Business Finance: Explaining Different Terms and Their Application

Business
Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
PART 1............................................................................................................................................3
(i) Explanations of Different Terms:......................................................................................3
a..............................................................................................................................................3
b..............................................................................................................................................4
c..............................................................................................................................................4
(ii) Application of concepts discussed above:........................................................................5
(iii). Analysis and Recommendations:...................................................................................6
PART 2............................................................................................................................................7
EXECUTIVE SUMMARY....................................................................................................7
1..............................................................................................................................................7
2..............................................................................................................................................9
3............................................................................................................................................10
REFERENCES .............................................................................................................................11

EXECUTIVE SUMMARY
Business finance relates to funds, monies and loan funds engaged in a trade enterprise or
business (Business finance, 2020). In business, finance is core aspect as it enable organisation to
acquire resources, business assets, materials, trade goods as well as for other business operations.
This may be referred as effective arrangement and use of financial resources and funds. The first
portion of this study-assessment covers brief discussion on different business aspects like
working capital employed, profits earned, cash-flows, inventories, trade payables and receivables
etc. in relation
PART 1
(i) Explanations of Different Terms:
a.
Profit: This term is not only the core object of business but also basic need for survival. In
practical term it is net sum earned by enterprise after deducting all business expenses whether
direct or indirect. For deriving profit figure enterprise prepare income statement which shows
proper break down of business's profit.
Cash Flows: This term mainly represent the actual liquidity position of corporation. Cash flows
in an enterprise shows actual movement and availability of cash within entity. This term reflects
difference amount between aggregate cash receipts and cash payments (Pais and Gama, 2015).
Key differences among profit and cash-flows:
Profit is residual item which is obtained by deducting all expenses from
revenues/aggregate sales. This is net income of business which it earns after providing all
expenses. While cash-flows are net cash generated from all the business operations. For instance,
profit will be generated only if an asset is sold at a price more than its cost whereas cash-flows is
assured even on sale of such asset. Thus it shows that cash-flows can be positive even business is
facing losses. Cash-flows is indicator of liquidity position while profit simply point out towards
business's profitability position.

b.
Working Capital: Working capital known to be money the company uses to fund current assets.
This essentially reflects available funds to the organization to support routine functions, i.e. day-
to-day commercial activities. This helps to assess the firm's liquidity, i.e. how easily company
can offset short-term debts with short-term assets. This means the existing current-assets excess
over aggregate current liabilities. A positive net working capital represents the willingness of the
corporation to pay short-term obligations, while a negative working capital implies the failure of
the business to meet short-term commitments/liabilities.
Receivables:
Accounts receivable shows debt owed by consumers/customers to the company with regard to
sales on credit of products or services. As credit sales lead to an rise in the entity's revenues (sale
revenues) as well as assets (receivable), these assets should be debited whereas income should be
credited in accounts (Cardoş, 2014). As that is an sum of which enterprise has a legitimate claim
against the client, and client is therefore obliged to pay that same to an organization, it is listed as
Current Asset in the corporation's balance sheet.
Inventories:
Inventories implies to collection of raw materials, WIPs, unprocessed goods, processed goods
and finished goods which are still not sold. These are regarded as liquid assets as these can
normally be smoothly converted into cash. Stock/inventories, in business, any form of assets kept
in stock, comprising ready-to-sell finished products, products in the manufacturing process,
manufactured goods, and products which will be used in production processes for sale. Stocks
appear as asset on a firm's balance sheet.
Payables:
Accounts payable are liabilities which businesses owe to business vendors as a consequence of
buying goods on credit. Accounts payable are forms of current obligations/liabilities that are
usually incurred within one year-period. Accounts Payable are elements of balance sheet and
their identification is based on principle of accrual. Unless the reports of entity's accounting use
cash base, so account payable does not apply.
c.
In what manner fluctuations in Working Capital impact Cash-flows: