Sources of Financing and Cash Flow Management for Victory PLC

The report discusses sources of financing and cash flow management for Victory PLC, including the difference between cash flow and profit, working capital, and ways to improve cash flow. It also presents a cash budget of Bemus Ltd. and recommendations to improve the cash flow of Victory PLC.

Victory PLC

Table of Contents.
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Part A...............................................................................................................................................3
Difference between Cash Flow and Profit :.................................................................................4
Working Capital ..........................................................................................................................4
Ways to improve the Cash Flow of Victory PLC........................................................................5
Part B...............................................................................................................................................6
Cash Budget of Bemus Ltd..........................................................................................................6
Analysis and Recommendation. ..................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
The report will discuss various sources of financing and which is the most appropriate
source of finance for the Victory Plc company. It will address the difference between the cash
flow and profit of the company. Secondly, the report present the meaning of Working capital
which helps in determining the liquidity of the firm and what are the changes of working capital
that will affect the cash flow of company. Furthermore, there are recommendations that the
Victory PLC should take to improve the company's cash flow. Lastly, the report will represent a
cash budget of Bemus Ltd from month of March 2022 to June 2022 to ascertain the expected
cash expenses and receipts. It will also discuss the ways which firm can use to overcome the
liquidity of the company.
MAIN BODY.
Part A
Victory PLC has various sources of financing to operate the activities of business such as
loans, debentures, issue of shares, debentures, right issue, business advances, funding through
business assets, crowdfunding, etc.
Debentures is a debt instrument which can be short term or long term that many
companies used to borrow funds at a predetermined rate of interest. There is no collateral
security backed by the debentures, and they are issued for a term of 10 to 15 years. The
debenture holders who purchase the debentures receive interest on regular basis irrespective of
profit or loss in the company (Sen, and Mehta, 2018). On the maturity date, the debentures are
redeemed at par or premium and the company have to pay lump sum amount to the investors.
Debentures are riskier as delay in payment of interest or the debenture amount result in decrease
in credit worthiness of the company and the company need to pay the interest out of capital or
reserves In case of loss.
Right issue of shares means to offer the shares to the existing shareholders to buy the
additional shares of the company at a discounted price instead o f buying at a higher rate from
the secondary market. Right issue helps in reduction of underwriting commission costs of the
company (Mazumdar, 2019). It helps in company to expand its operations without taking debt
from banks or financial institutions and avoid interest payments at a fixed rate. Right issue
protects the shares of the investors from dilution during issues of new shares in the market. The
existing shareholders have na opportunity to increase the stake of the min the company.

Non current loans are the non current liabilities which are expected to have a tenure of
more than one year. Non current liabilities include lease, bonds, deferred tax liabilities, etc. long
term liabilities helps in ascertaining the stability of company's cash flows, because the more
stable a company is the more debt can be borrowed (Svobodová, and Dittrichová, 2018,). The
company has to pay interest on the loans taken from financial institutions or NBFCs. The interest
rates might vary from institution to institution. It is same as the debentures, that the company
have to pay interest irrespective of the profit or loss.
From the detailed analysis of the types of sources o financing, the Board of Directors of
Victory PLC is suggested to choose the right issue of shares as a source of financing of the
company. It is the most appropriate form as the control of the company will be in the hands of
the shareholders only. The expense of company regarding the issue of shares, allotment, etc., is
saved. Issue of right shares will save the company from borrowing debt from the banks on high
rates. This also reduces the burden of payment of interest monthly and lump sum amount on the
maturity date to the lenders. In case of right issue, only dividend is to be paid to shareholders
when the company will earn profit. It is most suitable when the company is unable to borrow
debt from outside.
Difference between Cash Flow and Profit :
 Cash flow means the outflow and inflow of money in the organization during a specific
period and profit means the revenue that the business earns after deduction of costs.
 Profit specifies the success of the business organization whereas cash flow signifies the
outlook of business regarding long term success.
 Profit doesn't determine the whole financial position of the business because it doesn't
consider the cash outflow and inflow whereas cash flow can provide the understanding
about the day to day operations of the business (Mazzarol, and Reboud, 2020).
 The outflow and inflow of cash is recorded at the time when the actual transaction
happens whereas profit is recorded in the business as soon as it is earned though it will
receive later.
Working Capital
Working Capital is termed as difference of current liabilities from current assets. The
companies use this method to calculate the liquidity of the company, that is whether a company
has liquid assets to pay off the liabilities of business during the specific period. Positive Working

capital means the company is financially strong whereas negative working capital means the
company has poor liquidity and it can face bankruptcy (Sensini, 2020). When a company has
excessive current assets, it should expand its funds to avoid debt or equity financing in the future.
It helps in ascertaining the liquidity, efficiency and the financial heath of business in short run.
The Changes in the Working capital of the business affect the cash flow statement. If
there is a change in the current assets and liabilities with equal amount, there is no change in the
cash flow and working capital of the business. Working capital affect the effective conducting of
operations. If a company acquired any current or fixed assets, it will decrease the working
capital and due to outflow of cash it will decrease the cash flow. Increase in creditors or accounts
receivable thus it will not have an effect on the Working capital because of increase in stock and
decrease in liabilities but cash flow will be affected due to reduction or payment of cash. Thus,
changes in the current assets or current liabilities results in fluctuation in cash flow statement of
the company (Afrifa, and Tingbani, 2018). Cash flow specifies the amount of cash that business
generated while working capital gives an overview of the financial situation of the company.
Ways to improve the Cash Flow of Victory PLC
The Victory PLC need to analyse the operations in the organization to adopt the correct
strategies and improve the cash flow of business. The ways to improve are :
 The company should maintain the accounting records accurately and timely to prepare
the budget effectively on basis of past results. The cash flow should be reviewed
monthly.
 The credit policies regarding the payment of goods sold should be managed and strict to
avoid the reduction of cash because this will negatively impact the cash flow of the
company.
 To maintain the inflow of cash and accounts receivable of the company, it is
recommended to Victory PLC to offer discounts or incentives to the customers to
ascertain quicker payments.
 The sales of the companies should be expanded through various methods (Panigrahi,
2021). Victory PLC is suggested to Sponsor campaigns and programmes to boost the
sales of the company, as this is more cost-efficient and this will improve the sales and
cash inflow for the company.

 The business can improve and enhance the cash resources through saving accounts that
yield high interest rates. It will Improve the liquidity of the business. Victory PLC should
open the savings accounts which offer 25% or more interest on the savings this will
increase the cash inflow thus helping in improvement of the cash flow.
 Companies should acquire the inventory or raw materials in bulk rather than in small
orders, this will provide the companies with the opportunities to get offers and discounts
from suppliers. The Victory PLC is recommended to adopt this strategy to buy bulk
orders thus increasing the discount percentage and improving the cash flow of the
business.
 The company should avoid the purchases of equipments or assets which are expensive, it
should buy them on lease this will reduce the outflow of cash and the payment will be in
instalment, it will help in improving the cash flow and maintain the day to day operation
of h business.
 To improve the cash flow of business, Victory PLC can increase the prices of products
and services, though the increase in price will lead to reduction in number of customers,
thus the business will choose a mid price where the cash flow and customers are managed
and balanced.
Part B
Cash Budget of Bemus Ltd.
Cash Budget
Particulars March '22 April '22 May '22 June'22
Opening Bank balance 1380 7880 -56274 -38729
Receipts
Cash Sales 35100 42900 29250 33930
Credit sales 45000 48000 60000 55500
Total Receipts (a) 81480 98780 32976 50701
Payments
Cash and credit purchase 29550 35250 41300 34250
Overheads 22000 17500 16000 19500

Cash drawings 5000 5454 5355 5365.8
Purchase on Non-current
assets — — — 43400
Rent 36000
Repair & Maintenance 15000 — 7000 —
Tax — 58800 — —
Salary 2050 2050 2050 2050
Total Payments (b) 73600 155054 71705 104565.8
Net receipts [ a-b ] 7880 -56274 -38729 -53864.8
Closing Bank Balance 7880 -56274 -38729 -53864.8
Analysis and Recommendation.
From the analysis of the Bemus Ltd.'s management report, it is observed that the
company is facing a tough time. The management of the business is concerned about the
liquidity of the firm because of continuous shortfall in the cash resources. The cash budget
analysed that the company had adopted the strategy of offering benefits, discounts, vouchers to
the customers for easy and quicker payments. In the same way, the company has not maintained
the credit policy of the business. The firm had adopted the liberal credit policy which is affecting
the inflow of cash in the organization (Alhassan, and Islam, 2021). The suppliers were given the
term of 2 months for payment, this is resulting in bad debts and problem of liquidity.
Bemus Ltd. is recommended to adopt a strict credit policy to decrease the chance of bad
debts. Because of strict and restrictive credit policy, the firm will have a balanced outflow and
inflow of cash which will improve the liquidity problem of the business. The company should
also avoid the overspending of cash on the overhead expenses in the firm. The finance team need
to try to control and reduce the expenses. The management of Bemus Ltd. should keep a watch
on the asset management of the company that is if there are any unnecessary assets in the
company, they should be sold out as this will reduce the maintenance and storing cost of the

assets (Le, and Gregoriou, 2020). The company should request their vendors and creditors to
give them offers and discounts for quicker and early payments. Bemus Ltd. should try to serve
those products and services that help in earning profits. The company needs to review the
products which are on high demand in the market and will yield profit to the company.
CONCLUSION
From the report discussed, it is concluded that the business have long term debt, right issue of
shares, loans and many more sources of finances are available. The business need to scan and
analyse the source of finance on the basis of liquidity and need of the company. It specified the
meaning of working capital and the changes in the working capital that can affect the cash flow
of the company. The report recommended the ways and the advantages that a company will have
on improving the cash flows. In context with the Bemus Ltd., the report presented the cash
budget on the basis of transactions in the year 2022. From the cash budget, it is concluded that
the firm is facing liquidity problem and it discussed the ways it can overcome the issue of
liquidity and thus maintaining the profitability in the company.

REFERENCES
Books and journals
Afrifa, G. A. and Tingbani, I., 2018. Working capital management, cash flow and SMEs'
performance. International Journal of Banking, Accounting and Finance. 9(1). pp.19-
43.
Alhassan, I. and Islam, K. A., 2021. CREDIT MANAGEMENT STRATEGIES AND
FINANCIAL PERFORMANCE OF INDUSTRIAL GOODS SECTOR IN
NIGERIA. Indian Journal of Finance and Banking. 8(1). pp.59-74.
Barnhill, C. and Rundio, A., 2021. Developing a Cash Budget for the Savannah Squares. Case
Studies in Sport Management. 10(1). pp.42-45.
Le, H. and Gregoriou, A., 2020. How do you capture liquidity? A review of the literature on
low‐frequency stock liquidity. Journal of Economic Surveys. 34(5). pp.1170-1186.
Mazumdar, S., 2019. Procedural aspects of rights issued and public issue of shares. Journal of
Capital Market and Securities Law. 2(1). pp.1-5.
Mazzarol, T. and Reboud, S., 2020. Cash flow, profit and working capital. In Small Business
Management (pp. 409-450). Springer, Singapore.
Panigrahi, C. M. A., 2021. Application of discounted cash flow model valuation: The case of
Exide industries. Panigrahi A, Vachhani K, Sisodia M.," Application of Discounted
Cash Flow Model Valuation: The Case of Exide Industries", Journal of Management
Research and Analysis. 8(4). pp.170-179.
Sen, A. A. Y. U. S. H. I. and Mehta, V. E. D. A. N. J. A. L. I., 2018. Impact of debentures on
company and its stakeholders. International Journal of Research and Analytical
Reviews (IJRAR). 6(1). pp.90-96.
Sensini, L., 2020. Working capital management and performance: evidence from Italian
SME’s. International Journal of Business Management and Economic Research
(IJBMER). 11(2). pp.1749-1755.
Svobodová, L. and Dittrichová, J., 2018, June. Business entities and loans in the Czech
Republic. In European Financial Systems 2018. Proceedings of the 15th International
Scientific Conference (pp. 749-756).