, it is helpful to calculate profitability and provide income in
enterprise.
Account Payables: The term payables defined as the amount of for that a firm owed from
suppliers on their basis of goods and services. It represents firm responsibility to meet their short
term requirements of creditors or vendors and it is shown in liability side on balance sheet.
Within an organisation, it ensures that all invoices are paid on creditors in a proper manner and
there is no due charges, penalty whether payment are paid on a timely basis or not.