Financial Ratio Analysis and Understanding of Financial Information & Management of Cash

This report is based on Browns plc which is a national grocery chain store that selling out different types items. It includes financial ratios for analyzing a business's current financial status and understanding of financial information & management of cash.

Business Finance

EXECUTIVE SUMMARY
Finance is the theory and practice of maximizing wealth through money management,
assessment of money resources, assessment and selecting of sources, fundraising events and
usage, and executive compensation. Currency is the cornerstone of many expressions of business
activity, such as financial investments, property investment, manufacturing, building, sustainable
agriculture, and so on. This report based on Browns plc which is a national grocery chain store
that selling out different types items. This report based on different types of financial ratios that
present actual performance of company and helps to make budget in proper manner.

Contents
INTRODUCTION...........................................................................................................................................3
PART 1.........................................................................................................................................................3
Financial Ratio Analysis............................................................................................................................3
Explain why it would not be as relevant to calculate receivables collection period in this example?.....6
PART 2.........................................................................................................................................................7
Understanding of financial information & management of cash.................................................................7
2.1 Meant of profit and cash flow and their differences.........................................................................7
2.2 Meaning of terms..............................................................................................................................8
2.3 Changes in working capital affect cash flow......................................................................................9
2.4 Traditional alternatives of budgetary systems...................................................................................9
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................11

INTRODUCTION
A company might get money from a variety of places. Every resource has its own features
that must be fully comprehended in order to identify the finest possible revenue streams. Across
all organizations, there is no optimal management source of revenue. The term "business
finance" refers to the use of finances and financing in a company. It also aids in the management
of payments in order to increase the profitability of an organisation by assessing financial results.
Business finance is the branch of individual transaction with the development and preservation
of representing an increase in attempt to reach the funding requirements and long-term goals of
businesses (Ragas and Culp, 2021). Browns Plc, a national grocery chain that sells food,
clothing, and household items, is the subject of this research. This study includes financial ratios
for analyzing a business's current financial status. The second section examines words such as
cash flow, profitability, stock, receivable, and payables, among others. In addition, standard
budgetary procedures used by companies to analyze ongoing development will be discussed.
PART 1
Financial Ratio Analysis
Gross profit margin: The gross profit ratio (GP ratio) is a performance statistic that
indicates how total revenue and actual gross market size are related. It is a widely used tool for
assessing a firm’s operational success. The ratio is calculated by multiplying gross profit by total
income. The gross profit margin is a valuable metric for determining how often a firm is doing
commercially since it excludes the expense during day processes - in other terms, what keeps
data operating - leaving with just a good margin (Nguyen, 2020).
Particulars 2019
Gross profit 1540
Net sales 20510
Ratio 7.51%
Interpretation: According to the aforementioned computation, the business's gross profit
and net sales are required to determine this ratio. This computation shows that in the year 2019,

7.51 percent of profits were generated, which was more than the previous year's 5.6 percent. As a
result, it is portraying a profitable position in a favorable way.
Operating profit margin: The operating margin ratio is the proportion of a company's
operating profits to its turnover. It emphasizes the company's operational income as a percentage
of turnovers. To look at it another way, the operational margin ratio indicates how much a
corporation's activities contribute to its revenue. Essentially, this ratio depicts a production
performance, or how it managed to reduce spending and raise prices, despite the fact that the
sales earnings is not under companies manage (Rabbani, Khan and Thalassinos, 2020).
Particulars 2019
Operating profit 650
Net sales 20510
Ratio 3.17%
Interpretation: According to the following figure, the company's operating ratio in 2019
was 3.17 percent, while it was 3.0 percent in 2018. According to the assessment of both
percentages, the company’s revenue will improve in 2019, resulting in increased income.
Current ratio: The current ratio is a metric that evaluates a company's financial
capability down its current obligations. Brief commitments due within the next year are referred
to as short - term liabilities. This ratio can be used to determine how liquid a corporation is, how
fiscally sustainable it is in the coming years, but how many short-term assets a corporation has in
comparison to simple obligations (Chunrong and Ruyu, 2020).
Particulars 2019
Current assets 1570
Current liabilities 2920
Ratio 0.53
Interpretation: According to the data analyzed, the industry average was 0.6 in 2018 and
0.53 in 2019. It suggests they are not close to the desired ratio of 2:1 in both periods. In 2019, the

ratio indicates that the corporation has less flexibility to pay off its liabilities, thus it must expand
its debts in a good way.
Quick ratio: Another of the Liquidity Ratios is the Quick Ratio, which is used to assess
an operating cash flow condition, initiative, profit centers, or commercial enterprise. The Quick
Ratio differs from the other Financial Leverage in that it calculates and interprets just currency
and cash option elements. Additional commodities that may be important to translate into money
are excluded from the computation (Falcone, 2020).
Particulars 2019
Quick assets 720
Current liabilities 2920
Ratio 0.24
Interpretation: This estimate shows that the organization has insufficient capital and is
unable to repay brief borrowing and royalties. It was 0.23 in 2018, and it increased to 0.24 in
2019. This is a positive indicator, but also more cash is needed to keep the firm in great
condition.
Inventory holding period: Inventory turnover ratio (ITR) is an activity ratio that is used
to assess periodic inventory availability. It counts however many instances a business's
merchandise has been bought and replenished during a stated amount of time. The amount of
points a corporation trades or substitute’s goods in a particular period is known as the Asset
Turnover Ratio. The inventory turnover estimate opens the door to a slew of potential business
advantages (Yusoff and Kassim, 2020).
Particulars 2019
Inventory 850
Cost of sales 18970
Ratio 16.35 Days
Interpretation: According to the calculations, companies store their stocks for 16.35 days
in 2019, compared to 22 days in 2018. A low figure of days' stocks on hand indicates that a

company can transform its inventory into income relatively quickly. A large number of days'
inventories holding indicate that a company's receivables are not being converted into cash
quickly.
Payable payment period: The accounts payable turnover ratio is equal to the trade
receivables turnover ratio. The goal in that situation was to get paid as quickly as feasible. The
goal here is to postpone repayments as long as necessary and use this working capital to support
the corporation's own operations in the immediate future. The cash account ratio is influenced by
negotiating power yet again. A reduced accounts payable ratio indicates that the company has
enough negotiating leverage to repay its vendors later (Ivanovich, 2020).
Particulars 2019
Average accounts payable 2190
Total Credit purchase/days of period
Ratio 35 days
Interpretation: According to the above study, corporate payment in 2019 was 35 days, but
it was 49 days in 2018. A longer current liabilities payment term indicates that they are saving
revenue by collecting more time to handle money. Conserving revenue benefits a small business
since it allows them to invest it with other items.
Explain why it would not be as relevant to calculate receivables collection period in this
example?
Even if they are charged a fee, sometimes corporations may not necessitate accounts
receivables. Then if an enterprise writes and presents a statement to a buyer, it does not
document monthly documents; if anything, it maintains liabilities, including certain "account
payable" or "debit income." The financial performance of an enterprise enhances performance of
trade receivables preventive actions. To achieve at this result, mortgage rate transactions are split
by a mix of ordinary receivables and the duration of time in the interval. This calculation does
not necessitate an accounting collection period because it is such a supermarket chain that sells
things in cash rather than credit, so it is not requested. The condition exists on a cash basis, and
each customer receives a bill for their buy (Siddik and Kabiraj, 2020).

PART 2
Understanding of financial information & management of cash
2.1 Meant of profit and cash flow and their differences
Profit: Profit, often known as net income, is the difference between profits and
expenditure for a given period. In other respects, it is the remaining revenue because well
required and proportionate expenditure for the time have been deducted. Profit is what drives a
businessperson to start a new venture. The price mechanism acts as a motivator for assigning
funds in the creation of goods. It is tailored to the purchaser's requirements and preferences.
When a business person fails to proceed in the way required by the purchasers and chances of
make a larger profit decrease.
Cash flows: As money flows around inside a company, cash flow fluctuates. It's calculated
by stating a specific period of time (e.g., a month). Throughout that time, a company's cash flow
is equal to total income minus obligations. It's critical to keep a close eye on cash flow since it
reflects the quantity of Money Company has on hand (Dong, Xu and McIver, 2020).
Particular Profit Cash flow
Definition Profit is a metric of efficiency,
and it is the primary concern of
the ownership in the income-
generating context of market
manufacturing.
Add up the total amount of all cash
input and output operations.
Purpose The primary goal of profit method
is to determine the corporation's
rate of increase.
To assess a firm's cash in order to
pay for the day commercial
activities.
Calculation Profit is the correlation between
the cost sold and the
manufacturing costs. A profit
account can be used to calculate
The net amount of cash inflow and
outflow operations is referred to as
cash flow. The cash flow statement
was generated by the

it. administrators in order to calculate
the total value.
2.2 Meaning of terms
Working capital: Working capital is a measure of a firm’s liquidity that it uses to pay its
day-to-day activity. All owned cash or marketable securities, such as linked bank account
cheques, check and term deposits, certificates of deposit, and quick, speedy securities, make up a
company's current resources. Financial commitments required inside this business's accounting
period are referred to as current liabilities. This concise working capital description should be
included in company's financial statements on a regular basis.
Receivables: A current asset category on the balance sheet is defined as trade receivables.
Accounts receivable (A/R) is a common business term. It also symbolizes revenue owing by
clients who purchased products on credit to the corporation. A good accounts receivable
description gives insights into a typical company's day-to-day activities. Clients have indeed got
items / solutions but have not compensated for them, thus the A/R account receives the cash
corresponding to the outstanding bill. Since these receivables are projected to be repaid once per
year but one operational cycle, it is classified as a brief accounting period (TRAN and
NGUYEN, 2020).
Inventory: A company's inventory is the quantity that is available for order. This bundle of
commodities will be sold online for a profit at some point. As a result, inventory appears on your
statement of financial position asset. Please remember, though, that having stock of products for
an extended period of time isn't always a positive thing. This is due to the possibility of incurring
purchase price and the goods becoming obsolete.
Payables: Accounts payable is a term that refers to a company’s creditors that are received
in case of purchase and are due inside one brief span of time. Current liabilities simplify
company's operations by allowing a corporation to have an ongoing credit line with a provider
that is reimbursed inside a set time frame. By consolidating all activities into a specific fund that
is cleared on a constant schedule, this eliminates the need for repeated accounting.

2.3 Changes in working capital affect cash flow
The significance of changes in working capital is represented in a company's cash flow
statement. The operating cash flow component of the cash flow statement, in particular, despite
the demonstrated in the supplier's smaller financing. A good working capital statistic (cash and
cash equivalents exceed current liabilities) indicates a revenue increase for the time under
consideration. An adverse working capital situation, on the other hand, indicates that the
company had increased spending handling its cash reserves, or liabilities, over the course year.
Working capital accounting is important to any business, but it is vital for companies with
seasonality or inconsistent cash flow requirements (Curtis, 2020).
The effect of improvements in working capital is expressed in a company's cash flow
statement. The cash flow statement's operating cash flow (OCF) portion, in particular, outlines
improvements in the company's short-term working capital requirements. A favorable working
capital statistic (total assets exceed financial obligations) indicates a revenue increase for the
time of consideration. An unfavorable working capital position, on the other hand, indicates that
the company has lost more money than it has taken in to manage its cash reserves, or obligations,
over the course of a year. Examining shifts in capital expenditures is critical for any company,
but it is best for businesses with irregular or unpredictable cash flow requirements.
2.4 Traditional alternatives of budgetary systems
A traditional budget is the financial summary that serves as a supplement to an
implementation plan. Priorities for financing costs, expenses, income, inventories, and
obligations for a given period are frequently included. A traditional budget is achieved by
utilizing periodic sums to the current yearly budget, such as depreciation or expected changes in
selling pricing. Budgeting is an important aspect of knowledge planning. This numerical
statement aids management in determining the best option among others. The management
process in order to prepare budgets is important to the achievement of business strategies.
Business organizations select budgetary strategies based on the firm's micro and macro
environmental variables. In the situation of Browns Plc, the supervisor will select a budgeting
strategy that will aid in the provision of correct additional betterment. Planning approaches aid in
the production of budgeting by offering guidance and recommendations, although not all

approaches are appropriate for all accounts. Every budgeting strategy has its own set of
advantages and disadvantages (LESTARI and et.al, 2020).
Traditional budgeting advocates say that it is critical for the creation of value and the
long-term viability of businesses. Governing the firm, projecting and managing the economy,
enhancing collaboration, interaction, and inspiration, and simplifying performance reports and
pricing selections are just a few of the benefits. Market segmentation differs in the Indian sector,
therefore they must start from scratch to analyze the entire market situation in India and establish
policies based on new facts. Rolling based spending is also useful for this project since it allows
them to make policy quickly after assessing market conditions, but it is a more time demanding
approach than zero based planning. The typical procedure will be used by the project director.
Because the requirements of this particular market are comparable to those of the marketplace,
Browns Plc can use this strategy to achieve the best outcomes (Howard, 2020). Because the
market region is small, they might potentially employ an interaction budgeting strategy for this
business. The activity-based budgeting strategy aids in capital allocation in the most efficient
manner.
CONCLUSION
As per the above report it has been concluded that one of the most critical parts of a business
is finances. With large sums of money, a constant flow of money, and ongoing transactions,
controlling and managing all of the aforementioned is essential. Economic reporting, in
particular, aids the business in determining what to invest, where to invest, and when to invest.
Since it includes the managing of financial capital and financial operations of the company,
business financing is an essential and unavoidable feature of every business. Effective financial
management is critical for growth and survival. It is usually handled by a management and
accounting committee or the financial department

REFERENCES
Books and Journal
Ragas, M. W. and Culp, R., 2021. Finance and the Capital Markets. In Business Acumen for
Strategic Communicators: A Primer. Emerald Publishing Limited.
Nguyen, T. T., 2020. The impact of access to finance and environmental factors on
entrepreneurial intention: The mediator role of entrepreneurial behavioural
control. Entrepreneurial Business and Economics Review. 8(2). pp.127-140.
Rabbani, M. R., Khan, S. and Thalassinos, E. I., 2020. FinTech, blockchain and Islamic finance:
An extensive literature review.
Chunrong, Y. and Ruyu, Y., 2020. Application of financial technology in the risk management in
agricultural supply chain finance. Academic Journal of Business & Management. 2(6).
Falcone, P. M., 2020. Environmental regulation and green investments: The role of green
finance. International Journal of Green Economics. 14(2). pp.159-173.
Yusoff, M. E. and Kassim, M. S., 2020. ISLAMIC FINANCE AND HIGH-TECHNOLOGY
VENTURE. BUSINESS IN ISLAMIC PERSPECTIVE Some Selected Issues, p.23.
Ivanovich, K. K., 2020. About some questions of classification of institutional conditions
determining the structure of doing business in Uzbekistan. South Asian Journal of
Marketing & Management Research. 10(5). pp.17-28.
Siddik, M. N. A. and Kabiraj, S., 2020. Digital finance for financial inclusion and inclusive
growth. In Digital transformation in business and society (pp. 155-168). Palgrave
Macmillan, Cham.
Dong, S., Xu, L. and McIver, R., 2020. China’s financial sector sustainability and “green
finance” disclosures. Sustainability Accounting, Management and Policy Journal.
TRAN, S. H. and NGUYEN, L. T., 2020. Financial development, business cycle and bank risk in
Southeast Asian countries. The Journal of Asian Finance, Economics, and Business. 7(3).
pp.127-135.
Curtis, G. L., 2020. Big business and political influence. In Modern Japanese organization and
decision-making (pp. 33-70). University of California Press.
LESTARI, S. D. and et.al, 2020. Antecedents and consequences of innovation and business
strategy on performance and competitive advantage of SMEs. The Journal of Asian
Finance, Economics, and Business. 7(6). pp.365-378.
Howard, J., 2020. The Beginnings of Automated Loan Decisioning During Japan’s Lost
Decades: The Case of Gate Finance. In Transforming Japanese Business (pp. 127-137).
Springer, Singapore.