Business Finance of Event Planner Ltd : Report
12 Pages3861 Words46 Views
Added on 2020-01-23
Business Finance of Event Planner Ltd : Report
Added on 2020-01-23
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BUSINESS FINANCE
Table of ContentsINTRODUCTION......................................................................................................................3TASK 1 profitability and cash flow...........................................................................................3Difference between cash and profits.....................................................................................3Liquidity and profitability characteristics of Event Planner Ltd...........................................3Cash shortage with having availability of profits..................................................................4Causes of cash flow problems with necessary illustration....................................................5Methods for dealing with cash flow problems to ensure effective cash management..........5TASK 2 Capital budgeting ........................................................................................................6Capital investment appraisal: meaning and process..............................................................6Stages of capital investment appraisal process......................................................................6Four main capital investment appraisal methods with advantageous and disadvantageous.8CONCLUSION........................................................................................................................10REFERENCES.........................................................................................................................10
INTRODUCTIONFinance is the essential element of every organization because none of the businesscan survive without adequate availability of funds. It will be require for both the revenue andcapital nature expenditures such as office expenses, purchase payment, investment in fixedassets and so on. The present report is based on analysing the significance of cash flow andprofitability for Event Planner Ltd. It is a newly established business who specialised inplanning for special events such as weddings, christenings and birthdays etc. as per clientdemands. Currently, business is facing liquidity problems because of lack of cash funds.Thus, the report aims to advise line manager to use effective cash flow management so as toremove cash problems. Second part of the report will discuss the importance of all the capitalbudgeting techniques, its advantageous and disadvantageous to take strategic investmentdecisions for Toddlers Ltd. It is a manufacturer of children's furniture, toys and otheraccessories and regularly focuses on introducing new products with unique features.TASK 1 PROFITABILITY AND CASH FLOWDifference between cash and profitsCash flow and profitability both the very crucial aspects for Event Planner Ltd. Cashflow is the difference between the amount of cash that has been received by the EventPlanner and actual cash used. In other words, it is the difference between cash incomes andthe cash application (Cope, 2014). Henceforth, it does not consider all the non-cash relatedtransactions such as depreciation and profits and loss on sale of fixed assets. On the contraryto it, profitability is the excess or surplus of Event Planner Ltd's total earnings and paymentswhether it has been received or paid in cash or not. Thus, it became clear that cash flowconsider only the cash income and spendings while profitability takes into consideration allthe cash as well as non-cash affecting transactions. Cash flow is necessary to pay to thecreditors, staff, purchase and other expenses. However, profitability is necessary to exist inhighly competitive market otherwise, investors, suppliers, staff member and lenders will notbe interested to give their services to an unprofitable business. Liquidity and profitability characteristics of Event Planner LtdIn context to the given scenario, profitability and liquidity characteristics for EventPlanner Ltd, has been described below:Liquidity measure the Event Planner's ability to pay off their short term businessobligations effectively and timely. It is greatly depends on the cash because it is
the most liquid assets that the Event Planner have in its business (Brunnermeier,Gorton and Krishnamurthy, 2014). Large amount of cash availability willindicates that Event Planner is able to meet out their short term business liabilitieseffectively and vice versa. On the contrary to it, profitability shows that how muchEvent Planner is earning through its operations. Larger revenues than compare toexpenditures will shows that Event Planner is earning good profitability throughits operating functions and shows that business is performing well in the market. Itis necessary to ensure long term survival and sustainability. Liquidity refers to availability of cash funds hence, it is based on the cash inflowand outflows from in Event Planner Ltd. It includes cash sources and applicationsfrom Event planner's operating, investing and financing activities (Holden andJacobsen, 2014). However, its profitability is based on the operational functionswhether it has any impact on cash flows or not. It does not taken intoconsideration all the capital nature of revenues and expenditures. Liquidity is based on the cash based accounting principle while profitability isbased on the accrual accounting concept. Cash based accounting principle tellsthat transactions must be recognised at the time of cash receipts or payments byEvent Planner Ltd. On the other hand, accrual accounting concept demonstratesthat transactions should be recorded when they incur without identifying theircash impacts on Event Planner Ltd.Cash shortage with having availability of profitsThere are various reasonable available that may cause cash shortage in the firms whilehaving adequate amount of profits, some of these are explained hereunder:Non-cash revenues: It is one of the reason that may impair cash availability of EventPlanner Ltd while profitability will be increase. It is because non-cash revenuesthrough Event Planner's operating activities will be reported in profit and loss accountas current year income and results in inclined revenues and profitability as well(Collins, Hribar and Tian, 2014). On contrary, it will have no impact on EventPlanner's cash sources. This in turn, it may face cash shortage problems with havingprofitability. For example, profit on the sale of fixed assets is a non-cash revenue andrecorded as revenues in profit and loss account. Thus, it will increase Event Planner'srevenues and profitability as well.
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