Understanding Finance: Cash Budget, Sources of Finance, Issue of Shares, Financial Ratios and Budgeting

This article covers the basics of finance, including cash budget, sources of finance, issue of shares, financial ratios, and budgeting. It also includes a summary of the content, subject, and course code if mentioned.

Understanding Finance

Contents
INTRODUCTION...........................................................................................................................................3
PART A.........................................................................................................................................................3
PART B.........................................................................................................................................................6
PART C.........................................................................................................................................................7
REFERENCES..............................................................................................................................................10

INTRODUCTION
The study and structure of money, commodities, as well as other investment funds is
referred to as finance. Public finance, corporate finance, and personal finance are the three
primary kinds that finance may be split into. Social finance and behavioral finance are two more
contemporary areas of finance. Traditionally, finance is classified into three categories: Tax
codes, public spending, budgeting methods, stabilization policies and tools, debt difficulties, and
other governmental problems are all covered under public finance. Corporation finance is the
management of a company's assets, liabilities, earnings, and debts.
PART A
1. Cash Budget
Cash Budget £'000
Apr May Jun Jul Aug Sep
Borrowings
12,57
0
Opening balance (1,600) (3,180)
9
0 690
4,89
0
Cash Sales 600 620 900
50
0 350
80
0
Cash collection
11,00
0 12,350
14,00
0
Total receipt 600 (980) (2,280)
11,59
0 13,390
19,69
0
Less:
Vehicle replacement
1,25
0
Other overheads 2,200 2,200 2,200
2,20
0 2,200
2,20
0
Purchases 8,000
8,70
0 6,300
5,20
0
Total Payment 2,200 2,200 10,200
10,90
0 8,500
8,65
0
Cash at the end (1,600) (3,180) (12,480)
69
0 4,890
11,04
0
2. Suggestion

It is recommended that the firm continue to its lending policy, considering the corporation's
economic strategy. Reimbursement will be obtained in two months since the company only takes
a couple months of payments its vendors. Over the course of many years, this one-month delay is
a waste of resources. As a consequence, it is recommended that Hamble Limited establish a
satisfactory business strategy in which the company obtains an authorization before the provider.
3. Sources of finance
Internal sources of finance:
Internal funding can originate from a range of places, such as residual revenues, sale of assets,
and loans from relatives and friends.
Advantages
1. It bestows total control over them on the group.
2. Concentrate on the controlling rectangle.
3. The total cost of most operations is lowered.
4. Concentrate on the total worth of community.
5. Removing outside forces' effects on people.
6. It can provide certain issue locations in order to get the money.
7. No more values must be provided.
Disadvantages
1. It might wreak havoc on your job-financing plan.
2. It needs extensive examinations in order to achieve efficient.
3. The organization’s core reimbursements may be reduced.
4. It must remain in command.
5. Completion of the project may necessitate profit.

6. Some organizations may be required to act on a small budget as a result.
7. Analyze some readily available information.
4. Issue of shares
Issue of shares
Advantages
The most essential purpose for businesses to issue shares is to obtain capital, which may be used
to fund the borrower's activities and expansion. With exception of loans, company stock are not
corporate obligations and do not need to be returned. Moreover, businesses can utilise the
revenues from share sales anyway they choose, with no restrictions, but lenders may impose
conditions on the cash they lend, tying the company's hands somewhat.
The company may select however many rights to distribute, whether to problem them, and
whether to price for every unit at the outset, making share issuance flexibility. Well after initial
offering, which is really the initial selling of shareholdings, the business can issue further shares
to generate more revenue. Corporations can issue multiple purchase shares can provide investors
distinct rights, such as earning interest and voting on the top management.
Additional feature of stocks is that the company may choose whether or not to pay dividends, as
well as when and how much they pay. Whereas if company is short on funds, for instance, it may
opt to defer one or more dividend payouts until certain criteria are met. It would not have been
able to postpone loan payments if it had received funds through debt rather than shares. Inability
to pay debt can lead to the collapse, but nonpayment dividends have no such consequences.
Disadvantages
It costs a fortune to sell shares, and it is frequently more expensive to raise funds by issuing
stocks than it will be to borrow the money, particularly once taxes are included in. The business
can exclude current debt obligations from its taxation, but not profits or money spent on stock
buybacks. The details of a common stock selling are complex, but a portion of the funds obtained
comes to financial companies that assist with the sale and distribution of the shares, and this cost
is generally more than the cost of obtaining a mortgage.

Another drawback for the company's previous owners is that share issuing provides investors
right to vote, allowing them to modify company rules and even remove the board members.
Furthermore, share issuing puts the company susceptible to a takeover attempt by a rival, as the
purchaser may be able to purchase up the bulk of voting power on the financial markets.
PART B
1.
a. Gross Profit Margin Norwich Ltd Salford Ltd
£'000 £'000
A Gross Profit 2,300.00 2,220.00
B Net Sales 8,320.00 11,250.00
Gross profit margin (A/B) 27.64% 19.73%
b. Operating Profit Margin Norwich Ltd Salford Ltd
A Operating Profit 1,252.00 685.00
B Net Sales 8,320.00 11,250.00
Operating Profit Margin (A/B) 15.05% 6.09%
c. ROCE Norwich Ltd Salford Ltd
A Operating Profit 1,252.00 685.00
B Capital Employed: 1,995.00 3,395.00
Total Assets 2,522.00 4,625.00
Less: Current Liabilities 527.00 1,230.00
ROCE (A/B) 62.76% 20.18%
d. Asset Turnover Norwich Ltd Salford Ltd
A Net Sales 8,320.00 11,250.00
B Total Assets 2,522.00 4,625.00
Asset Turnover (A/B) 3.30 2.43
e. Current Ratio Norwich Ltd Salford Ltd
A Current Assets 2,020.00 4,427.00
B Current Liabilities 527.00 1,230.00
Current Ratio (A/B) 3.83 3.60
f. Acid Test Norwich Ltd Salford Ltd
A Quick Assets 730.00 1,990.00
B Current Liabilities 527.00 1,230.00
Acid Test Raito (A/B) 1.39 1.62

g. Inventory Days Norwich Ltd Salford Ltd
A Inventory 1,290.00 2,437.00
B COGS 6,020.00 9,030.00
Inventory Days (A/B * 365) 78.21 98.51
h. Trade receivables days Norwich Ltd Salford Ltd
A Trade receivables 730.00 1,990.00
B Credit Sales 8,320.00 11,250.00
Trade receivables days (A/B * 365) 32.03 64.56
i. Trade payables days Norwich Ltd Salford Ltd
A Trade payables 430.00 850.00
B COGS 6,020.00 9,030.00
Trade payables days (A/B * 365) 26.07 34.36
j. Working capital cycle Norwich Ltd Salford Ltd
A Inventory turnover 78.21 98.51
B Trade receivables days 32.03 64.56
C Trade payables days 26.07 34.36
Working capital cycle (A+B-C) 84.17 128.71
k. Gearing Norwich Ltd Salford Ltd
A Debt 592.00 2,680.00
B Equity 1,930.00 1,945.00
Gearing ratio (A/B) 30.67% 137.79%
l. Interest Cover Norwich Ltd Salford Ltd
A Operating profit 1,252.00 685.00
B Interest expenses 20.00 70.00
Interest Coverage ratio (A/B) 62.60 9.79
PART C
Budget
Sales (units) 250,000
£/unit £000'
Sales revenue 13.00 3250
Variable produce costs -875

(3.50)
Variable production overheads (0.60) -150
Fixed production costs -700
Fixed administration costs -1160
Profit 365
Flexible budget
£/unit £000s £000s
Budget 200 300
Sales revenue 13.00 2,600.00 3,900.00
Variable produce costs (3.50) (700.00) (1,050.00)
Variable production overheads (0.60) (120.00) (180.00)
Fixed production costs (700.00) (700.00)
Fixed administration costs (1,160.00) (1,160.00)
Profit (80.00) 810.00
Working
2. Factors
Factors increase in demand:
1. Decrease in price of the product.
2. Increase in the quality of the product at constant price.

Factors decrease in demand:
1. Increase in price of the product.
2. Decrease in sources of income of the client.

REFERENCES
Books and Journal
Cumming, D., Meoli, M. and Vismara, S., 2021. Does equity crowdfunding democratize
entrepreneurial finance?. Small business economics. 56(2). pp.533-552.
Musthaq, F., 2021. Development finance or financial accumulation for asset managers?: The
perils of the Global shadow Banking System in developing countries. New political
economy. 26(4). pp.554-573.
Dahdal, A. M., Truby, J. M. and Ismailov, O., 2021. The Role and Potential of Blockchain
Technology in Islamic Finance. European Business Law Review. 2. p.2022.
Lu, X., Bai, M., Kuang, B. and Chen, D., 2021. Unlocking the Relationship between Land
Finance and Regional Integration. Land. 10(9). p.895.
von Lüpke, H., Aebischer, C. and Neuhoff, K., 2021. Collective action: new guiding principles
for International Climate Finance. DIW Weekly Report. 11(32).