Business Finance: Analysis and Management of Cash

This document provides an overview of business finance, including topics such as business performance analysis, understanding financial information, management of cash, budgeting, forming a limited company, and the benefits of stock exchanges.

Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
Business performance analysis:...................................................................................................1
TASK 2............................................................................................................................................4
Understanding financial information and management of cash .................................................4
CONCLUSION ...............................................................................................................................7
REFERENCES ...............................................................................................................................8

INTRODUCTION
Business finance means foundation of the business, finance are the funds and fulfil the
credit requirement in the entity. Every organization require finance to meet its requirement for
the purchase of assets, raw material and for the expansion of the business. It also include those
activities that is deal with acquisition and merger (Benligiray and Onay, 2017). In simple terms,
it refers for doing any business operation money is required, because finance is the life body of
the business. Manager have to generate funds from different finance option. The company is
select for the report is T- shirt which is a cloth manufacturing industry on a large level. This
entity increased their credit terms from 30 days to 60 days which is necessary for the attraction
of customer. The rate of interest on Bank overdraft is higher than rate of interest on loan. They
just struggling in the current economic climate and other expenses also rise which is the result of
advertisement campaign. There is the analysis of the business performance and understanding
the financial information and management of cash.
TASK1
Business performance analysis:
It is the techniques used by the business to measure the performance of the company over
a specific period of time. It is done by analysing the correct Key performance indicator, it is used
to measure the particular area of the entity. In T-shirts, they also use the KPIs to now the actual
performance of their different department, so after that they will bring improvement in that area
and increase the profit of the company.
Ratio analysis- It is the quantitative method used by the company to know the position
in the market and to check the liquidity, operational efficiency and profitability by analysing its
financial statements such as balance sheet, profit and loss account. In T-shirts they use the
current and past data to evaluate the financial health, it is used to compare the performance with
other entity. There are various ratios that is used by them to check the ongoing performance and
also help in analyse the financial wellbeing of the company. T-shirts used this analysis for
improve the financial result and to know the strength and weaknesses from which strategy and
initiatives are formed. They used this to find out the reliable and accurate financial information.
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Statement of profit and loss- It refers to the financial statement or income statement that
provide the summary of revenue, expenses and profit/losses over a specific period. This
statement show the ability of the organization to increase revenue, manage expenses and
generate profits. It is based on the principle of the matching and accruals, it is different from cash
flow statement. In T-shirts, the purpose of making this is that this statement provide information
whether they earn profit by increasing the revenue and reducing the costs. It is the most popular
statement in the financial plan because it shows the profit and loss generate by the business in the
current period (Brooks and Schopohl, 2018).
 Revenue- It refers to the income generation from the normal business activities, it
include both cash and credit sales of the company. It refer to the income in simple
terms, monetary unit earned over specific period. In the T-shirts, the figure of the
sales in 2018 $2101 and in 2019 it is 1366, which imply that revenue is decline
because company is not able to sell their products to more customers. They have
to change their strategy and also provide more offer and discount coupons for
increasing the sales revenue for the future expansion.
 Cost of sales- It refers to direct cost for producing the product which is sold by
the company, this value include the direct labour charges and cost of material to
create the amount of goods. In T-shirts, figure of the cost of good sold in 2018 is
840 and in 2019 it is 751. cost of sales is decreasing by $59 which implies that the
company start buy bulk material and offering discounts. This can improve by
adopting the new technology (De Jong and Naumovska, 2016). company after
deducting all costs which is attached with the selling of product. This is calculated
by deduct the cost of good sold from revenue. In T-shirts, the figure of year 2019
is 615 and 2108 is 1261. it states that gross profit is also decrease by 646. So, they
have to increase their sales to increase that profit.
 Profit before interest and tax- It states the profit that company earn without
paying corporate income tax. In T-shirts, the figure In 2019 is 394 and in 2018 it
is 441, it states that it is decrease by 47, because there net profit is decrease due to
increase in the expenses.
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 Finance costs- This costs means interest costs that is include in the short term
borrowing and long term borrowing, In T-shirts the figure shown in 2018 is 69
and in 2019 is 106 which states that there is decrease in the rate by 37.
 Profit/ loss for the year- It is the net profit that is come by deducting the
operating expenses and all other expenses from the revenue. In T-shirts, the figure
show that in 2018 it is 372 and in 2019 it is in negative 500 which imply there is
decrease in net profit (Gelsomino and et.al., 2016) balance sheet which represent
the Assets, liabilities and equity of the business at that time. This help the investor
to know the exact position of the company whether it is profitable or not. In, T-
shirts there is the classification of the balance sheet is there,
Statement of financial position
It is also known as balance sheet which represent the Assets, liabilities and equity of the
business at that time. This help the investor to know the exact position of the company whether it
is profitable or not. In, T-shirts there is the classification of the balance sheet is there, The first
component is Assets which is of two types non-current assets and current assets. Non current
assets with physical substance are define as property, plant and equipment. Current assets
include inventories, debtor and cash and cash equipment. The figure of the total assets in 2018 is
1634 and in 2019 is 1700 which states that there is increase in the total assets the company T-
shirt has more cash in hand more machinery are present for manufacturing.
In the equity and liabilities, equity refer to the the value that is owes by business top its
owners. It is come from deduct liabilities from assets. Equity is divide into three category which
are, first is Share capital is the amount invested by the boss in the business entity, second one is
retailed earning mean total profit or loss retained in the business after distribution the dividend
among the shareholder. The total equity figure come in 2019 is 310 and in 2018 is 810 which
states that there is decrease in the value by 500, which mean T-shirt company is not able to
provide dividend to the shareholder ( Kostin and Kotelkin, 2018) current liabilities and current
liabilities. In the non- current there is long term borrowing is there which is repaid after one year
and in current it is classified in three parts trade payables which mean there are supplier is
present for credit purchase which T-shirts organization have to settle and another is bank
overdraft which is short term borrowing. The total liabilities for the year 2018 is 824 and in
2019 1390 which states that there is decrease in liabilities by 566 which is good for the company.
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TASK 2
Understanding financial information and management of cash
In the organization both financial information and cash management play a important role
in the business finance because management of cash is necessary for collecting and managing the
cash flows, and financial information is the data about the monetary transaction that is used in
the business (Martin and Hofmann, 2017).
Accrual and cash accounting
Basis Accrual accounting Cash accounting
Meaning In this method revenue and
expenses are recorded in the
books when the income earned
and and expenses incurred.
In this method, revenue is
recorded in the books when
cash is received, and expenses
also recorded when it is paid
out.
Objective To know the profit and loss in
the specific accounting period.
To know the actual cash
balance of the business over a
specific period.
Financial statement Financial statement does not
show the position of an entity
because actual income and
expenses are not shown in the
accounting period.
Financial statement is also not
show the actual financial
position of the entity because
total income and expenses are
not record in the accounts.
Recognized This is recognized by the
system of accounting.
This system is not recognize
by the law.
Business transaction Both cash and credit
transaction is recorded.
Only cash transaction is
recorded
Level of business It is suitable for all business. It is suitable for small business.
Accuracy It is more accurate than the
cash basis accounting.
It is less accurate system of
accounting.
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Benefits It include receivables and
payables for the long term
profitability.
It is easier to finds the cash
records of the company
Limitation It is more complicated to use,
it is important to record items
like unearned income and
prepaid expense.
The company is not making
profit, but investor conclude
that company is making profit.
Profit and cash flows
Basis Profit flows Cash flows
Meaning It refer to the money left over
the revenue once costs have
subtracted.
It refers to cash inflow from
many activities and and cash
outflow.
Concerned In this, company look at
income and expenses at a
certain point of time
In this there is concerned with
time at the movement on
money takes place.
Category It is classified into three parts
Net profit, gross profit and
operating profit
It is classified into three parts
cash flow from investing
activities, operating activities
and financing activities.
Meaning and purpose of budget
Budget is the profit plan which is made by the company to estimate the revenue and
expenses over a specific period of time which is re-evaluated on periodic basis. It is the sum of
money which is allocated for specific purpose (Nguyen, and Almodóvar, 2018). It is made for
individuals,group of person and government that make and spend money according to the budget
plan. There are some purpose for which budget is prepared by the T-shirts limited.
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 Increase the savings- The reason for prepare the budget is to increase the savings
because by planning out a financial life, it is hard to find the areas to save money,
budgeting help to save extra money. In T-shirts finance trainee also make the budget for
increase the savings of the company so they can used in some other activity,
 Gain financial control- Budget help to keep all records on the track, by which there is
no confusion is occur and all the activities is going according to budget plan. In T-shirts
limited they make such budget that help in gaining financial control in their activities.
 Increase Net worth- The main purpose of the budget is to increase the net worth by
proper planning, monitoring and getting better use with the money. Budget also help in
allocate money to investments and use this investment in the business which lead to
increase the net worth.
 Achieve financial goals faster- Budget is prepare for achieving financial goals. With the
help of budget company can divide the saving and spending to make it work. In T-shirts
their financial goals is to increase the revenue of the product, through this there is
increase in the net profit and their goals are achieved faster (Owen and Mason, 2017).
Benefits of forming a limited company
Limited company is the legal structure that limits the amount of liability that is
undertaken by the company's shareholders. This ensure the liability of the subscribers is limited
to their stake. In T-shirts, it is limited company in which the assets and debt of the company is
separate from the owner.
 It is easy and quick to start- limited company is easy to setup because the time is gone
when company have to wait for the companies house paperwork. Now at present time
registration of the limited entity is done like a make a cup of tea (Zetsche and et.al.,
2017).
 Unique legal identity- limited company have their unique legal identity, this states that
companies will remain after the death of owner. There is possibility that it can changes
over time by shareholder and directors. This also create security for the workers in the act
of Companies Registrar.
 Liability of the owner is limited- In the limited company, the liability of the owner is
limited for the business debts. It is possible to take an estimated business risk without
hope of losing anything.
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 Tax efficiency and planning- limited company pay 19% corporation tax on the profits
they have earned whereas sole trader pay 20-45% income tax on their profit. This offer
greater flexibility for tax planning.
 Separate legal entity- In the limited company, the owners are not liable for the value of
their unpaid share, rather than the full extent of company, as the organization become
bankrupt not the shareholder and directors (Song and Lu, 2018).
Stock exchange and their benefits
It is the marketplace where the commodities are buying and selling by the individuals and
the company. The main function is to make fair and orderly trading and also provide the facilities
for the issue of redemption securities. In T-shirts, if it is listed on stock exchange then traders cn
buy ans sell their share online on the platform.
 Increased value- In the stock exchange, the values of the company increasing
because every trader and broker is ready to buy and sell their shares in the market
, if their position in the market is improving from specified time. In, T-shirts,
they can also increases their value by registered on stock exchange.
 High profile- In the stock exchange, large number of companies are registered
which are noticeable and identifiable, listed organization increase their customers
and clients and attract more attention of the media.
 Easier access to capital- Companies listed on the stock exchange can raise more
capital by offering shares to stakeholder. In T-shirts they can raise their capital
through shares for the expansion of the businesses (Vo, 2016).
 High collateral value of securities- The company listed on stock exchange offer
as credits for the collateral. They generate additional capital from public through
issue more shares. In T-shirts, they can develop their security value higher by
issuing more number of shares ( F.Steffen, 2018).
CONCLUSION
From the above report it has been concluded that business finance is necessary to
maintain the financial requirements in the company for buying of the raw material, equipments.
In this there is the analysis of the business performance through make statement of profit and
loss and statement of financial position. There is also the advantage and limitation of the accrual
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and cash flow accounting, profit and cash flow also. There is the meaning of budget is also
specify and advantage of the limited company by forming into stock exchange.
REFERENCES
Books and journals
Benligiray, S. and Onay, A., 2017. Analysis of Performance Factors for Accounting and Finance
Related Business Courses in a Distance Education Environment.Turkish Online Journal
of Distance Education.18(3). p.n3.
Brooks, C. and Schopohl, L., 2018. Topics and trends in finance research: What is published,
who publishes it and what gets cited?.The British Accounting Review.50(6). pp.615-637.
De Jong, A. and Naumovska, I., 2016. A note on event studies in finance and management
research.Review of Finance. 20(4). pp.1659-1672.
Gelsomino, L. U. C. A. And et.al., 2016. Supply chain finance: a literature review.
Kostin, K. B. and Kotelkin, S. V., 2018. International Finance and Economic Cycles.
Martin, J. and Hofmann, E., 2017. Involving financial service providers in supply chain finance
practices.Journal of Applied Accounting Research.
Nguyen, Q. T. and Almodóvar, P., 2018. Export intensity of foreign subsidiaries of multinational
enterprises: The role of trade finance availability. International Business Review. 27(1).
pp.231-245.
Owen, R. and Mason, C., 2017. The role of government co-investment funds in the supply of
entrepreneurial finance: An assessment of the early operation of the UK Angel Co-
investment Fund.Environment and Planning C: Politics and Space. 35(3). pp.434-456.
Song, H., Yu, K. and Lu, Q., 2018. Financial service providers and banks’ role in helping SMEs
to access finance.International Journal of Physical Distribution & Logistics
Management.
Vo, X. V., 2016. Finance in Vietnam-an overview.Afro-Asian Journal of Finance and
Accounting.6(3).pp.202-209.
Steffen, B., 2018. The importance of project finance for renewable energy projects.Energy
Economics. 69, pp.280-294.
Zetsche, D. A. and et.al., 2017. From FinTech to TechFin: The regulatory challenges of data-
driven finance.NYUJL & Bus.14. p.393.
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APPENDIX
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