Business Finance Analysis: Cash Budget, Accounting Equation and More

This report delves into key aspects of business finance, starting with a detailed explanation of cash budgets and their importance in managing a company's financial health. It then explores the accounting equation, highlighting its role in maintaining balance and accuracy in financial statements, supported by examples. The report further discusses the benefits of listing shares on a stock exchange for large companies, emphasizing fundraising and improved corporate practices. A comprehensive analysis of internal and external stakeholders, using Marks and Spencer as an example, identifies their roles and impact on the business. Finally, the report differentiates between profit and cash balances, clarifying that profit is not always a reliable indicator of available cash due to factors like payment delays. Desklib offers this and many other solved assignments to aid students in their studies.

BUSINESS FINANCE
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Table of Contents
Table of Contents.............................................................................................................................2
Introduction......................................................................................................................................4
Task – 1............................................................................................................................................4
Cash Budget.....................................................................................................................................4
Task – 2............................................................................................................................................5
2.1. Explain what is an Accounting Equation and explain why the accounting equation is used
and it will always work in a business organization? Also, provide an example with
explanation..................................................................................................................................5
2.2. Benefits for having shares listed on a stock exchange for a large company?......................6
2.3 Who are considered as the different types of stakeholders of a large listed company like
Marks and Spenser?....................................................................................................................7
2.4 Is the amount of profit that a business makes is considered as a reliable indicator of its
cash balances? Distinguish between Profits & Cash?.................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
Books & Journals......................................................................................................................11
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Introduction
Business finance is considered as a crucial component of business organization. In order
to conduct the business operations in an efficient manner it is highly important to focus and
prioritize the application of business finance effectively. Its application in the day to day
operations helps in making the process to bring high level 0of productivity. In context to this
report, the practical techniques such as cash budget and accounting equation are analysed to
obtain results in accordance to business objectives. Also, the importance of stock exchange and
cash balances is also discussed in detail so that the goals can be achieved effectively.
Task – 1
Cash Budget
A cash budget can be defined as a detailed statement of all the estimated cash inflows and
outflows for a specific financial period of a business organization. It can be done in a number of
ways, such as weekly, monthly, quarterly or yearly (Cowling, Liu and Zhang, 2018). It provides
the true portrait of the company's sales and expense management so that you can reach the
optimal level of cash flows to manage efficiency in your organization. The cash flow of the
respective company is mentioned below based on all the items mentioned in the report summary:
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Task – 2
2.1. Explain what is an Accounting Equation and explain why the accounting equation is used
and it will always work in a business organization? Also, provide an example with
explanation.
The accounting equation can be defined as the total of the company's total assets equals
the sum of its total liabilities plus its equity (PA, 2018). It is a basic accounting equation or the
accounting equation. The accounting equation can be considered the foundation of the double-
entry accounting system, as it helps to create a balance sheet without errors or omissions. The
formula for the accounting equation is given below along with all the elements:
The Importance of Accounting Equation:
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Liabilities = Assets – Owner’s Equity Owner’s Equity = Assets – Liabilities

The main objective of creating the accounting equation is directly related to the
preparation of financial statements, which is necessary to make certain financial decisions. It is
considered an important part as it actually helps in the creation and analysis of the financial
statements of a business organization (Mustapha, Kunhibava and Muneeza, 2020). It is basically
the basis for all the components of the annual financial statements. Since almost all organizations
work with the concept of the double entry bookkeeping system, it is imperative that the
accounting equation is set for the bottom line path. Since global compliance with the double
entry accounting system is mandatory, standardization of the accounting system and full
evidence is required. The accounting equation ensures that all entries in the books and records
are recorded correctly and that there is a verifiable relationship between all components of the
accounting equation. This accounting equation always works mainly because it is in itself an
accounting tool that is responsible for making all the postings on the balance sheet in the best
possible way so that any type of error can be effectively avoided.
2.2. Benefits for having shares listed on a stock exchange for a large company?
A stock exchange can be defined as the central location where public companies purchase
and sale off any security that is used to trade stocks. If companies are listed on a suitable
exchange, they receive several benefits which are listed below:
 Fund Raising:
Listing the company on the stock exchange provides an easy way to raise funds from the public.
It also provides an exit route for investors because if funds can be raised with the help of the
stock market, the investor's need will decrease accordingly.
 Better corporate practice:
The stock exchange has some strict policies against violating the listing agreement policies.
Therefore, in any case, an illegal practice occurs which leads to the cancellation or suspension of
the assets (Hanly, Morales and Cassells, 2018). This shows that best business practices can also
be developed in the business organization to ensure proper compliance.
 Disclosure of financial information on time:
Disclosure of financial information occurs in a timely manner when the securities are publicly
traded. The main reason for this type oof disclosure is that all the information about bonuses,
dividends, company etc must be shared to all the stakeholders accordingly. It is published in a
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timely manner so that the company can build investor confidence and a high level of
transparency accordingly.
 Access to capital for growth:
For the purposes of expansion, companies need to obtain financing. Therefore, the stock market
can help the company to increase the number of shareholders and increase the credibility of the
company.
2.3 Who are considered as the different types of stakeholders of a large listed company like
Marks and Spenser?
Stakeholders can be defined as an individual or a group of individuals considered an
important component of the enterprise that plays an important role in the business activities
of the company. For each company there can be internal and external stakeholders who
have a strong interest in the business in order to obtain monetary benefits effectively. In
view of a large company like Marks and Spenser, there may be internal and external
stakeholders. They are mentioned below with an explanation:
Internal stakeholders: These are those stakeholders of the business organization that plays an
important role by taking important decision or interested in the business activities by way of a
direct relationship (Silva, 2019). These stakeholders further include the different following parties
which are explained below:
 Owners: The owners are the owners of the company and therefore have all rights to all
business processes and operations. They are responsible for the running of the business
along with any profit or loss the business makes. Regarding Marks and Spenser, as a
stakeholder, it is really important for investors to make sure that the company is on the
right track and that it is effectively and effectively achieving all the goals and objectives
that it desires.
Employees: They are considered as the most important stakeholder in the business. They are
considered as an important reason why all business operations take place from the ground floor
to the upper level (Hassan, Rashid and Aliyu eds., 2019). For a large company like Marks and
Spence, it is very important that employees are highly qualified and experienced in their
respective fields. This will help the company to achieve higher level of profits in the set possible
manner.
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 Investors: Investors are those who contribute money to the organization to run the
business organization. In addition, this type of money invested in the company by
investors helps to increase the growth opportunities of the company. In the context of
companies like Marks and Spenser, investors must have large sums of money to invest in
the business. This is because of Marks and Spenser, a large, high-turnover company.
Therefore, investors who can invest heavily in business operations are needed to put the
company in an excellent financial position among its competitors.
External Stakeholders: These are the stakeholders that are not directly related to the business
operations of the company. But they are influenced by the way the business operates and the
business results. These shareholders include the following parties, which are explained below:
 Suppliers: It can be seen as one of the external stakeholders of the company.
The reason for this is that they are the ones who supply the raw material to the
company that makes the finished products. Hence, everything that happens in the
organization definitely affects suppliers in one way or another (Krueger and
Shorter, 2019). If large companies like Marks and Spenser are taken into
account, suppliers have to offer raw materials of the best quality at a certain
price. Any profit and loss situation also affects the credits granted by the
suppliers for purchases.
 Creditors: They are the parties that contribute funds to the company for a period
of time. The fundamental role that they play in the company is that they loan
money to the company at a certain interest rate based on an agreement. If the
company in any case generates losses, this will have a direct impact on the
amounts contributed by creditors. Compared to Marks and Spenser company,
creditors are considered an important part of the company, as they are the most
effective in helping to improve the liquidity position of the company.
 Customers: These are the main stakeholders of the company, since they buy the
products and services of the company in exchange for the monetary value. This
decides whether the business organization is successful or not. The customer is
the component of the company that can seriously damage the reputation of the
company with a simple word of mouth concept (Donovan, 2021). For large
companies like Marks and Spenser, keeping a very satisfied customer base is
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very important, as they are the ones who can achieve both brand success and
brand failure to market in a short time.
2.4 Is the amount of profit that a business makes is considered as a reliable indicator of its cash
balances? Distinguish between Profits & Cash?
Profit is considered as the most significant element in the business because the success of the
company is directly related to the company’s profit in the most effective and efficient manner. It
is considered as the income of the business that is earned by performing different operations
(Kusano, 2019). Profit is considered a very important element in any organization, as it is an
important indicator of the success of the company. It is essentially the net income of the
company that remains after reducing all possible expenses. The cash balance helps the business
to meet out its short-term financial obligation. Also, cash helps the business meet its short-term
financial obligations. Both elements are considered important financial parameters to run the
business in the most efficient way. Both elements have an impact on both corporate affairs and a
rapidly developing corporate organization. The company may consider the reliability of the
earnings based on reasonable cash available. The main reason for this is that it is not necessary
for the company to have high cash flow along with profits when it receives large volumes of
orders. Because if the business does not receive payment from its wholesale customer, its cash
flow balances will be negatively affected. Even if the cash flow is considered good, it does not
mean that the company has adequate cash flow. Therefore, it can be said that while profit is an
important element, it is still not a clear indicator of adequate and adequate cash on hand for the
reasons set out above.
The differences between the profit and cash are mentioned below:
Basis Profit Cash
Meaning Profit can be defined as the
remaining amount after
deducting all the expenditures
of the company.
Cash can be defined as
amount of money coming in
and out of the business.
Objective The objective of profit is
majorly to determine the
overall success of the
While the objective of cash is
run the business operations
smoothly on a daily basis.
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organization in the long run.
Consideration It can be considered as an
indicator of a strong or weak
financial health of the business
organization.
It can be importantly
considered as the lifeblood of
the whole business
organization on the basis of
which it runs.
Relatability & Dependence It may happen that when the
company cash flow position is
effective it may still not have
capacity to earn profits.
It may happen when the
company is earning profits and
its cash flow position is not
effectively adequate.
It is very important to understand this fact that any kind of difference between profit and
cash flow may result into high profitability along with poor cash flow (Jessel and DiCaprio,
2018). Therefore, it is perfectly normal and possible for any business organization to face such
situation. Both elements are considered very important parameters of the financial health of a
company. Therefore, both are needed in any high priority business in order to achieve the
financial objectives of the business as well as the overall growth of the company.
Conclusion
From the above report, it can be concluded that it is highly important for any organization to
utilize, develop and execute tools of cash budget and accounting equation. This will help in
obtaining the results that are required for the assessment of the financial status of the
company. Also, how a better position can be built with the help of stock exchange in the
marketplace among the competitors. In addition to this, the importance of cash balances and
cash flow were explained that helped in understanding that in order to achieve the
organizational objectives, the combination of both the components is required.
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References
Books & Journals
Cowling, M., Liu, W. and Zhang, N., 2018. Did firm age, experience, and access to finance
count? SME performance after the global financial crisis. Journal of Evolutionary
Economics, 28(1). pp.77-100.
Mustapha, Z., Kunhibava, S. B. and Muneeza, A., 2020. Legal and Sharīʿah non-compliance
risks in Nigerian Islamic finance industry: a review of the literature. International
Journal of Law and Management.
Hanly, J., Morales, L. and Cassells, D., 2018. The efficacy of financial futures as a hedging tool
in electricity markets. International Journal of Finance & Economics, 23(1). pp.29-40.
Hassan, M. K., Rashid, M. and Aliyu, S. eds., 2019. Islamic Corporate Finance. Routledge.
Donovan, J., 2021. Financial reporting and entrepreneurial finance: Evidence from equity
crowdfunding. Management Science.
Kusano, M., 2019. Recognition versus disclosure of finance leases: Evidence from
Japan. Journal of Business Finance & Accounting, 46(1-2., pp.159-182.
Jessel, B. and DiCaprio, A., 2018. Can blockchain make trade finance more inclusive?. Journal
of Financial Transformation, 47. pp.35-50.
PA, I., 2018. Innovations in Financing SMEs: A Study on the Growth of Crowdfunding in
India. Wealth: International Journal of Money, Banking & Finance, 7(3).
Silva, M. R., 2019. Corporate finance, monetary policy, and aggregate demand. Journal of
Economic Dynamics and Control, 102. pp.1-28.
Krueger, T. and Shorter, J., 2019. Bibliographic measures of top-tier finance and information
systems journals. Journal of Applied Research in Higher Education.
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