ABC Pizza Plaza Financial Analysis

This assignment delves into the financial performance of ABC Pizza Plaza, examining unfavorable variances in their income statement compared to budget. It explores reasons behind lower-than-expected sales and suggests strategies for improving budgetary accuracy, particularly for beverage stock purchases. The case also analyzes Adam Smith's role as a manager and highlights the importance of proper accounting practices like maintaining cash books, sales records, bank accounts, and purchase records.

Running head: FINANCIAL MANAGEMENT
Financial management
Name of the student
Name of the university
Author note

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Table of Contents
Assessment 2..............................................................................................................................2
Part A.....................................................................................................................................2
Part B......................................................................................................................................5
Reference....................................................................................................................................9

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Assessment 2
Part A
1. Cash flow management
The cash flow management for the business is the process of analyzing, optimizing
and monitoring the total amount of cash receipts reduced by cash payments. The net cash
flow is the important measure for measuring the financial health of any business (Bhandari
and Iyer 2013).
2. Benefits of the cash flow management
 It helps in planning for unforeseen events that may be faced by the company in near
future.
 It helps in analyzing the liquidity of the business and monitoring the cash inflows and
cash outflows for better future planning.
3. Three components of the cash flow planning
 Operating cash flow – it is cash flow that is generated from the internal operations
 Investing cash flow – it is internally generated from the non-operating activities
 Financing cash flow – it is the cash from and to the external sources like shareholders,
investors and lenders (Call, Chen and Tong 2013).
4. Purpose of the cash flow planning
Purpose of the cash flow planning is to deliver the information regarding the gross
payments and gross receipts of the company for the specific time period. The net changes in
the cash flow are equal to the cash and cash equivalent figure reported under the balance
sheet of the company (Farshadfar and Monem 2013).
5. Estimation required for preparing the cash flow budget

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Various estimations required while preparing the cash budgets are –
 Estimated inflows of cash for the time frame
 Estimated outflows of cash for the time frame
 Estimation of the company’s future cash position
6. Cash flow equation
Estimated cash inflows + Estimated sales – Estimated cash outflows = Ending cash balance
7. Largest component of cash outflow in retail business
Cost of the goods to be sold is the largest cash outflow component in the retail
business. The retail companies’ purchase the stock for the purpose of resale and the cost of
these stocks are referred as the cost of goods sold. Therefore, it is the largest component.
8. 2 main financial statements
 Balance sheet
 Cash flow statement
9. Journal entry
Computer A/c…….. Dr XXX
To bank A/c XXX
[Being computer purchased through cheque]
10. Resolving issue regarding supply
 Look for any other supply who can supply within the time frame or
 Place bigger order for covering up the shortfall or
 Resolving the issue through communicating with the supplier
11. Improving the cash flow of the business

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To improve the cash flow in short term period the company can –
 Reduce credit period that is offered to the buyers
 Ask the supplier for allowing longer payment period
 Offer discounts on loans held with the borrower (Lee and Parker 2013)
12. Financial report analysis
Analysis of the financial report assists in comparing the financial data over the period
of time. It further helps in analysing the following –
 Liquidity of the business that is the monetary worth of the company on specific day
 Efficiency of the business that is how efficiently is can turns its inventory to revenue
 Profitability of the business that is ability of the company to face competition.
13. Example of the operating activity
 Cash receipts from sale of the services and goods
14. Computation of net income
Revenue $ 200,000.00
Cost of goods sold $ 150,000.00
Gross profit $ 50,000.00
Operating expenses $ 100,000.00
Net income $ (50,000.00)
15. Cash flow
Month 1 Month 2 Month 3
Opening cash position $ (600.00) $ (50,420.00) $ (48,957.00)
Total receipts $ 203,020.00 $ 4,680.00 $ 3,716.00
Total payments $ 252,840.00 $ 3,217.00 $ 5,960.00
Net cash flow $ (49,820.00) $ 1,463.00 $ (2,244.00)
Closing cash position $ (50,420.00) $ (48,957.00) $ (51,201.00)

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Part B
1. Purchasing or redecorating decision
a. Choosing of project
Both the proposals seem good for the improvement of the company as both can be
used to increase the revenue. If with the new wood fire pizza is sold at ($ 15.00 - $ 4.50) = $
10.50, then the total income will be (150*12*$ 10.50) = $ 18,900. Therefore the sales
revenue will be increased by 9.8%. On the contrary the revenue can be increased by 20% if
the establishment is restored. Therefore, the brothers shall choose the option of restoring the
establishment (Coates 2014). The shareholders will be convinced as the 2nd option will give
them more returns on their investment.
b. Consulting for taking decision regarding redecorating or purchasing the equipment
The decision shall be taken after discussing the matter with the people who have wide
experience regarding this, for example, the people who have wide knowledge of hospitality.
Further, various accounts are required to be prepared before taking the final decision.
c. Necessary records
Necessary records required to maintain are the files required for paying taxes and the
details of financial working of the business. Other records required to be maintained are
company name, working dates on restaurant, invoices, net and gross amount paid and any
deductions from gross amount.
2. Importance of budget
Budget assists in analysing whether the company will gain benefit in the future or not.
It recognizes the business part that can be improved and reveals the amount of money that is
projected to exit and enter in the business. It also helps in the following aspects –

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 Planning – budgets provide the guidelines and roadmap to the management and
owners for planning the product prices on the basis of expected manufacturing cost.
Further, it helps in keeping the track of resources.
 Controlling – it helps in controlling the expenses of the company. It set the financial
objectives towards which the company can work. This in turn, will assist the
managers to have control on the cash utilization and expenses.
3. 1st and last date of financial year
1st date – 1st July
Last date – 30th June
Effect of dates on sales budget preparation
The financial year dates generally have an impact on the large companies and small
companies as the annual event may generate large amount of revenue or expenses. Generally
the important events occur for 1 to 2 months before the end of the financial year. Therefore,
the business gets sufficient times for paying all the outstanding dues or collects all the due
payments from the customers.
4. Decisions regarding family business
a. Technological recommendations
Various technological tools that can be used where accurate financial information and
purchase budgets are not available are excel, powerful tools for access with proper controls
on data. Further, the workflow tools and data management tools can help in improving the
consistency and can highlight the focus areas for the purpose of additional attention.
b. Recommended software

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As the business is small, they can use the Microcrosoft Excel for maintaining all the
financial data (Anderson, Sweeney and Williams 2014). Software they can further use is
FactuSo that will help in covering all the commercial records like goods receipts, invoices,
remittance, customer order, customer budgets and delivery notes.
c. Advantages of using software
Using the software has various advantages like precision and speed of operation and
further the real time financial status of the company can be analysed through computerized
accounting system (Schorr et al. 2013). Another advantage is that the data has to entered once
only and then through pitting up the formula all the calculation are generated automatically. It
further minimizes the manual error. The data are kept in up to date version and the
computation are accurate as the human errors are avoided.
5. Sales budget analysis
a. Variance analysis
Financial
Year Budgeted Actual Variance Reason
2007/08 $ 350,000.00 $ 290,000.00
Unfavourabl
e
Variance is unfavourable as the actual
sale is lower by $ 60,000 as compared
to the budget
2008/09 $ 400,000.00 $ 250,000.00
Unfavourabl
e
Variance is unfavourable as the actual
sale is lower by $ 150,000 as
compared to the budget
b. Events to justify the scenarios
 Sales of the company were low as compared to expectation as it can be seen that the
actual revenues were low as compared to the budgeted sales

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 Too high expectations. As it can be seen that the budgeted sales for 2nd year were
more than the 1st year whereas the actual sales were lower in 2nd year as compared to
1st. Therefore, it can be said that the expectation regarding sales were high
 Suppliers may have increased the prices of raw materials which in turn lead ABC
Pizza Plaza the unfavourable variance.
6. Adam Smith case
a. Requirements not met by Adam
 Cash book – Through the cash book Adam could maintain the records related to casgh
receipts and cash payments
 Sales records – through this Adam could maintain the receipt books, invoice books,
documentation of credit card and cash register details (Schiff and Szendi 2014)
 Bank account – it helps in maintaining the deposit books, check books and the bank
statements
 Purchase records – it helps in maintaining the petty cash system, invoices, statement
for credit card and purchase related documents.
b. Suggested techniques
The coffee shop owner can use for improving the accuracy of the budgeting with
regard to the beverage stock purchase is the simple technique. Initially, he must prepare the
data regarding beverages and drinks that he must purchase on regular basis. Further, through
the database he will be able to know the stock of the drinks and beverage and can plan
accordingly when to purchase new stock. However, he must avoid using manual system and
maintain the data through computerised system.

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Reference
Anderson, D., Sweeney, D. and Williams, T., 2014. Modern business statistics with Microsoft
Excel. Nelson Education.
Bhandari, S.B. and Iyer, R., 2013. Predicting business failure using cash flow statement based
measures. Managerial Finance, 39(7), pp.667-676.
Call, A.C., Chen, S. and Tong, Y.H., 2013. Are analysts' cash flow forecasts naïve extensions
of their own earnings forecasts?. Contemporary Accounting Research, 30(2), pp.438-465.
Coates IV, J.C., 2014. Cost-Benefit Analysis of Financial Regulation: Case Studies and
Implications. Yale LJ, 124, p.882.
Farshadfar, S. and Monem, R., 2013. Further evidence on the usefulness of direct method
cash flow components for forecasting future cash flows. The international journal of
accounting, 48(1), pp.111-133.
Lee, T.A. and Parker, R.H. eds., 2013. Towards a theory and practice of cash flow accounting
(RLE Accounting) (Vol. 50). Routledge.
Schiff, A. and Szendi, J., 2014. Helping small business entrepreneurs avoid critical mistakes
in QuickBooks accounting software. The Entrepreneurial Executive, 19, p.169.
Schorr, M., Sylvester, M., Dopf, G., Henrich, D., Liebich, G., Conrad, M., Reccius, A., Klein,
M., Hohendorf, M., Roesinger, A. and Soltek, R., 2013. Providing accounting software
application as enterprise services. U.S. Patent 8,442,850.