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Profit and Cash Flow - Assignment

   

Added on  2020-10-22

11 Pages3612 Words479 Views
BUSINESS FINANCE

Table of ContentsINTRODUCTION...........................................................................................................................1PART A...........................................................................................................................................1a. What is meant by profit and cash flow and how it is different...............................................1b. What is the meaning of working capital, receivables, inventory and payables......................2c. Changes in working capital affect cash flow...........................................................................32. Apply the concepts..................................................................................................................33. Analyse and recommend what steps should now be taken to improve this company's cashflow through better working capital management......................................................................3PART B............................................................................................................................................5a. Elements of financial performance..........................................................................................5b. Calculation of ratio..................................................................................................................5c. Ratios might have change using the information in the scenario............................................62. Analyse and recommend how the board might assess the financial performance of thebusiness ......................................................................................................................................7CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9

INTRODUCTIONBusiness finance states to money and credit employed in business. In a company whenaccounting can tracks and organise financial information (Barnes, 2016). These information usedin business finance and help to manage money and make operation more profitable. In businessfinance consist of financial statements, cash flow statements, balance sheet and points betweenprofit and loss. These documents are precedented to outsiders for show financial performance ofcompany and attract to investor for invest in. finance is a core need of a business that will use torun for business long time. The finance resources are showing direct & indirect impact oncompany's probability and liquidity. The particular report focused on profit and cash flow andtheir difference, meaning of working capital, receivables. In addition, inventory and payable,how changes in working capital affect cash flow in the context of UberTools ltd which owns andoperates factory in new market producing power. PART Aa. What is meant by profit and cash flow and how it is differentCash Flow – It is the net amount of cash and cash equivalents which is increase anddecrease in a business, individuals and institutions. In finance, the term can use to mention theamount of cash that is consumer in particular accounting period. Profit – It is a financial benefit that is accomplished when the amount of revenue increasefrom business operation. Profit is the surplus which is calculated through cost and revenues, itmeans – Profit = Total Cost – Total revenue and the basis on which tax is computed & divided ispaid. There are mentioned difference between cash flow & profits as below - Cash Flow Profit Cash flow presented flow of money in anorganisation. It shows cash in flow and cashout flow. It is surplus which is remaining after deductamount of total cost from total revenues. Cash flow can be affected by flows of moneyin an organisation which is divided in differentactivities. It is affected when total cost increase duringconduct operation activities. It represents the corporation strength. Goal isensure business solvency, generate positiveSales made beyond a break even point 1

cash flow & maximise share price. If management of Ubertools Ltd is capable to manage the cash flow in effective mannerso they do not face any problem regarding to cash shortage and business activities does nothamper. When company gets sufficient profits that it can expand its business and preparestrategies of growth of corporation. There is operating profit of a company is £36 million but is isconsider as profit before interest and tax (Bischof, Daske and Sextroh, 2014) . b. What is the meaning of working capital, receivables, inventory and payablesWorking Capital – It is money availability to an organisation for day to day operations.Working used by company to measure liquidity, efficiency and over all health. It is indicate asdifference between current assets less current liabilities. In current assets includes cash, accountsreceivables, stock of raw materials and finished goods, short term investments. In currentliabilities consist of account payable, short term liabilities etc. Working capital = Current Assets – Current Liabilities Accounts Receivables – It is a financial term of accounting which is related to paymentand an organisation can receive it from their customers in exchange of products & services oncredit basis. Usually the credit period is not related to long time which is consider in days, monthand some specific cases can be a year. According to scenario UberTools Ltd owned £12millionpounds for a series of large orders placed by D&R last year. Company should try to minimizecredit period according to their credit policies and it will help to get money early. The money canbe used by company for survive business and achieve their objectives. Inventory – It is the term of the stock available in the company for the purpose of saleand raw material which is used to produce goods available for sale. Inventory can represents oneof the most important assets of a business because the business mainly depends on it and survivetheir business with the help of it. The turn over of stock represents one of the primary sources ofrevenue generation and subsequent earnings for the company's shareholders. Trade Payables – It is an accounting entry that represents a company's responsibility topay off a short term debt to its suppliers and creditors. Trade payables shows in balance sheetunder the head of current liabilities. Other common usage of accounting payables to a businessdepartment or division that is responsible for making payments which is owned by organisation'ssuppliers and other creditors (Brown, Preiato and Tarca, 2014). 2

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