Understanding Finance: Cash Budget, Financial Ratios, and Flexible Budget

This report discusses the financial information of Gaia Ltd, including cash budget, financial ratios, and flexible budget. It also covers sources of finance and recommendations for effective financial management. The report is relevant for finance students and professionals.

UNDERSTANDING
FINANCE

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART A...........................................................................................................................................3
1.Cash budget of Gaia Ltd..........................................................................................................3
2.Recommendation of cash budget.............................................................................................3
3.Sources of finance:...................................................................................................................4
PART B ..........................................................................................................................................4
Calculated the financial ratios of Gaia Ltd: ...............................................................................4
Recommendation of different types of financial ratios..............................................................5
PART C............................................................................................................................................5
Preparation of flexible budget ....................................................................................................5
Recommendation of flexible budget...........................................................................................5
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Finance refers to management of the funds which involves various activities like funding,
borrowing, lending, budgeting, saving and predicting (D'Acunto, 2018). There are various kinds
of finance which are personal finance, corporate finance and the government finance. The
finances are required when any organisation or individual wants to purchase something or wants
to do the new activity so that they can live their life more comfortably. For these types of activity
the organisation of individual require finance. Finance term is very important in the context of
business organisation without it the organisation cannot be able to survive in this competitive
world for period of time. This report contain the financial information of the Gaia Ltd. IN
includes the cash budget, various ration through which the financial position can be analysed.
PART A
1.Cash budget of Gaia Ltd
Cash budget is kind of document through the organisation are able to manage the cash
flow of their operation. It is prepared in advance by the help of which the managers of the
organisation are able to know that how much money they can spend in the particular period of
time so that they can generate the revenue which they predict in the beginning of the year. If any
kind of difference have been find-out by the organisation after the end of year Then by the help
of the budget they can identify their reasons so they can rectify them and did not repeat them in
future (Henry, 2018).
2.Recommendation of cash budget
The organisations like Gaia Ltd should have to use their liquid money very carefully. It is
because the companies are spending their funds for the expenses which are related to the
marketing due to which the companies did not have the cash balance in the last month. IN the
July the company have to their loan amount but due to unavailability of cash they are not able to
pay the cash on the right time. Due to the unavailability the balance in the month of July was
negative. To bring the position again the managers of the organisation have to come up with the
strategy. The Company can increase the credit limit period of time and decrease the period of the
credit sales so that they can receive their money in short period of time and use them wisely
through which they an easily manage to earn profit.

3.Sources of finance:
Sources of fiance can be describe as a way through which the organisations can be able to
generate the funds for business so that they can do their operation without facing any hurdles and
hardships (Wellum, 2020). Due to these sources the organisations can expand their business
activities and can earn huge profits for longer period of time. The various sources of finance are
equity share, preference share, debentures, bonds, financial Institution, angel Investors,
government grants, venture capital and many more. The Gaia Ltd company is also listed in
London stock exchange through which they can raise their fund when ever they wants. This
company can raise the their funds with other sources but the best source of finance for the Gaia
Ltd is venture capital. It is because the this source of finance have a very low risk. Due to this
low risk features the manger of Gaia Ltd are able to concentrate on the matters easily.
PART B
Calculated the financial ratios of Gaia Ltd:
Financial Ratio- The financial ratio of the organisation shows the economic condition of the
businesses in various ways which can be profit, liquidity, and market valuation. There are
various types of financial ratio which are used in organisation are as follows-
Profitability ratio- This ratio shows the profit earning ability of the businesses. There
are various of profitability ratio which are gross profit ratio, operating profit ratio, net profit
ratio.
Liquidity Ratio- Liquidity ratio refers to the conditions of the organisations which shows
that how quickly the business organisations are able to pay off their debts and liabilities without
using the external capital. The various types of liquidity ratios are current ratio and acid test
ratio.
Efficiency ratio- This ratio helps the company through which the company can measure
their ability to use the assets of the business. Various types of efficiency ratios are Trade
receivable ratio, trade payable ratio and many more.
Gearing or risk ratio- This ratio shows the financial risk which are related with the
business organisation (Pardo-Guerra, 2019).

Recommendation of different types of financial ratios
The gross profit ratio of the Gaia Ltd is more in 2020 as compare to the year 2019. The
positive result of gross profit is consider as the better sign for the management of the company.
The company should have to decrease their marketing and office so that the company can earn
the high net profit and they can also bring some money by issuing their own share due to which
they did not have to pay more interest (Lussuamo and Serrasqueiro, 2020). This will helps them
in earning the more profit.
PART C
Preparation of flexible budget
By the help of the of the flexible budget the organisation can bring the innovation and
changes in their organisational policies. Due to this the business organisation are able to control
their operation perfectly.
Recommendation of flexible budget
If the organisation wants to earn the profit then they have to sales total number of 30,000
units. With this they also have to decrease their variable production cost, variable overheads, and
fixed production cost (Henry, 2018). All these thing can be reduce by the proper and effective
financial management. It means the Gaia Ltd have to make their financials attractive and
effective.
CONCLUSION
From the above it can be concluded that the Gaia Ltd have to make their financials
decision very effective and efficient. Due to this they are able to run their operations for the
longer period. This report includes various statements which shows the financial conditions of
the business organisation. The above report also include various sources of finance from which
the best source of finance have been easily picked which is venture capital.

REFERENCES
Books and Journals
D'Acunto, F., 2018. Tear down this Wall Street: Anti-finance rhetoric, subjective beliefs, and
investment. Subjective Beliefs, and Investment (July 14, 2018).
Henry, N., 2018. Women, Literature and Finance in Victorian Britain: Cultures of Investment.
Cham: Palgrave Macmillan.
Wellum, C., 2020. Energizing finance: the energy crisis, oil futures, and neoliberal
narratives. Enterprise & Society. 21(1), pp.2-37.
Pardo-Guerra, J.P., 2019. Automating finance: infrastructures, engineers, and the making of
electronic markets. Cambridge University Press.
Lussuamo, J.M. and Serrasqueiro, Z., 2020. Restrictions on access to bank finance for SMEs in
Cabinda–Angola. Small Enterprise Research. 27(3), pp.275-288.