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

This finance report provides a comprehensive analysis of financial concepts, focusing on cash flow, working capital management, and budgeting techniques. The report begins by defining profit and cash flow, contrasting their differences, and then explains the components of working capital, including payables, inventory, and receivables. It explores how changes in working capital impact cash flow and how company management affects financial results, using Bright Lawns Ltd and Boat World Plc as examples. The report offers recommendations to improve cash flow through better working capital management, such as optimizing inventory and account receivables, and negotiating with suppliers. The second part of the report examines different budgeting methods, including traditional and alternative approaches like rolling and zero-based budgeting, and their applications in cost management, specifically for Boat World Plc. The report also discusses the advantages and disadvantages of each method, providing insights into their suitability for various business contexts. The report concludes with a summary of the key findings and recommendations for effective financial management.

Finance report

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Part 1................................................................................................................................................1
i).......................................................................................................................................................1
a. Meaning of profit and the cash flow with reflecting contrast between them..........................1
b. Meaning of working capital, payables, inventory and receivables.........................................2
c. Different ways in which the working capital changes might impact the cash flow................2
ii)......................................................................................................................................................3
The way company is managed may affects its financial results.................................................3
iii).....................................................................................................................................................3
Recommendation to improve company's cash flow with the better working capital
management................................................................................................................................3
PART 2............................................................................................................................................4
i) Purpose to prepare different types of budget...........................................................................4
a) Traditional budgeting approaches...........................................................................................4
b) Alternative budget methods....................................................................................................5
ii) Application of these methods with respect to planning of future cost management of Boat
World Plc....................................................................................................................................6
iii) Analysing whether traditions or alternative budgetary system is appropriate to all or part
of a business................................................................................................................................6
CONCLUSION...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
It is very important for the business to prepare and manage its working capital management
as it directly helps to increases the cash flows. Present study is based on the two organisations
that are Bright Lawns Ltd and Boat World Plc. Bright Lawns Ltd is private limited company that
as incorporated in the year 2008 (Ali, Ormal and Ahmad, 2018). On the other hand, Bright lawns
Ltd is an international leisure company that is operating its business in UK and France. Report
will include about profit and cash flows with respect to Bright Lawns and will indicate the ways
by which working capital affects the cash flow. Further report will include different ways in
which company manage and the way it affects its financial results. Report will include an
effective recommendation that will help the business to get idea and have a better working
capital management. Report will also include traditional budget and different alternatives with its
advantages and disadvantages(Mathuva, 2015).
Part 1
i)
a. Meaning of profit and the cash flow with reflecting contrast between them
Profit- It refers to the financial gain that has been earned by Brightlawns Plc. after paying
off the amount in the operating, producing and buying something. In other words it means the
monetary gain that is been derived from the business transactions that in turn stated as excess of
the revenues over the outlays and the expenses in the business enterprise over an accounting
period(Mathuva, 2015).
Cash flow- It is defined as the summary of the inflow and an outflow of the cash for a
specific time period. It reflects the reasons changes in the cash position of Brightlawn Plc. by
providing a view of the receipts and the expenses incurred in the ordinary course of the business.
It breaks out the cash resources of the company into 3 categories that is operating activity,
investing activity and financing activity (Pais and Gama, 2015). It is considered as the measure
of a company's liquidity which comprises of the net income after deducting the taxable and the
charges that does not involve cash.
Profit Cash flow
It depicts the money that is left after reducing
sales revenue and cost incurred.
It is represented as the cash received from
various sources(Filbeck, Zhao and Knoll, 2017
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It is been computed prior to the money
received(Pais and Gama, 2015)
Cash flow is mainly impacted by the timing of
the payment within and outside of the
company.
Profit is not found as crucial for the survival of
an enterprise.
Flow of cash or money seems to be critical for
survival of an entity.
It is been evaluated as amount realized after
subtracting revenue and disbursements.
It means incomings and the outgoing of the
cash for the business transactions.
b. Meaning of working capital, payables, inventory and receivables
Working capital- It referred as the capital of the business that is been utilised for running
the routine operations on a smooth basis(Milewski and Tomasiewicz, 2019). It is computed by
the deducting current liability from the current assets. It is seen as the capital required by an
enterprise in order to finance short term assets of Brightlawns Plc. It represents funds that are
available in financing the day-to-day operations efficiently and effectively. It is mainly helpful in
gaining operational liquidity of an entity that is presenting the ways in which an enterprise can
cover its short term asset and the debts.
Payables- It is the money that is owed to the creditors, employees, government and is
presented as the liability in balance sheet of the company(Filbeck, Zhao and Knoll, 2017)
Inventory- It means an array of the finished goods produced or is used in the
manufacturing process within Brightlawns Plc. It is mainly categorised as the current assets in
the balance sheet of the company.
Receivables- It is defined as an accounting term for which the amount is due from all the
stakeholders (Afrifa, 2016).
It is classified under the head called current assets as trade receivables in balance sheet of
Brightlawns Plc.
c. Different ways in which the working capital changes might impact the cash flow
There are different ways in which the working capital changes can impact the cash flow
and these ways are as following:-
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 If the change in working capital is negative, then the change with respect to operating
assets are high than compared with the operating liabilities. This reduces the free cash
flow, as cash has been used effectively.
 If the changes in WC are positive enough, then the change in operating liabilities results
more than compared with the CA(Kurniawan, Yuniarsih and Sumarto, 2016).
 If any changes arises in the working capital, it directly reflects in cash flow statement of
the business.
 If the working capital is insufficient for the business, it directly impacts the ability of
Brightlawns Plc. to have optimal organisational operations. If the working capital is more
than the need, it results in loss and cash flow also get reduced(Wasiuzzaman, 2015).
ii)
The way company is managed may affects its financial results
From the case study, it is been analysed that the way company is been managed may
affects its financial results. As company is not having enough cash in hand, they took £2 million
of loan and their debt has raised year before from £18 to £16 million. Company also agreed to
pay £8 million advance fee for the exclusive use of the designs. Not only this, BLL has to avoid
taking risk as it directly affects its financial results. As business is not having an effective control
on its expenses, it is very important for the business to manage its expenses and pay to its
suppliers on time(Kurniawan, Yuniarsih and Sumarto, 2016).
. It is the responsibility of the working people to maintain the working capital of the firm and
also to watch the respective stock time to time. As company is not having alternative lenders, it
may directly impacts its financial results. It is therefore, important for Brightlawns Plc. to have
bank overdrafts, as it helps the business to manage shortfall in its working capital. Brightlawns
Plc. is not able to have control on its expenses and they are required to make remedial actions in
order to make every follow the respective rules as it may help the business to manage its
financial results. It is very important for Brightlawns Plc. To manage its working capital as it
will help the business to have effective financial results and growth of the business(Hill, 2016).
iii)
Recommendation to improve company's cash flow with the better working capital management
In order to improve the cash flow of the business, it is very important for Brightlawns Plc. to
manage its working capital in an effective manner. This can be done by timely converting the
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assets into cash form. It is very important for Brightlawns Plc. to manage its inventory and
account receivables as it directly helps the business to increase if liquidity. If the business is able
to negotiate with its suppliers, than there will be large cash balance and company will be able to
improve its WC. This also helps the business to increase business liquidity and cash amount.
Company can also increase its cash flow, by earning additional profits and selling long term
assets for cash(Milewski and Tomasiewicz, 2019).
It can also work effectively, if the business issues preferred stock for cash and replace its
short term debt with long term. Business can borrow money on a long term basis as it can also
leads to increase in cash flow of the business. The different ways with the help of which, cash
flow can be improved are as following:-
 Improve account receivables of Brightlawns Plc. that is make customers pay on time with
the help of quick payment options and incentives that they will receive.
 Business is required to improve accounts payable and must negotiate with the suppliers
in order to have managed payment process for Brightlawns Plc.
Another way to increase the cash flow is that, business is require to negotiate the price with its
respective suppliers and this can also help bring the best working capital position of the
workplace (Pais and Gama, 2015).
 Reducing the expenses also helps the business to determine the different areas where
cash flow can be improved.
 Another way to improve the cash flow with respect to the working capital management is
to segment and then analyse for the respective credit risk
PART 2
i) Purpose to prepare different types of budget
It is very important for Boat World Plc. to prepare an effective budget as it helps the
business to allocate the respective cash and it is a plan that makes the business force to think
long term. Budget is prepared to understand the funding of the business and also helps in
analysing which assets are worth to invest in.
a) Traditional budgeting approaches
It is a method that is used to prepare budget from the last year’s budget by making
different adjustments at Boat World Plc(Vovchenko and et.al., 2015)
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. The present year's budget is usually based on inflation rate, market situation etc. The past year’s
revenues generally forms a part of current year’s budget. It generally includes items that are in
need of justification that is which are over and above with respect to the last year’s budget. The
different advantages and disadvantages of applying this approach is as following:-
Advantages:-
 It coordinates with the financial activities of the business and it provides a framework of
control with respect to management of different activities.
 It maintains the standard operating procedures and allows the managers to run their
operations till the respective parameters are not met.
Disadvantages:-
 This method usually fails to motivate people to work for the business benefits and it also
reinforces departmental barriers.
 It also brings disconnection from the strategic plan.
b) Alternative budget methods
There are different alternative methods
Rolling budgets:-
This type of budgets are been prepared by updating the accounting period as earlier the
accounting period get completes.
Advantages:-
 It plans and control the budget
 It adapts the change
Disadvantages:-
 It is quite time consuming in nature and may demoralize the working employees at Boat
World Plc(Ali, Ormal and Ahmad, 2018).
 It also brings uneven updates for the business
Zero based budgets:-
It is a budgeting in which the expenses have to be justified from each new period.
Advantages:-
 It emphases on decision making and is having its orientation towards cost benefit
analysis.
Disadvantages:-
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 It is quite subjective in nature and also determines the long term goals of Boat World Plc.
Activity based budgets:-
It is a method with the help of which budgets are prepared and there are different
accounting tools which do not consider past year’s budget to effect on the current year’s budget.
Advantages:-
 It helps in brining competitive edge of Boat World Plc.
 It evaluates each and every drivers of cost.
Disadvantages:-
 It is quite complex form of budgeting and requires research and analysis.
ii) Application of these methods with respect to planning of future cost management of Boat
World Plc.
In order to manage the cost of the business, Boat World Plc. is required to use the budget and
have an effective plan that business has to work on in order to reach the goals. Business is
require to estimate, allocate and predict the respective cost. The benchmarking is the best
strategy that business have to use in order to have future cost management plans(Mathuva,
2015).
iii) Analysing whether traditions or alternative budgetary system is appropriate to all or part of a
business
The traditional budgetary approach is used at all the respective part of the business. It
allows managing the different business operations at different part and in the alternative budget
different plans and controls for the budget are there and these system also emphasis on effective
decision making(Ali, Ormal and Ahmad, 2018)
CONCLUSION
From the above study it is been concluded that in order to increase the cash flow of the
business, Brightlawns Plc. have to manage its working capital in order to make the easy going.
Further report concluded that Boat World Plc. is require to have an effective budgeting approach
that they can utilize to make the project successful and business objectives of both the
organisation can be achieved.
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REFERENCES
Books and Journals
Afrifa, G.A., 2016. Net working capital, cash flow and performance of UK SMEs. Review of
Accounting and Finance. 15(1). pp.21-44.
Ali, U., Ormal, L. and Ahmad, F., 2018. Impact of Free Cash Flow on Profitability of the Firms
in Automobile Sector of Germany. Journal of Economics and Management Sciences,
1(1).
Filbeck, G., Zhao, X. and Knoll, R., 2017. An analysis of working capital efficiency and
shareholder return. Review of Quantitative Finance and Accounting. 48(1). pp.265-288.
Hill, L.E., 2016. Pioneering a rolling forecast: a North Carolina health system that switched from
a traditional to a rolling budget process found the conversion offered a unique
perspective of its financial picture. Healthcare Financial Management. 70(11). pp.58-63.
Kurniawan, A., Yuniarsih, T. and Sumarto, S., 2016, August. Budget Implementation in Higher
Education. In 2016 Global Conference on Business, Management and Entrepreneurship.
Atlantis Press.
Mathuva, D., 2015. The Influence of working capital management components on corporate
profitability.
Milewski, R. and Tomasiewicz, M., 2019. Model of performance-based budget planning in
public sector entities. Scientific Journal of the Military University of Land Forces, 51.
Pais, M.A. and Gama, P.M., 2015. Working capital management and SMEs profitability:
Portuguese evidence. International Journal of Managerial Finance. 11(3). pp.341-358.
Vovchenko, N.G and et.al., 2015. Institutional aspects of provision of sustainability of budget
system of the Russian Federation. Asian Social Science. 11(20). p.235.
Wasiuzzaman, S., 2015. Working capital and firm value in an emerging market. International
Journal of Managerial Finance. 11(1). pp.60-79.
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