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Cash Management and Capital Budgeting

   

Added on  2021-04-21

17 Pages3534 Words58 Views
RUNNING HEAD: BUSINESS FINANCECash management and capital budgeting

Business finance 1Executive Summary The reports include a brief knowledge related to the cash and working capital management and capital budgeting importance along with the examples. The first part of the report explains the terms like profit and cash flow. In addition to this, difference between profit and cash flow and the reasons for having shortage of cash in the business are also explained. Terms like working capital, payables, and the effect of changes in working capital on the cashflow are also included. The second part of the reports deals with the outline of capital budgeting, its purpose and process. It explains investment appraisal methods and their advantages and disadvantages with the help of examples. Overall analysis of cash management and capital budgeting techniques is done followed by the conclusion.

Business finance 2ContentsPart A....................................................................................................................................................3Requirement 1...................................................................................................................................3Requirement 2...................................................................................................................................4Requirement 3...................................................................................................................................6Part B.....................................................................................................................................................7Requirement 1...................................................................................................................................7Requirement 2.................................................................................................................................10Requirement 3.................................................................................................................................13Conclusion...........................................................................................................................................13References...........................................................................................................................................15

Business finance 3Part ARequirement 1(i)The positive figure left after paying all the expenses from the total revenue earned is known as profit. The company makes profit when there is an increase in sales and decrease in debt (Periasamy, 2009).The movement of cash in the business is known as cash flow. It refers to the in and out movement of cash in the firm. As and when the cash increase, it shows inflow of cash and when the same decreases, it reflects outflow of cash (Knight, 2012).Profit and cash flow both are different from each other in following manner: ProfitCash flowIt is referred as net income derived from total sales.It is referred as the money that flow in and out of the business.It is very important for the growth of the business. It is needed in the day to day activities of the business. The statement is prepare on accrual basis. Cash flow is prepared on cash basis. It measures the potential of the company to generate profits. It determines the liquidity and solvency position of the company. Calculated by subtracting total expenses from total revenue made during a fiscal year. Derived from businesses’ operating, investing and financing activities. (ii)Working capital is basically the difference between firm’s current assets and current liabilities. The components of current assets include debtors, stock and cash. On the other hand, current liabilities include creditors and bank overdraft. It is that amount which required for conducting day to day operations of the business. Working capital’s size and composition can vary as per the type of industry. It generally represents the net investments made in short term assets (Watson and Head, 2010).

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