Explanation of Different Elements in Working Capital Management

Project 2

Table of Contents
PART 1............................................................................................................................................1
EXECUTIVE SUMMARY.............................................................................................................1
1. Explanation of different elements............................................................................................1
2. Application of all the concepts within the organisation...........................................................3
3. Steps to be taken to improve cash flow by better working capital management.....................4
PART 2............................................................................................................................................4
EXECUTIVE SUMMARY.............................................................................................................4
1. Purpose of preparing budget, traditional and alternative methods of budgeting along with
their strengths and weaknesses....................................................................................................4
2. Application of budgeting methods to plan future cost management.......................................6
3. Analysis of appropriateness of traditional and alternative budgeting approaches...................7

PART 1
EXECUTIVE SUMMARY
First part of this report is based upon basic concepts of profit, cash flow, working capital
etc. It is based upon Mediterranean Delights Ltd which is operating business in South of
England. While managing working capital it is very important for all the organisations to pay
attention towards major elements such as inventory, payables, receivables etc. The company is
recommended to take appropriate steps to improve the cash flow by managing working capital
properly.
1. Explanation of different elements
Explanation of profit: When an organisation perform operations and generate revenues
then the total income which is received by it after deducting all the expenses is known as profit.
There are various direct and indirect expenses which are deducted from total value of sales.
These are rent, salaries, insurance, legal, postage, commission, depreciation etc. All the incomes
which are added in the calculation of it are profit on sale of assets, discount received etc. In order
to determine actual amount of profit which is generated by a company profit and loss statement
is formulated. With the help of it, all the internal and external stakeholders analyse that the entity
is having higher or lower profitability (Aktas, Croci and Petmezas, 2015). In other words, it can
be defined as the amount which is required by an entity to survive in the market and perform
future activities in systematic manner. With the help of it stakeholders such as investors,
employees etc. could be retained as higher profits will build their interest within the entity.
Explanation of cash flow: Cash flow is the total amount of cash which is being
generated by an entity by deducting all the outflows from inflows. In order to maintain liquidity
of the business it is very important for a company to make sure that it is having proper cash flow.
While making decision regarding making investment in a company investors determine liquidity
of business and then finalise that they wish to invest or not. While computing it for the business
cash flow statement is generated. Total value of it is calculated it by adding cash, other
equivalents and bank balance. Slight mistake in it may lead the business towards huge losses
because it is result in inaccurate liquidity (Atrill, 2015).
Differentiation between profit and cash flow: Profit and cash flow both are different
for companies and several bases for it could be understood with the help of following discussion:
1