Understanding Finance - Cash Budget, Sources of Funds, Ratios, Sales Budget, Production Issues

This report covers topics such as cash budget, sources of funds, ratios, sales budget, and production issues related to Gaia Niche EV. It includes recommendations and analysis of the financial position of the company.

Understanding
Finance

Contents
TASK...............................................................................................................................................3
PART A.......................................................................................................................................3
1.Cash Budget of company from April to September by using excel.........................................3
2.Recommendation on cash budget on the basis of budget.........................................................3
PART B.......................................................................................................................................4
1. Calculate ratios by using the financial statement provided.....................................................4
2. Compare the performance of the business in regards to profitability, gearing, liquidity and
gearing ratio.................................................................................................................................4
PART C.......................................................................................................................................5
1. Sales Budget for the company.................................................................................................5
Attached in Excel.........................................................................................................................5
2. Explain the issues related to production and manufacturing of Gaia Niche EV.....................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

TASK
PART A
1.Cash Budget of company from April to September by using excel
Attached in Excel
2.Recommendation on cash budget on the basis of budget
The cash budget shows a regular increase in subsequent months. Company can reduce its credit
sales and utilise cash as working capital. With this, it can promote smoother functioning and this
leads to attainment of goals effectively and efficiently. In order to enhance flow of money
(Bohannon and Edwards, 2017), company can reduce its time period of credit sales.
3.Sources of funds and best source of fund in relation to Gaia Ltd.
As Gaia ltd is listed on London Stock Exchange and to raise funds for further expansion of
business, it can issue equity shares in market. With this, it can effectively acquire funds and this
makes it easier to operate its function. In this source of fund, company have liability to distribute
its profit in form of dividend among its shareholders.
It is needed for business to have subsequent fund so that it can operate its business
smoothly. Funds play an important role in managing all resources and all components of
business. Majorly, there are two types of funds which are short term and long term funds. It is
important for business to analyse various sources of funds and choose wisely the best alternative.
It will help company in reducing extra cost of interest and leads to reduced liability. In financing,
funding may be referred as the contribution of finance along with completion of project by using
funds from external or internal stakeholders of company. There are various sources of fund that
company may opt such as debt funding, equity funding, joint venture and retained earnings. It is
needed to utilise retained earnings and then seeks for external sources so as to minimise liability.
It is one of the crucial way to channelize way of funding for every business organisation. Debt is
referred as loan capital which an organisation takes from either private or public banks or with
other financial institution.
Advantages of sources of funds
There are several benefits of sources of funds which can provide long term benefit to company.
By sourcing fund, company can expand its business operations widely and can achieve higher
success. In addition to that, it can also be used to pay short term obligations or to meet working

capital requirements. Thus, in this way funds taken from banks can be utilised in effective and
efficient manner that it yields higher returns.
Disadvantages of Sources of funds
Most of the banks charges high interest on loan amount and this becomes challenging for
company to opt for this alternative. Debts are charged against profits and have to pay interest
whether company have earned profit or not (Beaver, 2021). Amount can be withdrawn for
personal use which would not help company in longer period.
PART B
1. Calculate ratios by using the financial statement provided.
Provided in Excel sheet attached.
2. Compare the performance of the business in regards to profitability, gearing, liquidity and
gearing ratio.
Ratios helps businesses in determining actual financial position of company. With ratios,
company can get to know about its efficiency, liquidity and operational efficiency. Looking at
figures of 2020 and 2019, it has been analysed that company have earned more profit in 2020
then 2019. In 2019, it earned 8.18% and in 2020 it earned about 8.56%.
Liquidity ratio of company shows that company have adequate amount of current assets so as to
pay short term obligations (Broce, 2016). It can be seen that in 2019, the current ratio was lower
than 2020 and it was increased to 3.31 in 2020. This shows that company have enough cash to
pay its short term liabilities.
Gearing ratio shows that company have earned profit to pay interest payments. Looking at
figures, it shows that company have generated enough cash to pay interest on debts. In 2019 and
2020, the gearing ratio is increased twice which shows that company is operating efficiently and
can attain higher success. In addition to that, it also indicates that company is utilising its loan
capital in an optimal manner. The strategy of company is effective and this leads to higher
profitability.
The profitability ratio of company is high but its operating profit is negative which shows
that company is not controlling its resources and overusing its resources. Along with this,
company have to minimise its operational cost so that it can achieve higher success. Low

negative profit is impacting on other operations too as it reduces overall efficiency level of
company (Delen, Kuzey and Uyar, 2013).
.
The efficiency ratio of company is high because company is able to boost its sales volume and
using its assets in an optimal manner.
PART C
1. Sales Budget for the company.
Attached in Excel
2. Explain the issues related to production and manufacturing of Gaia Niche EV.
In relation to Gaia Niche EV, it is recommended that company have to enhance its overall
productivity by reducing cost of production. It will positively impact on profitability and on its
sales volume. With low production cost, it can offer best price to its customers. The cost of
business concern is high and this issue negatively impact on company’s profitability. In order to
lower down production cost per unit, company should increase number of units to 35000. This
will help company in diminishing overall cost of product and leads to higher efficiency.

CONCLUSION
From the above project report, it was concluded that there are various sources of funds that a
company may opt in order to make process smoother and to expand business operations. Some of
examples of sources of funds are debt capital, equity capital, venture capital and issue of shares.
Ratios helps in determining actual financial position of firm and with this, company can alter its
existing strategies so as to enhance overall performance. Examples of rations are profitability
ratio, gearing, and operating ratio.

REFERENCES
Books and Journals
Beaver, W.H., 2021. Financial ratios as predictors of failure. Journal of accounting research,
pp.71-111.
Bohannon, J. and Edwards, D., 2017. Cash budgeting. Journal of Property Management, 58(3),
pp.52-54.
Broce, T.E., 2016. Fund raising: The guide to raising money from private sources. University of
Oklahoma Press.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A
decision tree approach. Expert systems with applications, 40(10), pp.3970-3983.
Lerner, E.M., 2019. Simulating a cash budget. California Management Review, 11(2), pp.79-86.