Business Finance Report: Financial Analysis and Recommendations

This report delves into the core concepts of business finance, exploring crucial elements for effective decision-making. It begins by defining key financial terms like profit, cash flow, working capital, accounts receivable, accounts payable, and inventory, highlighting their differences and impacts. The report then analyzes the financial performance of Mediterranean Delights Ltd (MDL), examining its profit, cash flow, and working capital. It identifies challenges related to debt, cash flow from operations, and accounts receivable. Furthermore, the report provides recommendations for improving MDL's cash flow, including evaluating organizational activities, setting up business plans, calculating working capital, analyzing the market environment, effectively utilizing inventories, and implementing internal audits. Finally, the report discusses budgeting concepts, contrasting traditional and modern budgeting techniques like zero-based, activity-based, and rolling budgets, and their respective advantages and disadvantages.

BUSINESS FINANCE

Contents
BUSINESS FINANCE....................................................................................................................1
PART 1............................................................................................................................................3
PART 2............................................................................................................................................6
EXECUTIVE SUMMARY:............................................................................................................6
REFERENCES..............................................................................................................................12

EXECUTIVE SUMMARY
The concepts of business finance are related to the business activities of acquiring and
distribution of all financial resources as well as making better use of other non-financial
resources. This report summary the various elements of finance which are crucial in making
decision. The main finding of report is related with proper analysis and evaluation of available
finance help in getting profitable position in competitive market.
The report summarises the case study of Mediterranean Delights Ltd, which intend to
implement the concepts of various financial concepts. In addition, proper recommendation is also
provided to improve the working capital of company.
PART 1
Question 1) Explanation of financial terms and their differences:
 Profit: This describes as a variance between the cost of the products being produced and
the price of a commodity being offered. Profit applies as an investment tool to the money
spent in a project.
 Cash flow: Net value produced by the positive cash flow and currency outflow related
operations is known as liquidity value. In other terms, profitability belongs to the sum
produced by transactions of cash equivalents (Laitinen, 2013).
The both term profit and flow of cash is totally a different concept that have several
differences as per financial understanding. The difference is discussed underneath:
Particular Profit Cash flow
Explanation It is related with total worth of cash
which an organisation's business
produces after eliminating all its
expenses.
It is defined a the actual amount of
cash which is generated or used
from different business activities in
a specific time frame.
Purpose The primary purpose profit is to
make any future capital investment
for future return, pay dividend and
maintain a sufficient amount of
retained earning for future use.
The primary purpose in planning
cash flow statement is to evaluate
operations that aid in proper fund
allocation and accumulation.
Accounting All Profit balance is needed to be
reported into statement of income
Cash Inflow and outflow are
needed to be reported on the ledger

as per accrual basis. account on the exact time when
transaction actually happen.
Explanation of working capital, account receivables, account payable and
inventory:
A) Working capital: It determines the cumulative measured worth of an organization's
existing assets. Working capital is indeed an important concept included in an
organisation day-to-day operation. Manager requires operating resources to satisfy the
fundamental requirements of their company operations in profitable way. Gross working
capital is the amount of the current assets as well as net working capital. That is actually
defined as the discrepancies between organization's current liabilities and assets. This
involves the definition of an entity's organizational performance and financial stability in
the future (Finger and El Benni, 2014).
B) Account receivables: This word applies to cumulative sum demands by companies on
their clients as a consequence of non-payment of the goods and services they purchase.
Debtor receivables ratio is used by bookkeepers to define their customers degree of
performance in servicing their loan sum.
C) Account payable: This word describes the overview valuation of money fund held by
corporate companies by their investors to effectively operate their company. It produced
company organization's liabilities. This word demonstrates at the balance sheet aspect of
the responsibility. Employees use this concept to define total sum of an organization's
short-term liabilitiesD) Inventory: Throughout the accounting word, inventory was described as the net amount
of raw materials and other resources and machinery that an company needs to
manufacture products and services for its consumer. It is known as storage, as well. This
is an integral component of an organization's existing properties.
Impact of changes of working capital on cash flow:
In the accounting scenario, company uses working capital in order to deal with daily
operation in effective manner. It is observed that more the working capital, leaves a negative
influence over the cash flow of company. This is because the raise in the cash out flows for the
different activities leads to decrease the working capital ratio. The reasons of decreasing working

capital is basically due to raise of loan amount from other outside creditors in order to meet the
business need.
Question 2 Financial results of Mediterranean Delights Ltd
Profit: From the case study, it is observed that MDL have a EBIT amount of £5 million
during the year. Mediterranean Delights Ltd's products and services stood at 50 million pounds
on fair request and sales throughout the year. The company's net income and dividends perform
well as per the statistics from last year. But maybe the challenge for the company is the that debt,
i.e. that was originally 16 million euros and now 18 million pounds. The organization agrees to
take steps to define the right assets system and attempt to restrict its obligations. The boss, Wade
claims they'd want more money. Yet that may be problematic for him, because it is very costly to
collect cash by equity, because they will demand higher returns for investment in a-leverage
business because of the substantial existing risk factor. The higher leverage levels is costly for
firms owing to interest rates and may limit MDL's profitability (Mazikana, 2019).
Cash flow: MDL has already picked up a 40 percent interest in a brunches company and
associated goods. That also paid in advance £ 8 m of the same operational costs, out of £ 10 m.
The above swap would affect the company's cash flow because the productivity is deducted by
MDL for payments made in full. It only functions, however, if the contract is a complete cash
deal. This is usually considered not to purchase any business from those in the internal capital
and typically take money from banks. Since the gap is now rising, it can be a challenge to the
business and fresh obligations will be much tougher. Nonetheless, owning a company is
definitely not unreasonable because it is bought without considering cost savings there are some
advantages of doing so. One drawback is that the company's new acquired investments also goes
hand and hand with the sale and thereby reduces revenue increase.
Working capital: The study defines that there were two debtors named San Pedro Ltd
and Delios Ltd. Moreover company provide loan facilities to Delios of value £ 1.5 million and in
addition there is an ongoing issue with San Pedro of around £ 2 million. In addition, the
company balance of account receivable basically increase and there is no cash flow for that
period. This non flow of cash impacts the profit margin of company and gives a weaker financial
stability for the future business operations.

Question 3 Steps to improve cash flow.
 Determination of organizations activities: Managers ought to first evaluate certain
behaviors that continue to produce cash flow transfers (Buck and et. al., 2013).
 Set up business plans: By evaluating Mediterranean Delights Ltd's corporate practices
manager determines arrangements and strategies relevant to debtor's value accumulation,
portfolio control etc. that support in increasing the total income.
 Computation of working capital: This company's manager use to estimates the sum
needed for their business operations to be run within an accounting period. This lets them
define their company's financial condition to compensate for their short-term
requirements.
 Analysis of market environment: For effective working capital management, manager
of Mediterranean Delights Ltd uses various environment scanning techniques to identify
best creditors which provides them loan at low interest rate. This will help them to reduce
debt liability of the company.
 Effective utilization of inventories: To improve cash flow activities organizations
needs to uses various inventory management technique which help managers to generate
high stock turnover ratio.
 Internal audit: To retain this existing work capital management flexibility, it agreed to
audit their records and funding process. This would aid them in maintaining track of
unnecessary events. Thus, this internal investigation assists in removing unnecessary
practices of business that leads to improve profitability (Hofstede, 2012).
. The Effect of Budgetary Controls on the Performance of an Organization. Available at SSRN
3445247.
PART 2
EXECUTIVE SUMMARY:
Budget can be defined as a type of financial plan which is related to making projection of
income and expense for a particular time period. Budget is not only prepared by companies
but also individuals also prepare budget for managing their financial resources. The report
abstracts about need of budget for better decision making and for better understanding a
company has been selected that is Slight plc.

Question 1
E) Explanation of the concept of budget and benefits and drawbacks of traditional and
modern technique of preparation of budget.
Budget is an estimated financial strategy that reflects an organization's income and expenses for
future time period. Managers plan budgets to determine their project's productivity rate in future
time (Bassemir and Novotny‐Farkas, 2018). Budget planning process is known as Budgeting.
Managers use various budget-preparation processes. Basically, budgeting is being done by help
of different types of techniques and each of them plays a key role. Herein, below description of
these techniques and methods done below in such manner that is as follows:
Traditional budgeting approach- It can be defined as a type of technique which is related to
preparation of budgets on the basis of past years’ financial information. Under it, budget is
produced by similar pattern as last year and modifications are done in accordance of variation in
current year. This technique has below mentioned advantages and disadvantages which are as
follows:
Benefits-
 This technique of budgeting is simple and easier. By help of this companies can produce
budget in less time and cost.
 In addition, this budgeting technique can be applied in any form of business. There is no
specification that it needs any small or large company.
Drawbacks-
 These budgets do not provide any accurate result because it is prepared on a similar
pattern in all years.
 In addition, this budgeting technique highly relays on past years’ financial information
which reduces its reliability.
Modern budgeting approach- This budgeting approach is completely different from traditional
budgeting method. Under it different types of budgets are included and some of them are
mentioned below in such manner:
 Zero based budget- It can be defined as a form of budget which is produced in
accordance of new activities and operations. Under this, past years’ information is

ignored completely. This is suitable for new business entities. Though existing companies
can also implement this in the case if they plan to start any new activities or operations. It
has some benefits and drawbacks which are mentioned below in such manner:
Benefits: One of the key benefit of this budget is that it provides accurate results as under
it all activities are included on research basis. As well as by help of this budget
companies become able to minimise those activities which are unnecessary.
Drawbacks: The issue of this budget is that it consumes too much time and cost. This is
not suitable for small business entities as they cannot afford cost of preparing this budget
due to lack of activities and operations.
 Activity Based budgeting- It is a type of budget that is prepared in accordance of
different types of activities cost (Benlemlih and Girerd‐Potin, 2017). The objective of this
kinds of budget is to maintain overall cost of its operations. It is suitable for those
business entities which are involved in the manufacturing sector.
Benefits: It is suitable for companies in order to better usage of resources because they
allocate funds in accordance of volume of expenses on each activity. Along with it also
helps in managing better coordination between managers and employees.
Drawbacks: Preparation of this budget is quite typical process as it becomes complex due
to higher volume of activities. As well as this budget is not suitable for all types of
business entities. It can be applied in specific entities which are involved in
manufacturing process.
 Rolling budget- It can be defined as a type of budget which is related to making update
in past years’ budget and transfer for next year. This budget is rolled out for next year
when past years’ budget time period completed (Brooks and Oikonomou, 2018). Herein,
this is important to know that this budget is prepared for short time period usually for six-
month time or on quarterly basis. It has below mentioned benefits and drawbacks which
are as follows:
Benefits- This budget is helpful for saving cost and time because it is prepared by making
some modification in last year’s budget.
Drawbacks- The issue of this budget is that it does not provide accurate result because it
is not prepared by doing research.

B) Uses of traditional and modern techniques for preparation of budget.
Second slight plc is a global company that manufactures different types of glasses and
sunglasses for different types of international brands. The headquarter of this company is at
Manchester and manufacturing centre is in UK and France. This company reported revenue of
250 million in last year. The company is planning to spend and open a new centre in Netherlands
with an Indian company in the form of joint venture. Herein, below implementation of these
budgeting approaches for above company is done in such manner:
Traditional budgeting- As above described that this budgeting technique is linked to
preparation of budgets on the basis of past years’ information. In the aspect of above company’s
new business centre at Netherlands, this technique can be useful because by help of it they can
manage their expenses and income. As well as they are using this budgeting approach in current
time period and gaining higher revenues. Though, they can apply this technique after end of
some years.
Alternative budgets- Under this different types of budgets are included such as zero
based budget, rolling budget and many more (Brooks and Walker, 2019). These budget are
important in the aspect of managing financial aspects. In the aspect of above company, they can
implement these budgets in order to control overall expenses and income in an effective manner.
As well as this will be easier for them to track daily basis expenditures and they are doing
business in joint venture hence these budgets will also help to other company also.
C. Explanation of weather traditional and modern techniques of budgets are applicable for
all parts of the project.
All types of budgets play a key role in the context of managing financial aspect of
companies. Herein, below evaluation of these techniques has been done below in such manner:
 The rolling budget is effective budget as it can be prepared in less time but it has some
issues such as this does not provide accurate information due to higher dependency on
past years’ data (Dorion, 2016).
 Zero based budget is one of the finest budget as it starts from zero base and provide
accurate information about financial aspects. It also has some issues such as higher cost
and time.

 As well as activity based budget is also suitable for companies but it cannot be applied to
solve non-financial issues.
From above evaluation of all budgets, this can be stated that above company should go with the
zero based budget. It is so because by help of this they can accurately predict future income and
expenses. As well as this will be suitable for their new business which they are planning to open
in Netherlands.

REFERENCES
Books and Journals:
Buck, N. and et. al., 2013. Working Capital: life and labour in contemporary London.
Routledge.
Finger, R. and El Benni, N., 2014. Alternative specifications of reference income levels in the
income stabilization tool. In Agricultural Cooperative Management and Policy (pp. 65-
85). Springer, Cham.
Hofstede, G. H., 2012. The game of budget control. Routledge.
Laitinen, E. K., 2013. Financial and non-financial variables in predicting failure of small
business reorganisation. International Journal of Accounting and Finance. 4(1). pp.1-34.
Bassemir, M. and Novotny‐Farkas, Z., 2018. IFRS adoption, reporting incentives and financial
reporting quality in private firms. Journal of Business Finance & Accounting, 45(7-8).
pp.759-796.
Benlemlih, M. and Girerd‐Potin, I., 2017. Corporate social responsibility and firm financial risk
reduction: On the moderating role of the legal environment. Journal of Business
Finance & Accounting, 44(7-8) .pp.1137-1166.
Brooks, C. and Oikonomou, I., 2018. The effects of environmental, social and governance
disclosures and performance on firm value: A review of the literature in accounting and
finance. The British Accounting Review, .50(1) pp.1-15.
Brooks, C., Fenton, E., Schopohl, L. and Walker, J., 2019. Why does research in finance have so
little impact?. Critical Perspectives on Accounting, 58. pp.24-52.
Dorion, C., 2016. Option valuation with macro-finance variables. Journal of Financial and
Quantitative Analysis,. 51(4). pp.1359-1389.