(solved) Essay on Business Finance
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Added on 2020-07-23
(solved) Essay on Business Finance
Added on 2020-07-23
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BUSINESS FINANCE
TABLE OF CONTENTSPART 1............................................................................................................................................1i (a) Difference of Profit and Cash flow of RCL........................................................................1i (b) Theory of working capital, receivables, inventory and payables........................................1i (c) Impact of Working Capital affect Cash flow.......................................................................1ii) Various management concepts and their implication on company's financial status.............2iii) Analysis and recommendations for improving Working Capital Management....................3PART 2............................................................................................................................................4i (a)Purpose and Key steps of Capital Budgeting.......................................................................4i (b) Advantages and disadvantages of Investment Appraisal Methods....................................5ii Comparison of the alternative investment options..................................................................6iii Analysis and recommendations..............................................................................................6..........................................................................................................................................................7REFERENCES................................................................................................................................8
PART 1i (a) Difference of Profit and Cash flow of RCLThe term profit is defined as financial gain which is distributed at end of the year toshareholders. On other hand, cash refers to physical money. A business may have a profit butcannot have cash because profit is calculated by using revenues and expenses which is differentfrom company's cash receipts and cash payments. Cash flow is termed as the difference of cashamount that a company receives and pays whereas, profit is determined by the evaluation ofrevenues and expenses in a given year. Profitability is a concept which cannot be measured interms of cash rather depends on the results of accumulated cash (Bierman and Smidt, 2012).The 2 prime customers of RCL are D&R DIY and BricoFrance. The company generatedits major operating profit as a result of an order placed by D&R last year of 12 million pounds.It's major revenue was stuck as a result of the increasing debts and the irregularity of paymentsfrom its customers. Most of the company's amount is also involved in disputes withBricoFinance which has stopped payment of 20 million pounds and Robocut had an 8 millionpound advance payment for manufacturing automatic grass cut machines.i (b) Theory of working capital, receivables, inventory and payablesWorking capital is a broader concept which includes receivable’s inventory and payables.The working capital of a company is calculated by subtracting current liabilities from its currentassets. A deficit in working capital implies that company has less value of current assets ascompared to its current liabilities. It measures the ability of a company to repay its short termloans and debts as well as provide funds for company's operations (Gervais, 2010). RCL has a deficit in net working capital as an inventory is lined up in the warehouses andpayables are generating with no cash receivables. Steve, the owner of RCL, is pushing upcustomers for making immediate payments as the shareholders are worried about company'soperations. Steve is showing concern for other shareholders to invest in company as it's debtshave increased from last year to 157 million pounds. i (c) Impact of Working Capital affect Cash flowThe impact of inventory, receivables and payables have an effect on company's cashflow. The operating cash flow includes all those transactions which are occurring irrespective ofgenerating any cash transactions for company. The deficit in working capital implies that1
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