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Business Finance Assignment Solution

   

Added on  2020-10-04

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BUSINESSFINANCE

Table of ContentsINTRODUCTION...........................................................................................................................1PART 1............................................................................................................................................1(a) Meaning of profit and cash flow and their difference.......................................................1(b) Meaning of working capital, inventory, receivables and payables...................................2(c) Changes in working capital affect cash flow....................................................................22. Apply the concepts to show the way of company to manage effect of financial result.....33. Analyse and recommendation to improve company's cash flow through better workingcapital management................................................................................................................3PART 2............................................................................................................................................4(a) Elements of financial performance...................................................................................4(b) Calculate the ratio for each year for this company...........................................................6(c) Apply the result to consider the changes by using the information..................................62. Analyse and recommend to assess the financial performance of the business...................7CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9

INTRODUCTIONBusiness Finance refers to money and credit employed in business. It can includeacquisition and utilisation of funds so that business firms may be able to carry out theiroperations in effective manner. There are including modernizing or diversifying operations andexpansion (Myran, 2013). The term of business finance includes the ways in which a companyaccomplish and uses money according to business activities. In other way business finance isabout strategies for earnings, savings and investing revenue. Apart from it can contain financialinformation and cover strategies for business in reference to leveraging future rather than topresent value. The present report covers various topics which are meaning of profit, cash flow,working capital, receivables, inventories and payables. In hence changes in working capitalaffect cash flow in the context of UberTools Ltd which owns and operates a factory in newmarket to producing power. In addition, extract financial statement of Madagascar industries Ltdwhich is in the business of producing jewellery. PART 1(a) Meaning of profit and cash flow and their differenceProfit – It is a financial benefit that is realized when amount of all costs are paid andrevenue remaining after all deduction that is profit. These costs include labour, materials, intereston debt and taxes. To conduct business activity described profit to everyone with the help ofincome statement. Cash flow – It is the inflow and outflow of money in a business, institution or individualaccount. In the financial terms, it is used to define the amount of cash that is operated inparticular time period. There are considering many activities which can use to running businessand show financial performance (Buckland and Davis, 2016) . Difference between cash flow and profit Cash Flow Profit Cash flow represent money from severalsources It is the money left over from sales revenueonce costs have been subtracted To achieve net cash flow apply formula = cashin flow – cash out flow To gain net profit apply formula = Sales –variable cost – fixed cost It can affect to timing of payments into and outIt is calculated even before the money is1

of the firm. actually received. Tax paid in instalmentsTax based on profits (b) Meaning of working capital, inventory, receivables and payablesWorking Capital – It is basically an indicator of the short term financial position of anorganization and it will help to measure efficiency of overall company. Working capitalcalculated when current assets less from current liabilities. The working capital of UberTools Ltdin 2009 to 2011 respectively 36, 92 and (8). A positive working capital describe about acompany to able to pay off its short term liabilities almost immediately. Negative workingcapital define a company is unable to do so (Yablonsky, 2014). Inventory – It is the quantity of the goods available for sale and raw material used tomanufacturer good for sale. Inventory represents one of the most important assets of a businessbecause it is the primary resource of a company to generate earnings. Accounts Receivable – It is the process of payment which the company will receivefrom their customers who have purchased its goods & services on credit basis. Most of thecompanies’ credit period set as short time such as 3 months, 6 months or in some cases may be ayear. When a company extend to credit time period so that time sale is completed when theinvoice is generated. As UberTools Ltd owned £12 million pounds for a series of large ordersplaced by D&R last year.Accounts Payable – It is a liability due to a particular creditor when it order goods orservices without paying in cash up front that means bought goods in credit. It is also known asbills receivables. It is considered as a liability under the head of current liabilities. Accountspayable is a short term debt payment which can paid by comp nay for neglect default. (c) Changes in working capital affect cash flowTo survive the business in effective way there is needed to working capital perform ondaily basis of business activities. Working capital is the operating capital of a company which isused in daily activities. The regular expenses of company affect the operating section of cashflow and working capital invested affects investing section of cash flow statement (Khan, 2015).Specifically, the operating cash flow section of the cash flow statement details change in itsshorter term working capital needs. For example, if a company received cash from short termdebt which is to be paid in 45 days there will be increase in the cash flow statement. But workingcapital does not affect to transaction because of loan would be cash and record in current assets. 2

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