Business Finance: Profit, Cash Flow, Working Capital, Receivables, Inventory, Account Payables

Business
Finance

Table of Contents
Executive Summary.........................................................................................................................1
TASK 1 ...........................................................................................................................................1
(I) Explain:.......................................................................................................................................1
(a) What is Profit and Cash flow and how cash flow and profit are different ............................1
(b) What is Working Capital, Receivables, Inventory and account Payables.............................2
(c) Changes in Working Capital will affect Cash flow................................................................2
(ii) Apply concepts in how firm can affect their financial results..............................................3
(iii) Recommend what steps should be taken to improve firm cash flow and working capital
management.................................................................................................................................3
Executive Summary.........................................................................................................................4
TASK 2............................................................................................................................................4
1. Prepare a monthly cash budget for the FOUR months from 1st Jan to 30 April 2021............4
2. Key observations or recommendations of Thorne Estates Limited.........................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

Executive Summary
The term business finance includes those business activities which are related to funds
and concerned with acquisition and conservation of capital funds to meet their financial needs in
an organisation (Alber, 2020). For raising funds and managed their funds through designing, and
operations control activities for financial manager who is usually made their decisions by related
to finance committee. In this report, it is generally talking about Trend Ltd which manufacture
for gym clothing and footwear systems. It is more important for business because it helps to day
today transactions and flow of cash for daily basis managing and monitoring all necessary
transaction which are related to business.
TASK 1
(I) Explain:
(a) What is Profit and Cash flow and how cash flow and profit are different
Profit: It is the income which is distributed to owner after all costs which they are paid.
These includes labour, materials and interest and it is amount which have gained to sell their
product should be more than cost for price of product (Appiah‐Otoo and Song, 2020). It is
rewards for firm owners so that they can invest in any business enterprise. In case of Trend Ltd,
it is important for business because profits can impact firm whether it is secure financing from
bank and it would be attract many investors to fund their operations for help to growing their
organisations. Firm cannot survive without profit in business.
Cash flow: It is a statement that is cash inflow and outflow of business and they
determine how much cash firm should be managed to pay their long term debts that concise
amount of cash and cash equivalents. It is influenced by increase or decrease money from
business, institution which is generated cash for a specific time period. With relation to Trend
Ltd, it will helps to settle debts and reinvest its business to return money for shareholders and
pay expenditure and debts that provide a future financial outcomes.
Difference between cash flow and profit:
Profit Cash flow
It is the amount which is deducted after paying
all expenditures. Making more money than
It is a statement which determine how much
cash inflow and outflow of business to identify

spend in its business or investing anything. long term operations of business.
It includes three types of profits are gross
profit, operating profit and net profit.
Cash flow also include three types of activities
such as operating activities, investing activities
and financing activities.
Profit is more productive of firms success While cash flow is more important to keep
their day to day business transactions.
(b) What is Working Capital, Receivables, Inventory and account Payables
Working capital: It is the difference between current assets such as inventory,
receivables, cash and current liabilities are creditors, account payables (Bell, Bryman and
Harley, 2018). It measures firm liquidity position and short term financial position in business
enterprise. In case of Trend Ltd, it is important for firm because it measures firm ability to pay
their short term debts.
Account receivables: It is a proceed payment which firms will receive from it clients
who have purchased from good and services. It will be shown in balance sheet and amount
which is owned by customers on credit basis. With relation to Trend Ltd, it will be helpful for
investors to gain a better sense of firm overall efficiency in business enterprise.
Inventory: It defines goods and services which are deliver to customers at right place at
a right time. This defines that goods are available for sale and raw materials used to produce
goods. In case of Trend Ltd, it can saves money and allows to fulfil their customer needs in a
proper time.
Account payables: When firm purchases of goods and services on credit and amount
will firm will pay its suppliers. These amounts related to vendors and it is shown in balance sheet
of firm. In case of Trend Ltd, it is important for business because it can takes charge of paying
bills on a particular timely basis and ensures that all invoices are tracked and paid properly.
(c) Changes in Working Capital will affect Cash flow
Changes in working capital affect cash flow if there is firm working capital should
reduced then the cash portion of current assets also decreased but current liabilities would remain
unchanged (Chavali and Rosario, 2018). A positive working capital defined that cash inflow
should be measured and it is based on negative working capital which defined that there is a firm