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BUSINESS FINANCE INTRODUCTION

   

Added on  2020-01-23

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Finance
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BUSINESS FINANCE
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Table of ContentsINTRODUCTION...........................................................................................................................1PART 1............................................................................................................................................11...................................................................................................................................................12...................................................................................................................................................33...................................................................................................................................................4PART 2............................................................................................................................................51...................................................................................................................................................52...................................................................................................................................................63...................................................................................................................................................7CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9
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INTRODUCTIONFinance is an essential part to run business and smooth flow of operations. . Managementof funds, raising cash inflow, investments are necessary activities which support organisation inits growth (Scott, Scott and Cacho, 2013). Business finance is the concept which assists inanalysing the actual business performance of the enterprise so that individual can takeappropriate decisions to generate more profits. The present report is based on scenario ofEyeWatering Inc and Wild Frontier Builders Ltd (“WFB”). It will focus on difference betweenprofitability and cash flow. Consequences of shortage of cash in the entity and appropriatesolution for resolving this issue will be illustrated in this report. Further, the stages of capitalbudgeting process and capital investment appraisal methods will be discussed in this report. PART 11.Wild Frontier Builder Ltd (WFB) is the organisation of London which is working uponproperty maintenance field. It has employed approx. 20 workers who are independent. . NeilGeezer is the leading firm which manages the operations of WFB. Last year, it has earned anadequate amount of profit. But, due to over-drafted bank account for nine years, now Neil isplanning to invest more money in it. It has owned several thousand pounds in a building projectbut now he is struggling to meet the invoice from own contractor. Large number of stock ofplumbing and building supplies are kept in warehouse (Oladipupo and Okafor, 2013). Cash flow and profit are two major parts and equally important to run businesssignificantly. Chief Financial officer needs to keep track of both and need to evaluate theoutcome from time to time, otherwise it can create financial problem in the enterprise. Cash flowis the movement of currency within the firm. Whereas, profit is the net income of the companyafter deducting the all expenses. Cash flow is subdivided into two sections; inflow and outflow.It is very necessary to look upon the overall cash at the end of financial year. Inflow is generatedby sales of goods, investments, sales of assets etc (Desogus and et.al, 2013). It goes out bypurchasing machineries, principal debt service and direct expenses such as salaries etc. Profit isthe final net income of firm which is gained after paid out all disbursement. Another difference in cash flow and profit is that forecasting of cash flow can be done bymapping out the fluctuation of currency in the firm. But Chief Financial Officer cannot assume1
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net profit after certain time period. Forecasting can help to know the time duration whenenterprise is needed cash in hand but if some sudden consequences occur in the workplace suchas increment in tax rates, no payment from buyers etc. (Denis, Denis and Walker, 2015). Then, itmay affect the profit of the company. As if an organisation such as WFB is running operationson cash basis then Chief Financial Officer can have a good idea of cash flow but assumption ofgeneration of actual profit is very difficult. Both cash flow and profit are expresses for the company in a broad way. According tothe case study, WFB has invested thousands of Pound in building project for Vulture Estates andWeasel Properties with their monthly contract payments. As due to large stock, cash in hand hasfallen down to a great extent. It has created problem in the WFB because other operations cannotbe without sufficient availability of cash. It was on the basis of fact that it is a good investmentbut contractors did not pay on invoice on time. Even it was reluctant to get payment fromcustomers or buyers. It can create a problem because firm has to pay out to suppliers of stock ofplumbing and building suppliers, so cash outflow was in access but inflow has come down(Mostafa and Dixon, 2013). It will reflect the cash flow statement and profit of the organisation.It creates the problem of cash flow in the organisation. It is the major consequence of cash flowproblem in the entity. Though, sales are good but inflow of cash can affect the overall businessto great extent. Apart from this, late payment or non-payment, familiar issues, declining sales,increasing expenses are reason of cash flow problems.The profit is expressed in the WFB’s accounts. To sustain in the corporate market forlonger period it is necessary to earn continuous profit. Many times as in the case of WFB cashoutflow was increasing due to large amount of purchase of stock and materials but payment didnot get on time. It may not immediately apparent as a problem in WFB but it increasedproduction cost of the firm. Thus, profit get down to great extent. It is very necessary tounderstand the relevant cost data. Business financial statements can get reflect by additionalexpenses and reducing inflow. It will impact on the profit and loss account of the organisation(Hartzell, Sun and Titman, 2014).Cash flow expressed in the cash flow statement of WFB and profit impacts the incomestatement of the organisation.2
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