Financial Management: Ratio Analysis, Cash Flow, Working Capital, Receivables, Inventory and Payables

FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
PART 1 FINANCIAL RATIO ANALYSIS................................................................................................3
Ratio Analysis.........................................................................................................................................3
Interpretation of ratios.............................................................................................................................5
Irrelevance of computing the receivables collection period in this case study.........................................7
PART 2 UNDERSTANDING FINANCIAL INFORMATION & MANAGEMENT OF CASH...............7
2.1 Describing profit & cash flow and differentiation among both..........................................................7
2.2 Explaining working capital, receivables, inventory and payables along with advantages and
disadvantages...........................................................................................................................................9
2.3 Explaining the reasons for changes in working capital affecting cash flow.....................................10
2.4 Analyzing appropriate of traditional and alternative budgetary system in the respective format. .11
CONCLUSION.........................................................................................................................................12
REFERENCES..........................................................................................................................................13

INTRODUCTION
Financial Management (FM) is the procedure of planning, arranging and monitoring
monetary resources to provide effective outcome. In the current era, it is essential for
organization to have appropriate FM activities in order to gain competitiveness and build strong
position in industry. Present case study will comprise ration analysis and its interpretation along
with reason for not including receivables collection period. Current report will give emphasis on
profit, cash flow and their differentiation. It will describe Working Capital (WC), receivables,
inventory and payables and impact of changes of WC on cash flow. Analysis between traditional
or alternative budgetary system will be exerted in required manner.
MAIN BODY
PART 1 FINANCIAL RATIO ANALYSIS
Ratio Analysis
Gross Profit Ratio
Particulars Formula 2019
Gross Profit 1540
Net Sales 20,510
Gross Profit Margin Gross Profit / Net Sales*100 7.51%
Operating profit margin
Particulars Formula 2019
Operating profit 650
Net Sales 20,510
Operating profit margin Operating profit / Net sales *
100
3.17%
Current ratio

Particulars Formula 2019
Current Assets 1570
Current Liabilities 2920
Current ratio Current assets / Current
liabilities
0.54
Quick ratio
Particulars Formula 2019
Current assets – Inventory 1570-850
Current Liabilities 2920
Quick ratio (Current assets – Inventory) /
Current Liabilities
0.25
Inventory holding period
Particulars Formula 2019
Inventory 850
Cost of Sales 18970
Inventory holding period Inventory / Cost of Sales *
365
16.35
Payables payment period
Particulars Formula 2019
Trade Payables 2100
Cost of Sales 18970
Payables payment period Trade Payables / Cost of Sales
* 365
40.41
Two years Comparison table