Organisational Finance: Cash Flow Analysis, Ratios, and Budgeting

This report provides a comprehensive analysis of organisational finance, beginning with an assessment of Penrith Council's free cash flow from 2009-2010, including graphical representations of operating and investing cash flow trends, income from continuing operations, and net operating profit trends. It calculates key financial ratios such as current ratio, debt-equity ratio, return on investment, and gross profit margin to evaluate the council's financial health. Additionally, the report discusses internal control and governance, using Harvey Norman as a case study. The latter part of the report focuses on Hardwood Products, preparing a cost of production budget, cost of goods sold budget, and a sales forecast budget. Finally, it culminates in the preparation of a master budget, including an operating expense budget, and presents a budgeted income statement along with a budget report, offering a complete overview of financial planning and analysis.

Manage Organisational Finance

Table of Contents
INTRODUCTION ..........................................................................................................................3
ASSESSMENT TASK 1.................................................................................................................4
TASK 1............................................................................................................................................4
1. Analyse the free cash flow of year 2009-2010........................................................................4
2. Make a Graphical representation of the operating cash flow trends.......................................4
3. Make graphs of the investing cash flow trends.......................................................................5
4. Draw a graph of total income trends from continuing operations..........................................6
5. Show the net operating profit trends.......................................................................................7
TASK 2............................................................................................................................................8
Calculate the financial ratio using the fiscal statement...............................................................8
Assessment Task 2.........................................................................................................................11
Part B.............................................................................................................................................11
Assessment Task 3.........................................................................................................................16
Prepare two budgets- cost of production and cost of goods sold..............................................16
ASSESSMENT TASK 4...............................................................................................................25
Make sales budget and determine the position of debtors on 30th September.........................25
ASSESSMENT TASK 5...............................................................................................................29
Prepare operating expense budget and master budget, on the basis of this prepare an income statement along with budget report 29
CONCLUSION..............................................................................................................................53
REFERENCES..............................................................................................................................54

INTRODUCTION
Managing the organisational finances means that the company needs to develop new skills and training in the financial management for the development of the undertakings. The key skills which are to be needs to
manage the fiscal resources of the corporation is the cash management and the bookkeeping accounting. It should do to ensure the financial integrity to obtain the economic control of the firm (Fitzgerald, 2021). To make sure
that the firm is performing as per its capability, it is essential to perform a fiscal analysis of the records, transactions and the statements for giving a reality check to the organisation. It will be helpful in knowing about the
profitability and productivity of the firm. By the help of the budget analysis and different ratios a comparative analysis of the company can be performed by another firm or by the industry the firm is dealing in (Mirzaee, and
et.al., 2018). It gives the improvement criteria in which the business. Internal control refers to the policies and procedures that are created within an organisation to comply with the moral code of conduct of the business itself.
It determines if a business is working in compliance with the applicable laws, regulations, policies and procedures.
The report consists of five assessments. In the first assessment, the case and the financial statements about the Penrith Council has been discussed, on the basis of which the free cash flow is calculated and the analysis
is done. Further, the operating, investing cash flow trends and the income from the operating activities and the operating profits trends have been showed. Moreover, the financial ratios of the Penrith Council have been
calculated, which can help in doing the analysis for the company and will also assist in the decision – making. In the Part B of assessment 2, the report will highlight how internal control and governance guides a business to
be effective in its operations. The company selected for this task is Harvey Norman, a retail company dealing in furniture, computer and other consumer electrical products. The rest three assessments of the report focuses on
preparation of master budget for Hardwood Products. Its third assessment deals with the preparation of cost of goods sold and cost of production budget. The forth section prepares the anticipated sales forecast budget. The
fifth assessment is about the preparation of master budget along with operating expenses budget. It also focuses on a report on master budget and income statement.
ASSESSMENT TASK 1
TASK 1
1. Analyse the free cash flow of year 2009-2010.
Free Cash Flow is the amount which is generated by the organisation every year which is free and not obligated for all the internal and external liabilities (Münster, 2020). It aims at determining the amount that how
much the company is sufficient to invest in the business and distribute the dividends to its shareholders.
Free Cash Flow = Sales Revenue – Expenses
= 162081 – 167946 = (5865)
Analysis: From the above calculation it can analysed that the operating expenses are more than the income. It resulted in the negative flow of the operating capital, which can be utilised as to pay the dividends, debts and
increase in the earnings. A negative free Cash flow implies that the Penrith Council is unable to create cash which can be used in supporting and growing the organisation. It tracks that how much money the company is left
with after deducting its operating expenses.
2. Make a Graphical representation of the operating cash flow trends.

The operating cash flows in the above 5 years shows a diminishing trend. The operating cash flows in the first year were near to 24000 and just in the second year the cash flows jumped to 30000, this has happened as the
business saw an increase in the sales in this year and there were enough cash flows in the business in that year. In the third year, 2010, the business saw some reduce in its operating cash flows due to the reduction in sales of
the business. These were at 23000. These cash flows have remained similar in the next year, which is, 2011. but in the year 2011 these were at lowest of all the five year, which were 22000. In the year 2012, the operating
cash flows increased to 46000 which were highest in these five-year analysis, which is due to the different policies which were taken up by the business in this year and has boosted their sales.
3. Make graphs of the investing cash flow trends.

The cash flows from investing activities have been in a similar trend. In all these year, there have been outflows of the cash flows due to investing activities. In the first year, the organisation has spent 32221 amount on
different investing activities like interest and loans. The outflows from these reduced in the next year i.e. 2009 and these have been similar in the year 2010. In the year 2011, the organisation has spent the least in these 5-year
analysis and the outflows have recorded to be 15684. the outflow again hiked in the year 2012 to 50000 as the business spend too much on new investment prospects.
4. Draw a graph of total income trends from continuing operations.
The above graphical presentation shows the trends of total income which have been earned from continuing operations. The trend can be seen as an increasing slope in the 5 financial year. In the year 2008 the total operating
income received was 150000 which increased by a little in the next year i.e. 2009. The income after that have shown a positive increasing trend and in the year 2012 the income was at its highest and near to 200000 in these 5
year analysis.
5. Show the net operating profit trends.

The net operating profit trend of the business can be seen decreasing in the first 4 years and in the last year the business recorded the highest profits in these 5 years. The organisation recorded operating loss of -50000 and the
highest profit recorded in these 5 years was near to 20000
TASK 2
Calculate the financial ratio using the fiscal statement.
1. Current Ratio: It is a form of the liquidity ratio which is measured to known about the company's efficiency to pay – off its short term liabilities with respect to the current assets (Neeser,and et.al., 2019). It estimated
the amount which the organisation has to raise the funds to pay off the liabilities. The ideal ratio is 2: 1. It means the existing assets should be at least double of the existing liabilities.
= Current Assets / Current liabilities
= 73862 / 49576 = 1.49: 1
Interpretation: The current ratio of the organisation is 1.49: 1 which is a little less than what is considered as the standard ratio. This means that the liquidity of the business is a stake. The organisation's current assets are low
to meet the standard ratio of current ratios. The existing assets are not double the existing liabilities of the business this creates liquidity problems for the organisation. Higher the current ratio, higher is the liquidity in the
business and lower the ratio, less is the cash and cash equivalents in the business for the period.
2. Debt – Equity Ratio: It is a leverage ratio that calculates the weight of total debt and financial liabilities in relation to the total capital of shareholders. It gives the proportionate between the debt and equity of the firm
(Proczek, 2020). It also shows that how much the equity amount of the shareholders is sufficient to pay it creditors. This ratio shows how a company's capital structure is geared towards either debt or equity financing.
= Debt / Equity
= 110693 / 2506435 = 0.04: 1

Interpretation: The debt to equity ratio of the organisation is 0.04: 1 which shows that the business is operating on more equity than debt of the organisation. This interprets that the organisation does not have any capacity to
take risk and try new for the organisation. The business will have to pay more dividends onto these share capital which in turn uses more of its profits. Higher the ratio, higher is the ability of the business to take risks in the
business. Lower the ratio, creates less retained earnings for the business and hence the business may not be able to work on its growth prospects.
3. Return on Investment using Cash flow: It is basically the internal rate of return which the company compares to understand that how the company is doing considering the investment and the products (Buckley, and
Doyle, 2017). It gives the investors a brief understanding about how the cash is maintained in the organisation which can affect the internal structure of the business. It is calculating be diving the operating cash flows
by the difference of total assets and current liabilities.
= Operating Cash flow / Capital Employed
Year 2012 = 46789 / (2617128 – 49576)
= 46789 / 2567552 = 0.018
Year 2011 = 22003 / (2361955 – 50385)
= 22003 / 2311570 = 0.01
Year 2010 = 22288 / (1432980 – 45762)
= 22288 / 1387218 = 0.016
Year 2009 = 30500 / (1152361 – 43352)
= 1152361 / 1109009 = 1.039
Year 2008 = 24119 / (1160728 – 39763)
= 24119 / 1120965 = 0.022
Interpretation: The above 5 year ratios shows how the business's return have been in these 5 year. The most return on investment have been seen in the year 2009 which was 1.039. The business saw the least return on its
investment in the year 2010, which was 0.016. The business did not receive any good return and it also has not spend much on investment in this year. The business recorded some increment on the return on their investment
but it was just slight in the year 2012 with 0.018.
4. Gross profit Margin: An organization's net revenue is the most essential proportion of an organization's productivity. It states that how much cash is left subsequent to representing the expense of creating labour and
products and paying employees. Money managers and financial investors for the most part desire to see a steady or developing net revenue; when this measure is contracting, either the business is putting resources into
its activities or it has an issue (Ghalehkhondabi, and et.al., 2017). It is calculated by splitting the distinction between absolute income and the expense of labour and products sold by complete income, and is by and
large addressed as a rate.
= (Gross profit / Net Sales) * 100
= (20871 / 208267) * 100 = 10.02%

Interpretation: The gross profit margin which have been seen in the business was 10.02 %. this ratio shows the business is able to convert 10 % of its sales into its gross profits. This ratio has been calculated on the basis of
its operating profits as there were no direct expenses for the business and hence there were no gross profits for this year.
5. Break even Revenues: It is a point at which the firm is in a situation of no loss no profit. At this point, the organisations cover the total expenses which is incurred by the firm. Break even quantity alludes to the
quantity of units a venture should offer to take care of all expenses, while break even sales refers to the business sum it should produce to take care of its expenses. It is an interior administration bookkeeping setup that
decides the connection between cost, volume and benefit.
= Fixed Cost / Selling price – Variable Cost
According to the given operations of the Penrith Council, it can be analysed that there is no fixed cost. It means that the organisation is not occurring any fixed cost. The breakeven revenue for the year 2011-12 is
187396, because these are the expenses which have been incurred to the company in respect to the consideration of the financial summary of the organisation.
Assessment Task 2
Part B
Internal control refers to set of procedures, rules and workings that are enforced by a company in its own working to ensure that different departments working in the business are complying with the rules, regulations
and policies that are formed by the business and promoting success to achieve the predetermined objectives of the business. Internal auditing is one of the crucial part of internal control (Hastings, 2021). It helps to check and
audit the financial information of the company and regulate any error or fraud which has occurred in the statements of financial information. The structure of internal control has five following components:
 Control Environment: This component derives the tone of the organisation and how it influences the control consciousness of its people. The factors in this include the Integrity, ethical values of the people working
in the business. The philosophy and operating style of the managers. The authority, responsibility relations between the workforce, etc.,
 Risk Assessment: It refers to the identification and interpreting of the different risks which arise while achieving the objective. These can be assessed by monthly discussion of risk issues, internal risk assessment and
formal internal departmental risk etc.
 Control Activities: These helps the management to ensure whether or not the directions are being carried out while performing the range of activities like purchasing, sales, etc.
 Information and communication: All the important information that is identified and captured in the business needs to be well communicated that enables the mangers and the employees of the business to work
efficiently. Effective communication is needed to be happened across whole organisation. Examples to these are reporting, visions and values.
 Monitoring: The internal control systems are needed to be well monitored to assess the quality of the performance over a period of time.
There are different types of Internal control and some of them are, Preventive and detection controls, Hard and soft controls, Manual and automated controls, key and secondary controls.
Corporate Governance refers to a system which is present in an organisation which forms rules, procedures and practices to control an organisation to follow the laws and standards mandated by the state (Russell,
2021). The main goal of corporate governance is to safeguard the interests of the different stakeholders like management, investors, government and the community. Corporate governance considers principles of transparency,
accountability and security.
Following are these key principles of corporate governance discussed:

Shareholders Primacy: One of the most important principles of corporate governance is to recognise the shareholders and their capital employed in the business. In this principle, the corporate governance provides basic
recognition to the people who buys the stock of the business and after that it the principle follows the responsibility to the shareholders. The shareholders of the business have a direct say as to how the business is supposed to
run. The shareholders themselves elect the board of directors who will look after the operations of the business and report them about the same.
Transparency: The major focus is given to the interests of the shareholders in the corporate governance. Transparency is a principle which focuses on review of company's actions by anyone, internal or external to the
business (Stolper, 2019). Corporate governance provides a medium for this transparency about the business actions to the general public. It also motivates individuals to invest into the business and become shareholders to the
business.
Security: The corporate governance follows this principle as the customers and shareholders of the business need to feel safe while dealing with the business. They need to know that all the personal information related to
them, is safe and not used by any third party. Everyone who is working in the business need to follow the security procedures of the business like passwords and authentication methods.
Following are the 8 principles which are required by the company to formulate their Corporate governance report according to the Australian Securities Exchange:
1. Lay solid foundations for the management and oversight- The listed company is required to formally make it clear the different roles and responsibilities of the board of directors and its management and timely
keep a check on their performance.
2. Structure the board to effective and add value- The board of directors are required to be in an appropriate size and have sufficient skill set and knowledge to operate the duties of the business and add value to the
organisation.
3. Instil a culture of acting lawfully, ethically and responsibly- The culture of the business is required to follow the laws of the state and the employees should act as a responsible workforce of the business. In its
corporate governance report it is required to disclose its values.
4. Safeguard the integrity of corporate reports- the public company is required to have an appropriate procedure to have the integrity of its corporate governance verified. They should have an internal and external
audit team with their reports provided in the corporate governance.
5. Make timely and balanced disclosure- the company has to make balanced disclosure of the matters of that are concerning to different stakeholders of the business and which would provide material effect to the value
of its securities.
6. Respect the rights of security holders- The stock holders of the business are needed to have the appropriate and accurate information which would allow them to exercise their rights efficiently (Abhayawansa, and
Adams, 2021). It should provide information about the governance to its investors timely via its business site.
7. Recognise and manage risks- The business is all about risks and these risks are required to be managed by the business periodically to review the effectiveness of the corporate governance. There should be a
committee formed by the business to keep a check on risks of the business.
8. Remunerate Fairly and responsibly- The companies are required to remunerate their employees and board of directors in a sufficient manner. This will attract and retain the quality directors and motivate them to
work efficiently to create a value to the stockholders of the business.
Following is a brief introduction to the company selected, i.e. Harvey Norman
Harvey Norman is an Australian based multinational retail brand which deals in the trading of furniture, computers, bedding and other consumer electrical products. It is listed in the Australian Stock Exchange. It operates
from more than 193 locations in and around the world. The business was founded by Gerry Harvey and Ian Norman in the year 1982. Harvey Norman is listed in the Australian stock exchange and hence need to follow the
above mentioned principles to provide the corporate governance of the business. Following is a guide which would help the company to formulate its corporate governance techniques effectively:

1. Structure of the Board of Directors : The board of directors refers to a group of individuals who are elected or may be appointed by the shareholders of the business to be responsible for the different activities which
are required by the business to operate (Grice, 2018). These group of people have a chairman which controls and work to assist the board of the directors in their responsibilities. These members are independent. These
members look after the corporate governance of the business and establish the audit and ethics committee.
2. Board Responsibilities: The committee execute numerous work which are necessary by the corporate governance, some of these are mentioned here. It sets the administration's values and standards, and brief and long
term objectives. It also guarantee that establishment utilize process to modify the organisation to meet its judicial and regulative requirements considering gathering the requirements of authorities regulation and order,
and investor's requirements.
3. Duties of the Chairman of the Board: The chairman of the board of directors is required to perform certain duties, these are- the chairman is required to approve the agenda of the board, they manage all the meetings
and provides leadership in the actions of the boards and sees if it complies with the principles of good corporate governance (Harris, 2018). The chairman takes special responsibility which makes sure that the board
of directors operates efficiently and all the members are satisfied. It also ensures that the board has right skill-set in them which enhances the working of the business overall.
4. Board Committees: These committees help the board to fulfil their functions by allotting different responsibilities to the members of these committees and recommending the board on the major activities of finance
and audit. These committees enhance the utilization of board members' individual skills and expertise to assist their productivity and use the benefits of having skilled board of directors as a whole.
5. Board accountability: The board of directors are finally accountable for the business: as a whole, the board and its individualist members, are responsible for all that the system does, and how it does it. The Committee
therefore is the situation of answerable and should perpetrate itself and the organization to following policies and pattern that justify the confidence of users and the public in its continuing operations.
6. Board Delegation: the company's board of directors performs all the functions which are assigned to them by the legislation but they may choose to delegate specific responsibility to other and enable the business to
operate efficiently (Hanrahan, 2018). Delegation of authority ensures that the organisation operates efficiently and the work needed is completed.
7. Transparency and Disclosure: The business is required disclose all the material information regarding the business which should be accurate and includes all the financial situations and results of the financial period.
8. Code of Conduct: The organisations are required to operate according to the set of defined rules, objectives and missions. All the employees are required to know what is the standards about the work that the business
expect from the employees. They should follow the code of conduct to measure the success of their operations.
9. Conflict of Interest: The director or the committee member which are having the conflict of interest need to disclose all the material facts about these conflicts. The Chairman of the board of directors are required
check whether the members are participating in the discussion and voting or not.
10. Risk Management and Compliance: Risk management refers to the process of identifying, assessing and prioritising of the different risks which are developed in the business and these impacts the smooth functioning
of the business (Heenetigala, and et.al., 2017). Corporate governance of the business monitors and controls the effect of these risks onto the business. The board of Directors will oversee these risks and create required
management policies to be implemented.
11. Audit: The company is required to form an audit committee to perform the internal audit function. The internal audit is an essential aspect in the business it brings a systematic and a disciplined approach in the
business to improve the system of internal control. The board of managers are required to form audit team which would consist of 3 board members and will oversee the internal audit work and implement the
recommendations made by the team.
Assessment Task 3
Prepare two budgets- cost of production and cost of goods sold
Cost of Goods Sold Budget
Dining Tables Buffets
July August September July August September

Units Rate
Amoun
t Units Rate
Amoun
t Units Rate
Amoun
t Units Rate
Amoun
t Units Rate
Amoun
t Units Rate
Amoun
t
Opening Balance
Direct Material
Ash 6 150 900 8.1 150 1215 10.2 150 1530
Redwood 24 60 1440 31.68 60 1900.8 34.56 60 2073.6
Pine 2 pack 8 15 120 10.35 15 155.25 11.7 15 175.5 8 15 120 10.35 15 155.25 11.7 15 175.5
Finished Section 12 2500 30000 18
2546.7
4
45841.3
2 15
2602.9
1
39043.6
5 60 1200 72000 90
1559.06
5
140315.
9 72
1740.8
5
125341.
2
Purchase of direct
material
Ash 262.1 150 39315 272.1 150 40815 341.8 150 51270
1047.6
8 150 157152
1058.8
8 150 158832
1157.4
4 150 173616
Redwood
Pine 2 pack
340.3
5 15 5105.25
346.3
5 15 5195.25
367.4
4 15 5511.6 340.35 15 5105.25 346.35 15 5195.25 367.44 15 5511.6
Direct Labor (in
hours)
Processing section 520 25 13000 540 27 14580 680 27 18360 1950 25 48750 1980 27 53460 2160 27 58320
Finished Section 260 22 5720 270 25 6750 272 25 6800 1300 22 28600 1056 25 26400 1440 25 36000
Closing Inventory
of direct material
Ash 8.1 150 1215 10.2 150 1530 12 150 1800
Redwood 31.68 60 1900.8 34.56 60 2073.6 40 60 2400
Pine 2 pack 10.35 15 155.25 11.7 15 175.5 12 15 180 10.35 15 155.25 11.7 15 175.5 12 15 180
Finished Section 18
2546.7
4
45841.3
2 15
2602.9
1
39043.6
5 24 2465 59160 90
1559.06
5
140315.
9 72 1740.85
125341.
2 96 1169 112224
Cost of goods sold
46948.6
8
73802.6
7
61550.7
5
170795.
4
258668.
9
286233.
9
Cost of Production Budget
July August September

Particulars
Opening stock of raw material
Dining table 1020 1370.25 1705.5
Buffet 1560 2056.05 2249.1
Opening Stock of finished goods
Dining table 30000 45841.32 39043.65
Buffet 72000 140315.85 125341.2
Purchase of direct material
Dining table 44420.25 46010.25 56781.6
Buffet 162257.25 164027.25 179127.6
Direct Labour in processing
Dining table 13000 14580 18360
Buffet 48750 53460 58320
Closing Inventory of direct
material
Dining table 1370.25 1705.5 1980
Buffet 2056.05 2249.1 2580
Closing Inventory of finished
product
Dining table 45841.32 39043.65 59160
Buffet 140315.85 125341.2 112224
Prime Cost 182404.03 297951.27 303279.15
Manufacturing overhead
Processing Section
Power & Light 300
4
00 350
Repairs 40