Comprehensive Budget Report: Financial Analysis of Hamble Ltd

This comprehensive budget report provides a detailed financial analysis of Hamble Ltd, covering various aspects critical for effective financial management and decision-making. Part A focuses on cash budgeting, examining cash flow dynamics, and identifying strategies to improve cash balance, such as managing supplier payments and accelerating receivable collections. It also explores different sources of finance available to Hamble Ltd, including owner's capital, retained profits, asset sales, bank loans, and venture capital, evaluating their respective advantages and disadvantages. The report further discusses the benefits and drawbacks of raising finance through share issuance. Part B involves the computation and analysis of key financial ratios, comparing the performance of Norwich and Salford in terms of profitability, efficiency, liquidity, and gearing, ultimately recommending investment in Norwich Ltd due to its stronger financial position. Part C presents a flexible sales budget for varying quantities and analyzes factors influencing demand, such as pricing, consumer preferences, and expectations. The report concludes by emphasizing the importance of budget reports for maintaining financial control and identifying avenues for business finance and demand management. Desklib provides access to similar solved assignments and past papers to aid students in their studies.

Budget report

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
PART A......................................................................................................................................3
1. Cash Budget.......................................................................................................................3
2. Examining the cash budget................................................................................................3
3. Sources of finance available to Hamble Ltd......................................................................3
4. Raising finance through the issue of shares.......................................................................4
PART B......................................................................................................................................5
1. Computation of financial ratios..........................................................................................5
2. Analysis of the ratios..........................................................................................................6
PART C......................................................................................................................................6
1. Flexible sales budget for quantities of 200,000 units and 300,000 units...........................6
2. Factors contributing to increase or decrease in demand....................................................6
CONCLUSION..........................................................................................................................7
REFERENCES...........................................................................................................................8

INTRODUCTION
For the business preparation of the budget report is very important and is a critical
aspect of the finance. It helps in managing the finance of the business effectively. This report
provides an understanding about the types of analysis which are carried out for taking
business decisions.
PART A
1. Cash Budget
2. Examining the cash budget
It can be stated from the above that Hamble Ltd should look at it revenue from sales as in
May, the sales are very less and along with this, the expenses are very high affecting the net
cash balance (Kamau, Rotich and Anyango, 2017). The company can manage its cash flow
effectively by its cost in regard to payment made to the suppliers which help minimizing the
negative impact it has over the cash flows. In addition to this, the company should try to get
payment from its receivables early or conduct more cash sales which will help in ensuring
more cash inflow.
3. Sources of finance available to Hamble Ltd
Source of finance Advantages Disadvantages
Owners’ capital  It brings no debt on
the owner.
 Using personal
capital might lead

 No need of paying
financial charges or
interest.
 It does not bring in
any liability for the
owner.
the owner not having
enough money to
meet his/her personal
requirements.
Retained profits  This is the money
put aside for meeting
future requirements
of the business.
 It does not attract
any interest payment
or repayment as well
(Maheshwari,
Maheshwari and
Maheshwari, 2021).
 Once the amount is
used, it cannot be
recovered for future
contingencies of the
business.
Selling assets  This is a quick and
easy mode of
gathering money.
 Raise money from
unused equipment.
 Limitation is that the
organization might
not be able to sell the
asset to its full
market value due to
urgent requirement.
 There are chances
that the asset might
to require in the
future.
Bank Loan  It can be accessed
quickly.
 Can have huge
amount of money at
a time.
 It might attract
higher interest rates.
 Getting bank loan
may be difficult for
new or loss-making
entities.
Venture capitalists and
business angels
 Through this, huge
amount of money
can be gathered.
 Offers advice and
consultancy as well.
 The owner might
give away a share of
the entity.
 They might have
different vision in
contrast to the
business.
It is highly recommended to Hamble Ltd to make use of both bank loan and the Venture
capitalists and business angels as it will help in getting advice and guidance as and when
required and also reduces the risk level exposure to both the sources.

4. Raising finance through the issue of shares
Hamble Ltd can raise capital by making use of the shares as it will help in meeting
up with the long term goals and objectives of the business.
Advantages
 The amount is not required to be paid back.
 Large fund can be raised.
 The company can pay dividend only when it generates enough profits.
 It will help reduce gearing ratio.
 In case of rational dividend policy, then it will consequently lead to creating huge
reserves pertaining to its developmental program.
Disadvantages
 It requires lot of formalities and is a time-consuming process.
 It requires incurring various costs in respect to issue.
 There are certain legal and regulatory issue which are required to comply with.
PART B
1. Computation of financial ratios
Profitability ratios Norwich Salford
Gross profit margin 27.6% 19.7%
Operating profit margin 15.0% 6.1%
Return on capital employed 67.1% 138.4%
Asset turnover 3.30 2.43
Efficiency ratios - Days Norwich Salford
Inventory days 78 99
Receivable’s collection period 32 65
Payable’s payment period 26 34
Working capital cycle 84 129
Liquidity ratios x:1 Norwich Salford
Current ratio 3.83 3.60
Acid test 1.39 1.62

Gearing Norwich Salford
Gearing ratio 3.3% 42.7%
Interest cover 62.60 6.35
2. Analysis of the ratios
In regard to the profitability ratios, the performance of Norwich is very sound in
comparison to the Salford. But, in terms of return on capital employed, Salford is having high
percentage return in comparison to Norwich. On account of efficiency ratios, all the ratios
were very sound for Norwich which has consequently resulted into lower working capital
cycle. On the other hand, Salford is receiving the money from is receivables very late and is
also making early payment to its suppliers which is not appropriate (Easton and et.al., 2018).
This has affected the working capital cycle of the Salford which is very high. In regard to the
liquidity ratio, both the companies are having the good and little high but is still having a
good liquidity position. The last is the gearing ratio which is very less in Norwich in contrast
to the Salford and also the interest coverage ratio is high which highlights its ability to meet
its interest obligations on time without any problem.
Thus, it can be inferred from the above, Hamble Ltd should invest into Norwich Ltd
as the financial performance and position of it is sound in comparison to the other.
PART C
1. Flexible sales budget for quantities of 200,000 units and 300,000 units

2. Factors contributing to increase or decrease in demand
Factors for increasing demand
 The decline in the selling cost will cause an expansion in the demand as under the
pandemic situation, individuals are spending less.
 Providing item which are according to the taste and inclinations of the customers will
consequently lead to expansion in the demand of the items (Weigel and Hiebl, 2018).
Factors for decreasing demand
 The ascend in the selling price of the merchandise would prompt decrease in the
demand of the items as individuals will search for other the substitute items which are
inside their spending plan.
 The assumptions for individuals additionally assume a significant part in the
influencing the demand. On the off chance that the item provided is not according to
the expectations for the consumers, then, at that point it will prompt decrease in
product demand.
CONCLUSION
It can be concluded that budget reports are very important in order to make sure that
the business is operating within the defined budget limits. In addition to this, there are various
sources of finance which can be used for the purpose of business finance and identifying the
factors affecting the demand of the products.

REFERENCES
Books and Journals
Easton, P. D. and et.al., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Kamau, J. K., Rotich, G. and Anyango, W., 2017. Effect of budgeting process on budget
performance of state corporations in Kenya: A case of Kenyatta National
Hospital. International Academic Journal of Human Resource and Business
Administration. 2(3). pp.255-281.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Weigel, C. and Hiebl, M. R., 2018. Beyond budgeting: review and research agenda. Journal
of Accounting & Organizational Change.