Business Finance Report: Profit, Cash Flow, and Working Capital

This report provides an in-depth analysis of business finance, focusing on key concepts such as profit, cash flow, and working capital. It begins by defining and differentiating profit and cash flow, exploring their significance in business operations. The report then delves into working capital, explaini...Read More

Business
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Meaning of Profit, cash flow, how they are different:................................................................3
What is meant by working capital, includes meaning for receivables, payables, inventory:......5
How changes in working capital affects cash flow:....................................................................6
Apply concept for above element:..............................................................................................6
Recommendation:.......................................................................................................................6
TASK 2............................................................................................................................................8
Cash Budget for months 1st Jan to April:...................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business finance is about financial elements which is related to the funds which used in business.
The necessary element for business is finance. Finance is about managing funds which helps for
running business activities. Finance helps various countries for managing their activities which
includes production, HR, finance department. It is about how business using its funds for
managing its activities (Ahlström, 2019). This report is about business finance. The company
which is includes for this report is Trend Ltd. It is manufacturing business for gym clothing &
footwear. This report includes topics which are profit & cashflow, working capital, meaning for
receivables, inventory, payables, how change in working capital affects cash flow, how business
manage financial results, recommendation for improving cash flow by working capital
management. Apart from this it includes topics which is cash budget, analysis.
TASK 1
Meaning of Profit, cash flow, how they are different:
Cash flow: It is about net balance for cash outflow, inflow for businesses. Cash flow can
be negative, positive. Positive cash flow is about business has more money for inflow not
outflow. Negative cash flow is about business has more outflow not inflow. Cash flow is about
how business using its resources which includes outflow, inflow for money which helps for
running business activities. Cash flow views which business activity gives it higher profitability.
It has various activities which includes operating cash flow, investing cash flow, financing cash
flow. Cash flow refers to the net amount of cash which is present within a business. Its
calculation can be done by ensuring that the difference between the overall receipts and the
payments is taken into account which can be quite helpful in the deriving of the results. In the
context of Trend Ltd. this to the difference between the various types of receipts and payments
during a particular period of time.
Operating cash flow: It is about net cash management by normal business activities. It
helps business for growing, positive cash flow helps business for managing businesses growth. It
helps business for managing its sales which is needs for managing their activities (Akan and
Tevfik, 2020).
Investing cash flow: It is about net cash generated by business investment which
includes activities investments for securities, sale of assets, purchase of assets which includes

equipment, property. For healthy businesses which is actively investing for their businesses it
shows more investment.
Financing cash flow: This is about specially when cash moves for business, investors,
owners. It is about net cash generated for finance the business which includes debt, equity,
dividend payments.
Cash flow statement is views cash flow, financial data which design for provide detail
analysis for what happen for businesses cash. It shows various areas for which businesses use,
receives cash which views beginning, ending cash balances.
Profit: Profit is about balance when business activities expenses are subtracted by
revenues. It is about what left when the books are balance, expenses are subtracted by proceeds.
Profit can either by distributed for owners, shareholders of businesses, in form of dividend
payments, investment fir businesses. In context to profit, it use for purchase inventory for
businesses for sell, use for finance research, development for goods (Anderson, Chandy and Zia,
2018).
In context to cash flow, profit can be shows negative, positive. When data views in
negative it is loss, business spent more than earns. When data views in positive it is profit,
business earns more by its spending.
Gross profit: It is about when revenue subtracted by costs of goods sold. It includes
various elements which includes dependent upon level of output, costs of material, labour which
is related for produce goods. It doesn't includes fixed costs, which business must for its sales,
which includes rent, salary for individuals not includes for generating goods.
Operating profit: It includes operating cash flow. Operating profit which includes net
profit which businesses generates by its normal activities. It excludes negative cash flows
includes tax payments, interest payment for debts. It excludes positive cash flows by areas
outside for core businesses. It is known for earning before interest & tax. It is about when it
comes by gross profit which subtracts expenses, includes interest, tax for businesses profit.
Net profit: It is about income for various expenses which is subtract by revenues. It
includes expenses interest, tax for businesses (Babones, Åberg, and Hodzi, 2020).
Difference for cash flow, profit:

Cash flow & profit are necessary financial metrics for businesses (Boschmans and
Pissareva, 2018). It is not uncommon for those new for world for finance, accounting. Cash flow,
profits are different elements. These helps managers for strategic decision making.
For investors, understanding difference between cash flow, profit can easier for know
whether profitable businesses actually better investment which is based for its ability. For
entrepreneurs, business owners, understanding relation for these elements can inform necessary
businesses decisions, includes better growth.
Profit is about which includes revenues subtract expenses. Cash flow is about which
includes cash inflow, outflow.
Difference for profit, cash flow:
Cash flow Profit
This is prepare under cash
flow statement.
It is produce by income
statement.
There are two methods of
generating cash flow direct
and indirect method.
While this is generate by
absorption and marginal
costing method.
This is used for find out cash
position of a company.
On the other hands, this is use
for assess financial condition of
a company.
What is meant by working capital, includes meaning for receivables, payables, inventory:
Working capital: It is about which is views relation for liabilities & assets. It is about
difference for current assets & current liability. Working capital helps business for running its
activities. It includes current elements which convert into cash easily which includes inventory,
payables, receivables. It negative cash flow when operating expenses are more, assets. Working
capital management helps businesses for running their activities for generating more income for
businesses (Farag and Johan, 2021).
Receivables: It is about when businesses gives goods for customers for credit, it collects
amount by customers which is known for receivables. The creditworthiness analyse by excess
balance which receives by customers. It is necessary for enterprises which ensure extensive data
which is maintain customers repaid, it will better visualization whether amount receives. The
customers default for loan it views due amount for this loans are subtracted by receivables which
are mention.

Payables: It is about when businesses order goods by vendors for loan, amount which is
bill for them is views for payables. For businesses, it expensive for spend more money. If
outstanding money is not receives it can damage business brand value. It is about when
businesses purchases goods for running its activities by sellers for credit it is payables.
Businesses bill amount which it has to pay for its sellers for their credit purchase for running
their activities.
Inventory: It is about when inventory which businesses use for running its activities.
There are various elements for inventory which includes raw material, work in progress,
inventory. Businesses runs their sales activities by inventory for generating more income for
businesses (Gopal, and Schnabl, 2020).
How changes in working capital affects cash flow:
Funds, deferred revenue, payroll, stock contains working capital. Slight differences can
result for higher, less cash flow. If business manages better working capital it means it has cash
which is needs for running its activities which generates cash flow. Businesses purchase goods
for credit, it will rise payment, impact working capital, improves for it will gave effect for cash
flow. Where amount receives by borrowers is not repaid, operating capital adjustments would by
bad debts. This modification views for less cash flow.
Apply concept for above element:
It is absolutely necessary for businesses for audit financial includes various accounts
which is gives for creditors accurate details about earnings, cash flow. It would be advantages for
keep them, raise their loyalty. In context to Trend Ltd, businesses sells various properties for
customers. It supply various major fashion businesses when it distributes clothes, accessories for
their own brand. Tkechers Ltd., Sadidas Ltd. Are necessary customers. The company is managed
by Arpha, who owns 30% of the shares in the company, while the remaining 70% is split
between four other family members. The other shareholders are concerned about the businesses.
Recommendation:
There are multiple type of changes which can happen in the overall level of working capital in
the different types of organizations. The changes in the working capital can create an impact on
the cash flow of Trend Ltd. In the following manner-

 If there is an increase in the level of working capital of the organization this can help a lot
in ensuring that the overall level of cash flow can be enhanced in a right manner.
Therefore, this can be helpful in deriving results.
 If there is a decrease in the level of working capital of the organizations this can lead
towards a decrease in the overall level of cash flow. Thus in this way the cash flow
position of the organization can be affected.
The use of different types of measures can be taken by the management of Trend Ltd.
Through which the managers will be able to ensure that they can make the right conclusions and
recommendations quite effectively and efficiently in a proper manner. Thus steps which can be
taken by the managers of Trend Ltd. are as follows-
 Decrease in the level of expenditure- It is recommended to the managers of Trend Ltd.
that they decrease the level of expenditure so that they are able to ensure that the increase
in the level of cash flow can be done effectively and efficiently and therefore the overall
level of improvement in the cash can be carried out in the right manner.
 Decrease in the overheads- The recommendations for the managers of Trend Ltd. Are
that they must target a decrease in the overheads. This will be quite helpful for them in
ensuring a better segregation of the overheads in a proper manner. This will help a lot in
the better management of the cash.
 Management of Current Assets and Current Liabilities- It is recommended to the
management of Trend Ltd. That the overall management of the Current Assets and
Current Liabilities is carried out by them in a proper manner. This can help them a lot to
be able to ensure that the working capital level can be enhanced and therefore the wide
range of goals and objectives can be attained in a right way effectively and efficiently.
 Collecting payment from the debtors regularly- The recommendations for the
managers of Trend Ltd. Is that the collection of the payment from the debtors can be done
quite regularly by them. This will be quite helpful in ensuring that this cycle can be
maintained in a right manner effectively and efficiently in a proper manner.

TASK 2
Cash Budget for months 1st Jan to April:
Cash budget: It is about business estimation for cash inflows & outflows. Businesses
will use cash budget for determine it has sufficient cash for continue activities. Cash budget is
about estimation for cash flow for businesses for running activities which generates more
income. Cash budget is about businesses cash performance which includes cash receipts. It is
necessary element, it helps businesses for establish amount for credit which generates customers.
Cash budget of Thorne Estates Limited:
Particulars January February March April
Cash receipts
Fee charges 54000 63000 99000
14400
0
Dispose of surplus
vehicles 0 0 0 20000
cash balance 40000 0 0 0
Total of cash receipts 94000 63000 99000
16400
0
Cash expenses 0 0 0 0
Salary of employee 26250 26250 26250 26250
Bonus 0 0 700 1400
Variable expense 0 0 0 0
Fixed over heads 4300 4300 4300 4300
Interest on loan 0 0 12000 0
outstanding tax liability 0 0 0 95800
Total of cash payments 30550 30550 43250
12775
0

Net cash flow 63450 32450 55750 36250
Thorne Estates Limited cash budget views for January to April. It show various expenses,
receipts. It shows fee charge increase every month. Cash balance for January. Total cash receipts
is increase for January, February, March. Therefore, cash payments increases for January,
February, March. Net cash flow views higher for January, March, April which views by payment
subtract by receipts. Cash budget views various expenses, receipts which is using by businesses
for running its activities. Cash budget is about estimation for cash flow for businesses for
running activities which generates more income (Mian and Sufi, 2018).
Analysis: As per above data cash budget for Throne Estates Limited, it views their c ash
flows for January to March is fluctuate. In context to January, it was 63450 which is reduce by
3250 for February. For March it is views for 55750 which increase for better performance. It
views their cash budget needs for reduce expenses, increasing cash receipts which is generate by
increasing sales. The above businesses needs increase cash sales, reduce expenses, generating
more businesses income. Cash budget views cash flows for businesses. It estimates cash receipts
which expected for future, cash payments for cash, cash profit which businesses generates by
their activities. This will helps for achieve realistic budget goals. Cash budget gives business
cash needs for running businesses activities (Prince, 2017). Cash budget takes shape for
generating various budgets sales, purchase. These budget helps for knowing image for cash
drivers for businesses & by how much. Cash budget helps for knowing which activity needs how
much amount, it is about by where businesses managing funds for running its activities. Cash is
necessary needs for businesses which it using for generating more sales for generating more
income which helps for better performance which helps for higher profitability for businesses
(Tenca, Croce and Ughetto, 2018).
CONCLUSION
From the above report it has been concluded that business finance is about managing
finance for running business activities. Businesses generating sales for which they using cash
flows, profits. Cash flow which views cash outflow, cash inflow which business using for
generating income. Profits is about expenses is subtracted by revenues. Working capital is about
current liabilities, current assets for businesses which businesses managing for running activities.
It is about when businesses gives goods for customers for credit, it collects amount by customers

which is known for receivables. It is about when businesses order goods by vendors for loan,
amount which is bill for them is views for payables. It is about when inventory which businesses
use for running its activities. Cash budget is about which views expenses, income which
businesses needs for running its activities which helps for better performance which helps for
higher profitability for businesses.

REFERENCES
Books & journals:
Ahlström, H., 2019. Policy Hotspots for Sustainability: Changes in the EU Regulation of
Sustainable Business and Finance. Sustainability. 11(2). p.499.
Akan, M. and Tevfik, A. T., 2020. Fundamentals of finance. In Fundamentals of Finance. De
Gruyter.
Anderson, S. J., Chandy, R. and Zia, B., 2018. Pathways to profits: The impact of marketing vs.
finance skills on business performance. Management Science. 64(12). pp.5559-5583.
Babones, S., Åberg, J. H. and Hodzi, O., 2020. China's role in global development finance:
China challenge or business as usual?. Global Policy. 11(3). pp.326-335.
Boschmans, K. and Pissareva, L., 2018. Fostering Markets for SME Finance: Matching Business
and Investor Needs.
Farag, H. and Johan, S., 2021. How alternative finance informs central themes in corporate
finance. Journal of Corporate Finance. 67. p.101879.
Gopal, M. and Schnabl, P., 2020. The rise of finance companies and fintech lenders in small
business lending. Available at SSRN 3600068.
Mian, A. and Sufi, A., 2018. Finance and business cycles: the credit-driven household demand
channel. Journal of Economic Perspectives. 32(3). pp.31-58.
Prince, T. E., 2017. Behavioral finance and the business cycle.
Tenca, F., Croce, A. and Ughetto, E., 2018. Business angels research in entrepreneurial finance:
A literature review and a research agenda. Journal of Economic Surveys. 32(5).
pp.1384-1413.