Financial Management Assessment and Analysis

This assignment involves preparing a financial management report that includes a profit and loss statement, cash budget, and forecasted cash flows. The report also assesses the company's credit policies and their impact on timely payments by customers. The document provides an in-depth analysis of financial management techniques and concepts derived from managerial accounting and corporate finance.

MANAGERIAL
FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Profit And Loss Account.............................................................................................................1
Balance Sheet..............................................................................................................................2
Cash Budget................................................................................................................................3
Cash Flow....................................................................................................................................5
Report for managing director .....................................................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The term Managerial Finance as is apparent from its meaning is used for taking financial
judgement which have managerial implication. A manager will rather be curious what the
financial calculations or figures mean. It is the branch of finance that concerns itself with the
managerial significance of finance techniques (Alhassan, 2015). It is focused on assessment
rather than technique. This report covers that preparing Financial statements of coach Inc. of two
months of September and October such as forecast profit and loss account, forecast balance
sheet, Prepare cash budget for cash balance in the end of the month for determining the phasing
of the cash budget for result, also prepare month end cash flow for cash balance September to
February 2019. Draft a report for managing director to analysis customer terms 30 days or 60
days.
MAIN BODY
Profit And Loss Account
Profit and loss statement or Income statement is a detailed statement showing revenues,
expenses, costs in summarized form prepared for a particular period of time. It is a part of
financial statements and prepared at the end of financial year (Kopparthi and Kagabo, 2013 ).
Net profit of Coach Inc. is calculated with the help of this record. It shows ability of profit
generation through improving revenue or cost reduction. Complexity of preparing P&L increases
with increase in size of organization. P&L is provided to comply with law (Nguyen and
Nghiem, 2015). Components of it are cost of sales, revenue, closing stock, opening stock. From
these, gross profit is determined in first section. Then, operating expenses are reduced from gross
profit to arrive at operating profit. After that, non-operating revenues as well as expenses are
taken into account to ascertain net revenue.
Trading Account of Coach Inc. (September & October)
Particular Amount Particular Amount
To Opening balance 18000 By sales 69500
To Purchase 17200 By closing stock 6200
To Gross Profit 40500
Total 75700 Total 75700
1

Profit and Loss account of Coach Inc. (September & October)
Particular Amount Particular Amount
To salaries and wages 5800 By gross profit 40500
To overheads and utilities 11200 By Net loss 7425
To selling and administrative 8952
To interest payable 8000
To Depreciation 14000
47952 47952
Interpretation – As per the above calculations For calculating net profit & net loss need to
prepare trading account because profit and loss account basis on the trading account. So with the
help of trading account calculate gross profit and gross loss. Coach inc. gross profit is 40500 than
prepare profit and loss account. In this account settled all adjustments like depreciation on fixed
assets and interest pay on short terms loans. After all adjustments from profit and loss account
getting net loss is 7425.
Balance Sheet
It is one of three financial statements prepared at the end of year which is also called
statement of financial position (Oehler, Walker and Wendt, 2013). This is because, it depicts
financial position of Coach Inc. Balance sheet shows assets and liabilities associated with a
particular company (Ahangar, 2011). It is mandatory to be prepared for all organisations whether
non-profit, partnership, corporation, sole proprietorship, private limited company. It is divided
into two sections, that is on right side liabilities and assets are mentioned. On the left side, assets
of Coach Inc. are given.
Balance sheet of Coach Inc. (September & October)
$'000 $'000 $'000
Fixed Assets
Fixed assets at cost 69800
Depreciation 14000
55800
Current Assets
Stocks 6200
2

Accounts Receivable 59500
Other Assets 84476
Bank and Cash 44075
Total Assets 194251
Current Liabilities
Accounts Payable 17200
Short term loans 12500
Accruals 2176
Corporation tax payable 5000
36876
Net Current Assets 157375
Total assets less current Liabilities 213175
Long term Loans 130600
Net Assets 82575
Capital and Reserves
Share Capital 90000
Profit and Loss account (Net profit) 7425
82575
Interpretation – As per the above table balance sheet prepared in proper structure way so firstly
calculate fixed assets. In this head charged depreciation on fixed assets after that taking
remaining fixed assets. After than calculating current assets, in this head some items amounts
change according to month. Now calculating current liabilities and amounts changes of given
items due to increase and decrease. From net current assets less current liabilities and getting net
current assets is 157375. After than remaining amount add in total assets, than less long term
loans and getting net assets 82575. Now calculating capital and reserves, in this head from share
capital less net loss and getting equal amount to net assets 82575. Most of the information that
balance sheet prepare September and October.
3

Cash Budget
Cash budget can be said as a plan in which estimates of cash flows are given. Details of
cash inflows and outflows ascertained for a specific period of time. This is used by Coach Inc. to
assess sufficiency of cash in business operations (Penn, 2012). For creating cash budgets, sales
as well as production forecasts, assumptions are required (Schellhorn and Sharma, 2013).
Cash Budget of Coach inc.
Particulars (in 000) September October November December January February
Opening balance 10500 10150 44075 52925 63425 76580
(A) Cash receipts
Sales 22500 56000 30500 32500 35000 36500
Total 33000 66150 74575 85425 98425 113080
(B) Cash payments
Purchase 10000 9000 8600 8600 8600 8600
Salaries and wages 2900 2900 2900 2900 2900 2900
Overheads 5600 5600 5600 5600 5600 5600
Selling and
administration 4350 4575 4550 4900 4745 4940
Total 22850 22075 21650 22000 21845 22040
Cash at the end (A-
B) 10150 44075 52925 63425 76580 91040
Working Notes - Firstly calculating Sales from September to February. These sales on the basis
of 60 days, 45 days and 30 days.
In September – July's Sales = 22500 (60 days )
In October = August's sales + September's Sales
27000 (45 days ) + 29000 ( 30 days ) = 56000
In November – October's sale = 30500 ( 30 days )
In December – November's Sales = 32500 ( 30 days )
In January – December's Sales = 35000 ( 30 days )
In February – January's Sales = 36500 ( 30 days )
Now calculating Purchase on the basis of Supplier Payment Terms ( 45 Days )
In September – July's Purchase = 10000
4

In October – August's Purchase = 9000
In November – September's Purchase = 8600
In December – October's Purchase = 8600
In January – November's Purchase = 8600
In February – December's Purchase = 8600
Now Calculating Selling And Administrative on the behalf of sales in 15%, 14% and 13%
In September = 15% of Sales = 29000*15% = 4350
In October = 15% of Sales = 30500*15% = 4575
In November = 14% of Sales = 32500*14% = 4550
In December = 14% of Sales = 35000*14% = 4900
In January = 13% of Sales = 36500*13% = 4745
In February = 13% of Sales = 38000*13% = 4940
Interpretation – As per the above calculations Prepare six months cash budgets for closing cash
balance of each month and also know opening cash balance of each month from September to
February. For preparing Cash budgets it's divided into two heads Cash Receipts and Cash
Payments. After preparing of cash budget result come in month end cash balance is in September
10150, in October 44075, in November 52925, in December 63425, in January 76580 and In
February 91040.
Cash Flow
It is referred as cash and cash-equivalents which goes in and out of business. Cash inflow
is the amount that flows inside Coach Inc. while cash outflow is that amount which flows outside
business. Cash flow can be positive or negative (Bhandari and Iyer, 2013).
Cash flow of Coach inc.
Particulars (in 000) September October November December January February
Opening balance 10500 -12350 -5425 3425 13925 27080
(A) Cash receipts
Sales - 29000 30500 32500 35000 36500
Total 10500 16650 25075 35925 48925 63580
(B) Cash payments
Purchase 10000 9000 8600 8600 8600 8600
Salaries and wages 2900 2900 2900 2900 2900 2900
5

Overheads 5600 5600 5600 5600 5600 5600
Selling and
administration 4350 4575 4550 4900 4745 4940
Total 22850 22075 21650 22000 21845 22040
Cash at the end (A-
B) -12350 -5425 3425 13925 27080 41540
Working Notes – September's sale is = 0 ( Due to lack of following 60 days debtors policy )
Interpretation – As per the above calculations cash flow prepared on the basis of months for
calculation month end balance. But sales not calculating according to cash budget because lack
of following 60 days debtors policy not applying in Sales of September and October. After that
same process apply in this cash flow from cash payments less from cash receipts for knowing
cash balance in the end of the particular month. Debtors policy affected to end month cash
balance that are different from cash budget such as in September (12350), in October (5425), in
November 3425, in December 13925, in January 27080 and in February 41540. These particular
months amount using as next month opening balance.
Recommendation and Suggestions – From these aspects provide suggestions to Coach Inc.
trying to reduce debtors policy from 60 days to 30 days. Company have to design debtors policy
according to debtors because each debtors not paying not time. They are taking sufficient time so
company have to design policy according to company's norms. Company have to decided
debtors credit period according to credit score because it's shows pays capability. They are
applying penalties on debtors if they are not paying on time. Prepare structure strictly and also
take actions after that debtors are taking seriously to pay for it.
Report for managing director
According to given scenario, Coach Inc. has appointed credit controller for managing
credit collection policies and systems. Earlier, customer terms or accounts receivable period was
60 days, but due to affect on profitability this was reduced to 45 days on 30 September 2018. On
31 October 2018, it was decreased at 30 days. Thus, for preparing report to managing director,
critical evaluation is done in consideration with arguments against and in favour of customer
terms of 30 or 60 days. If customer terms are appropriate, then it is understood that credit system
of Coach Inc. is strong.
6

Customer terms have great impact on amount of cash in hand of organization. As delay in
collections affects liquidity position (Gottardo and Maria Moisello, 2014). If a customer is not
paying its dues on time, but Coach Inc. has to make payment to its suppliers for goods
purchased. Thus, it needs to pay them out of reserves of company. As all suppliers needs
payment on time and also interest will be charged if delayed. Reserves of Coach Inc. would be
vanished if customers frequently delayed the payment.
Collection period of 30 days is said to be more beneficial as it strengthens credit policies.
Customers will become more attentive and punctual towards timely payment. This is because,
customers does not so much cares about time and interest charged on them. Decrease in
collection period will assist in risk minimization and enhancement in expectations of payment.
Coach Inc. can reduce its customer credit term by offering discounts on advance payment and
charge fees on late payment. For this, proper training should be provided to employees in making
calls and send letters to customers who often delays. Also a software of purchase account
receivable should be developed by which due dates of payment could be tracked.
Customer terms of 60 days will not prove beneficial for Coach Inc. This is because, high
collection period can create few problems. When collection period will be high then Coach Inc.
needs to waste time on communication with customers in respect to their debts as well as
expected date of payment. Also, organization needs to take crucial bill collection decisions (Gay,
2016). Term of 60 days implies that customers are not willing or intended to make payment.
Risk of bad debts also increases.
In both scenarios of 30 days and 60 days, some of financial and non-financial factors
impacts cash flow. Cash flow is affected by collection period in such a way that if Coach Inc. is
available with enough cash then problem of uneven cash flow will not arise. Financial factors
includes increase in possibility of bad debts, opportunity costs in receivables, cost of doing credit
analysis, bearing collection costs, discount cost which is offered for early payments (Profit and
loss statement, 2018). Non-financial factors are relation with customers, management of
inventory.
CONCLUSION
From above discussion, it is concluded that management of financing is important from
point of view of assessment of financing techniques. Concepts of it are derived from managerial
accounting as well as corporate finance that assists in sound financial management. In this report,
7

profit and loss account, cash budget, and forecasted cash flows have been prepared. These
statements help in calculating net income, maintaining cash balances, keeping track on expenses
as well as revenues. Also, credit policies of company should be as much strict as these lead to
timely payment by customers. All these in complete manner, contributes to overall assessment of
financial success and growth.
8