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

This report provides a detailed analysis of business finance, focusing on the concepts of profit, cash flow, and working capital. It differentiates between profit and cash flow, explaining their meanings and implications for a business. The report then delves into the components of working capital, including receivables, inventory, and payables, and how changes in these areas affect cash flow. Using the example of Trend Limited, the report applies these concepts to demonstrate how a company's management practices can impact its financial results. Furthermore, it offers recommendations on how to improve cash flow through better working capital management. The report also includes a monthly cash budget for the period from January to April 2021, along with observations and recommendations for the management of Thorne Estates. The report concludes by emphasizing the importance of effective financial planning and management for business success.

Business Finance

Contents
EXECUTIVE SUMMARY.........................................................................................................................4
TASK 1.......................................................................................................................................................4
1. (a) What is meant by Profit and Cash flow and how they are different?.............................................4
b. What is meant by Working Capital and, the meanings of Receivables, Inventory and Payables?.......5
C. Changes in working capital affect cash flow.......................................................................................6
II Apply the concepts in (i) above to this company to show how the way the company is being managed
might affect its financial results...............................................................................................................6
III) Analyze and recommend what steps should now be taken to improve this company’s cash flow
through better Working Capital management..........................................................................................7
TASK 2.......................................................................................................................................................8
EXECUTIVE SUMMARY.........................................................................................................................8
1. Prepare a monthly cash budget for the four months from 1st Jan to 30 April 2021.............................8
2. Observations or recommendations that you would make to the management of Thorne Estates.......11
REFERENCES..........................................................................................................................................12

EXECUTIVE SUMMARY
Business Finance is the increasing and utilization of money by businesses. The financial
manager, who is commonly near the top of a company's business operations, is in charge of
organizing, research, and control operations. Significant financial decisions are frequently made
by a budget committee in large corporations. In small businesses, the proprietor is primarily in
charge of the economic transactions (Ángeles López-Cabarcos, M Pérez-Pico and López Perez,
2020). Lower-level employees handle much of the daily operations task of business finance, such
as controlling revenue and expenditure, lending from banking sector on a continuous and
consistent premise, and developing financial statement. This report based on the Trend limited
which is manufacturing of cloths and accessories of gym. In this report consist of concept of the
cash flow and profit with their differences. Moreover provide appropriate recommendations in
regard of the working capital and cash flow management.
TASK 1
1. (a) What is meant by Profit and Cash flow and how they are different?
Profit: It is the motivation for company owners to spend. It is charged directly as wages
in small businesses. It can often be paid to investors in the form of distributions in companies.
When expenditures exceed sales, this is referred to as a loss. If a corporation faces deficits for an
extended period of time, it will go bankruptcy. In addition, profit is described as the amount
obtained from exporting a commodity that should be greater than the manufacturer's market
rates.
Cash Flow: The inflow and outflow of cash or its variations in industry is referred to as
cash flow. It measures the sums of cash expended or gained during a given time span. Its
research also discusses the current drivers of cash flow as well as the potential extent of inflows.
The actual cash flow for a specified timeframe is calculated by subtracting the availability – from
the balance at the end (Li, Wang and Wu, 2021).
Difference between profit and cash flow
Particular Profit Cash flow

Meaning It is the total sum produced by
manufacturers after subtracting
operating expenses.
It is known as the total figure of
cash equivalents exchanged into and
out of the company.
Time Benefit estimation does not
include a specific time span. The
organization calculates it on a
daily, frequent, and annual basis.
This statement is generated by the
company at the end of the financial
year to present the real cash flow
condition in the company.
Calculation It is calculated in a variety of
ways using administrative and
accounting strategies. It is also
determined by a profit and loss
statement, which lists all of the
revenue and expenditures.
It is determined by recording each
item in the financial statement and
categorizing various activities into
various functions such as activity,
financial, and expenditure. This
statement allows the manager to
consider cash inflow behavior.
Purpose The primary aim of benefit is to
ensure the long-term survival of a
corporate organization and to
efficiently display its financial
condition.
The primary reason for identifying
an individual's overall monetary
output that helps to produce cash in
an acceptable manner.
b. What is meant by Working Capital and, the meanings of Receivables, Inventory and Payables?
Working capital: It is the difference among both current assets and current liabilities.
Current assets are the funding have in the financial institution and also any assets can
transformed into cash if requested that as well. Current liabilities are loans that are due to be
repaid in the next year. Thus, working capital is what remains after subtracting current liabilities
from whatever is in the fund (Atif, Liu and Huang, 2019). It is useful in determining the current
economic liquidity, i.e. how effectively the company is able to offset particular debt with brief
capital.

Receivables: These are generated by lending a checking account to retailers and are
listed as current assets on a company's financial statements. They are classified as a liquid asset
when they’re used as liquidity to attract a bank to pay fulfills short-term requirements.
Receivables are a component of a business to earn a profit.
Inventory: Inventory is a type of asset that is meant to be sold in the current accounting
period. Inventory may not be available for sale right away. Inventory includes both finished
products to sell and raw processes used to create finished goods for sale. Raw materials, work-in-
progress, and final inventory are the three categories of inventors.
Payables: A trade payable is money charged to a corporation by its distributors for
products or services supplied to or used by the company in the usual interest of national security.
If charged on loan, such accrued sums are registered in the accounts payable section of a
corporation's accounting system and remain in the appropriate accounts aging report before they
are charged. All sums owing to vendors that are charged a fee promptly are not called trade
payables so they are no more a responsibility (Cole and Sokolyk, 2018).
C. Changes in working capital affect cash flow
Working capital changes are expressed in a company's cash flow. The following is an
overview of just how money and working capital can be affected. There will be no improvement
in capital expenditures if a deal increased all current assets and current liabilities according to the
same level. For instance, whenever a business obtained money from a simple loan that was due
in 60 days, the cash flow statement would show a rise. Even so, there would be no incremental
change capital so the loan proceeds are a current asset or money, and the document payments is a
current liability since it is a quick mortgage.
II Apply the concepts in (i) above to this company to show how the way the company is being
managed might affect its financial results
Whenever a company handles its cash flow, working capital, earnings, inventories,
receivables, and payables correctly, it will remain well outside of all of its rivals in the current
business environment, and also allow the companies minimize its expenses by becoming
successful in the industry (Hewitt and et.al, 2018). As the business has a revenue of £300
million, and its operating income has risen by a significant amount, reaching £95 million, this is

one of the indicators that there is lesser debt in the organization, that is one of the explanations
for its huge achieving a competitive advantage for so far. Aside from that, the manufacturer's
economic growth is also excessive, as it has spent £20 million and bought shares with that
number. Most of the above suggests that the company is doing reasonably well during the current
sector, and therefore it has a reasonable chance of raising its producer surplus in the coming
years whether it retains its consistent season. Furthermore, the industry has a great amount of
profit over the past several years, indicating that it is doing better than other rivals in the same
market.
III) Analyze and recommend what steps should now be taken to improve this company’s cash
flow through better Working Capital management
Improving working capital enables companies to address their
service requirements more successfully. Salaries, accounts payable, equipment expenditure, and
reimbursement to suppliers and manufacturers are just a few examples. A business could find
itself in such a cash flow due to decrease if it lacks working capital. In order to offset
undervalued, cash flow deficits often necessitate the incurring of debt. As a result, the business's
balance sheet is being leveraged. With so much debt, the organization would struggle to obtain
additional debt. It's a loop of poor feedback. Eventually, the company is unable to find funds,
declines on its commitments, and loses money (Bajracharya, and et.al, 2018).
The measures that the business should take to boost its cash flow by
properly managing working capital include attempting to minimize the difference between
payments and receipts so that an equilibrium in between two can be achieved, which will aid in
potential sustainable development. In addition, careful research and assessment must be
performed on each and every level in order to aid in improved planning, which will help the
company prosper in the business. It is important for all companies to take appropriate steps to
improve cash flow by consistently managing working capital. Trend Ltd can take the necessary
steps as a resulting:
 Companies may better monitor the stock, which will significantly improve working
capital and benefit the team to strong revenue.

 Keeping investments on time is a good approach to manage capital reserves and helps
suppliers to expand cash flow.
 Debt collectors should be properly managed by the enterprise as it would lead to better
major equipment (Li, and et.al, 2020).
TASK 2
EXECUTIVE SUMMARY
A budget is a financial strategy for purchasing and protecting property over a set period of
time. Individuals also construct household finances that align their costs and revenues for food,
clothes, and housing, among other things, also by allowing for some spending. Following the
establishment of the budget, exact expenditure is evaluated to the expenditure to ensure that the
plan has been accompanied. Corporations use expenditures in the same way that individuals do,
though the level of paperwork and underpinning affect sales far exceeds a personal finances.
1. Prepare a monthly cash budget for the four months from 1st Jan to 30 April 2021
An organization must develop a cash plan to make sure that there will be enough money in
the organization to reach the operating levels defined by the functional budgets. A cash budget is
associated with flexibility and must represent adjustments in raising and lowering borrower
funds and closed and open lender reserves, and also reflecting on other cash inflows and
outflows. The cash budget depicts the cash flows produced by the operating budgets as well as
the benefit and investment allocation. A cash budget is a comprehensive budget of income and
cash outlays that includes both income and capital goods. The cash flow budget should be
measured using the method as the action to take will be described (Busco and et.al, 2018). The
budget for the year is typically staggered into shorter time periods for monitoring, such as
weekly or monthly. The capital investment is efficiently handled via the development of a cash
budget, which includes the projected revenues and expenditures for a given date in the future. A
budget like this would pave the way for more effective control of the elements that make up the
cash flow.

Particulars January February March April
Receipts:
Cash fees 18000 27000 45000 54000
Credit fees 36000 36000 54000 90000
Sale of asset 20000
Total receipt 54000 63000 99000 164000
Payment:
Salary 26250 26250 26250 26250
Bonus 6300 12600
Expenses 9000 13500 22500 27000
Fixed overhead 4300 4300 4300 4300
Taxation - - - 95800
Interest - 3000
Total payments 39550 44050 62350 165950
Net cash flow 14450 18950 36650 -1950
Opening balance -40000 -25550 -6600 -30050
Closing balance -25550 -6600 -30050 -28100
Working notes:
Month December January February March April
Units sold 10 10 15 25 30
Sales value 1800 1800 2700 4500 5400

Cash fee at 1% 18000 18000 27000 45000 54000
Cash fee at 2% 36000 36000 54000 90000 108000
Variable cost
at 0.5%
9000 13500 22500 27000
Monthly salary cost= (35000*9)/12=26250
Bonus for March= (25*20)*140*9=6300
Bonus for April= (30*20)*140*9=12600
According to the above article, Throne Estate Limited plans a cash budget from January
to April to display the corporation's real money condition. It varies according to the condition
and has a direct impact on earnings. At the start of the budget estimate, the overall receipts of the
business are presented, which include cash payments, credit fees (2 percent of sale), and asset
sales. The firm receives 15 percent of its cash revenue in the same month and the balance 2%
after two months. Complete receipts from January to April were 54000, 63000, 99000, and
164000, collectively. From the company's gross receipts minus the volume of payment
consisting of wages, bonuses, expenditure, depreciation, interest, and fixed overhead (Hassan
and Marston, 2019). The average annual salary per worker is 35000, so division by 12 months
and multiply by 9 workers. The adjustable expense rate of 0.5 percent is applied to each property
sold in the market. Following the completion of all calculations in the month of Feb, the cash
outflow is 14450, and then it increases to 18950. In the month of March, note a rise in outflows
of 36650, followed by a decline in April 1950, suggesting substantial increase in the volume of
net cash flow. The ending balance in January (-25550) reflects the corporation's poor liquidity
position and inability to perform business operations properly. The same process is followed in
the other periods, and the organization has a bad ending balance in February due to a lack of
liquidity, but a checking account in March addition to the tendency to retain cash as required
(Brammertz and Mendelowitz, 2018). There is a need for an overview of the overall process, as
well as adjustments made by the corporate company to increase cash flow and reduce spending.

Furthermore, an increase in spending has an effect on the cash condition because it is based on
charging the expenses sum that deducts the cash status.
2. Observations or recommendations that you would make to the management of Thorne Estates
According to the cash expenditure findings, Thorne Estate has not been able to maintain
an efficient cash position at the end of every season. It is clearly shown that the organization's
corporate administration is unable to maintain a good strategy in such periods due to fewer cash
flows varying in various months. Eventually, it is proposed that the manager of Throne Estate is
truly planned once a year, depending on the business organization (Netter, Poulsen and Kieser,
2018). It is established on a monthly, annual, and quarterly basis. Sales are the primary source of
funds for a company and the accuracy of the financial information is also dependent on the
accuracy of the sales forecast. Thorne is advised to sell goods in a wide market and to handle his
liquidity role effectively. Furthermore, based on previous practice, the government would
forecast the amount of sales in terms of profit and allowances. It is recommended that the
manager use appropriate methods for money transfers to investors and analyze all accounts
receivable in the company enterprise. It is essential to formulate certain Thorne modifications in
various organizational functions and responsibilities in order to raise funds for an agency. This
necessitates careful preparation and efficient cash management (Vaaler, 2018).
Appropriate reimbursement by the manufacturer at the right moment will also help the
business company boost their capital structure and build good relationships with them in order to
achieve successful net cash flow. Thorne Estates Limited is told that whenever the term of credit
is allowed by lenders in one month, the balance will be charged in the month of February for
variety of payment activities completed in January. The manager attempts to maintain an
efficient liquidity role by appropriate expected revenue and outlet transfer. It aids in the proper
operation of business practices (Hornuf and Schwienbacher, 2018).

REFERENCES
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