Business Finance: Profit, Cash Flow, Working Capital, Budgeting

Business
Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART 1 ...........................................................................................................................................1
PART 2............................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCERS..............................................................................................................................9

EXECUTIVE SUMMARY
In attempt to encounter the distinct fiscal requirements of multiple meaningful business
processes, the report summarizes the different aspects of business finance in an enterprise. The
study has 2 parts, covering the valuable fiscal elements in first portion that are essential in
presenting valuable fiscal information for commercial entity.
PART 1
A. Profit and Cash flow:
Profit:
Profit relates to significant measure of any company's progress as well as long-term
sustainability. Profit is assessed by subtracting all company's expenditures and expenses from
entire incomes. For instance, if company's income arrives on a yearly basis at £ 60000 and
expenses arrive at £ 20000, then corporation's profit would be £ 40000 yearly.
Cash Flow:
Whereas Cash Flow represents how much money or cash at a particular time flows into
and out of business. It essentially represents the amount of cash produced by a company as well
as how much monies or cash has been utilised in that entire period. A enterprise will find out
right from where monies comes and goes, i.e. by running, spending or funding operations (Burns
and Dewhurst, 2016). Applying Discounted Cash Flow approach and Internal Rate of Return
(IRR) system, cash flow could be employed to calculate net present value. Cash flow reflects the
corporation's total liquidity.
Difference:
Profit as well as cash flow exhibits an entirely distinct financial view. Both are unique in a sense
that Profit represents any company's efficiency while a corporation holds cash-flow to determine
the funding needed day-to-day commercial operations. If corporation does not make enough
profits it can have a probably long-term effects both on investors ' perceptions and on business'
sustainability.
B. Working Capital, Receivables, Inventory and Payables?
Working Capital:
It focuses more at aspect of short-term and explains how much funding is needed for the
company's day-to-day functions. It could be deducted from existing current liabilities by
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subtracting all current assets. Here Current assets comprises cash and cash-equivalents, account
accounts receivable, stocks, etc., whereas current assets includes all trade payables, outstanding
expenses etc. are included. Working Capital is indeed an useful metric to assess any company's
aggregate operational efficiency (Canales, 2016).
Receivables:
This relates to the trade debtors of corporation which indicates goods has been offered on
credit to clients and any balance still yet to receive. Also, growing debtors aren't seem a healthy
sign for corporation. Companies are required to maintain credit period given to its customers in
order to control debtors balances.
Inventory:
Inventory refers to business stock held by corporation for sale purposes. Inventory may
involve manufactured goods, work-in process and finished goods. That's the company's current
capital. These are classified as current as it provides future economic profit within one or less
than one year (Cheng, Ioannou and Serafeim, 2014).
Payables:
These simply refers to amount to paid to suppliers against goods or raw material
purchased from them. This liabilities are of current nature so classified as current liabilities and
mainly includes balance of credit purchases from suppliers. These are shown in balance sheet as
trade payables under current liabilities head. An excessive trade payable amount at year end
shows that company's current liquidity position is not good.
Any fluctuation in working capital are reflected in cash flow generated through business's
operating activities. Thus if a aggregate current asset rises as receivables have risen at year-
ending, then it will be reflected in computation of operating cash flow. While on other hand, in
case balance shown in current liabilities increases such as balance of trade payables has been
enhanced on year end then it is also impacts operating cash flows (Fernández, Paz-Saavedra and
Coto-Millán, 2019).
Apply the concepts:
Profit:
BLL has reported a turnover amounting £50 million that reflecting its brand value in
market and popularity of its products. It also shows company's position in terms of sales
generation in market or relevant industry and exhibits future long-run performance. Although its
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