Financial Management: Cash Flow, Budgeting, & Financial Planning

This assignment covers key aspects of financial management, including cash flow management, budgeting, and financial analysis. Part A includes multiple-choice questions related to cash flow components, planning, and financial statements. Part B consists of written or oral questions addressing decisions related to business improvements, the importance of budgeting, technology recommendations for family businesses, and variance analysis of sales budgets. The assignment also includes a case study on improving budgeting accuracy for a coffee shop. The document provides a comprehensive overview of financial management principles and their practical application in business scenarios. Desklib is your go-to resource for similar solved assignments and study materials.

Running head: FINANCIAL MANAGEMENT
Financial management
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Table of Contents
Part A.........................................................................................................................................2
Part B..........................................................................................................................................5
References..................................................................................................................................9

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Part A
1. Management of cash flow
Cash flow management is the procedure to monitor, analyze and optimize total cash
receipts that is reduced by the amount of cash payments1.
2. Benefits of cash flow management
 It helps in strengthening the relationship with the suppliers and the suppliers will
increase the credit period if any cash crunch issues arise
 Good cash flow management helps in reducing the worries regarding regular business
operation2.
3. Components of cash flow
 Operating cash flow
 Financing cash flow
 Investing cash flow
4. Purpose for the planning of cash flow
The main purpose is to analyse the cash inflow and cash outflow for a specific period.
Net changes or the difference between cash inflow and outflow is reported in the balance
sheet.
1 Farshadfar, Shadi, and Reza Monem. "Further evidence on the usefulness of direct method cash flow
components for forecasting future cash flows." The international journal of accounting 48.1 (2013): 111-133.
2 Bhandari, Shyam B., and Rajesh Iyer. "Predicting business failure using cash flow statement based
measures." Managerial Finance 39.7 (2013): 667-676.

3FINANCIAL MANAGEMENT
5. Estimates required for cash flow budget preparation
 Cash inflow estimation for the period under consideration
 Cash inflow estimation for the period under consideration
 Future position for cash estimation
6. Equation of cash flow
Estimated cash inflows + Estimated sales – Estimated cash outflows = Ending cash balance3
7. Largest cash flow under retail business
Cost of goods sold is largest component of cash outflow in retail business
8. 2 major financial statement
 Cash flow statement
 Income statement
9. Journal entry
Computer A/c…….. Dr XXX
To bank A/c XXX
[Being computer purchased through cheque]
10. Resolving supply related issue
 Look for alternative supplier
 Placing large order to fulfil the shortfall
11. Improvement of cash flow
3 Call, Andrew C., Shuping Chen, and Yen H. Tong. "Are analysts' cash flow forecasts naïve extensions of their
own earnings forecasts?." Contemporary Accounting Research30.2 (2013): 438-465.

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 Offer discount on timely payment
 Allowing shorter credit period
12. Analysis of financial report
It helps to know the liquidity position, solvency position and profitability position of
the company.
13. Operating activity
 Receipt of cash from the sale of goods or services
14. Calculation of net income
Revenue $ 200,000.00
Cost of goods sold $ 150,000.00
Gross profit $ 50,000.00
Operating expenses $ 100,000.00
Net income $ (50,000.00)
15. Cash flow
Month 1 Month 2 Month 3
Opening cash position $ (600.00) $ (50,420.00) $ (48,957.00)
Total receipts $ 203,020.00 $ 4,680.00 $ 3,716.00
Total payments $ 252,840.00 $ 3,217.00 $ 5,960.00
Net cash flow $ (49,820.00) $ 1,463.00 $ (2,244.00)
Closing cash position $ (50,420.00) $ (48,957.00) $ (51,201.00)

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Part B
1. Decisions regarding purchase or redecoration
a. Choosing the project
If new wood fire pizza is sold for ($ 15.00 - $ 4.50) = $ 10.50, total income will be
(150*12*$ 10.50) = $ 18,900. Therefore, increase in sales revenue = 9.8%. On the other
hand, if the establishment is restored then the revenue can be increased by 20%. Hence, the
2nd option that is restoring of establishment shall be chosen. Further, when the return on the
investment will be more the shareholders will also get convinced.
b. Consulting person for decision making
Persons having long experience of this segment for example hospitality sector shall be
consulted before making final decisions.
c. Necessary records
The files those are necessary to maintain are tax related papers required for paying the
taxes and the finance related working papers. Further, the records related to company name,
payment invoices, various working dates and records associated with all the payments and
receipts shall be maintained.
2. Importance of budgeting
Budget helps to analyse the future profitability position of the company. Further, it
recognizes the area where there is possibility of improvement and it also help is planning for

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the price of the product based on the expected cost of manufacture. Moreover it helps in
reducing the expenses wherever possible4.
3. Important dates
1st date – 1st July
Last date – 30th June
Impact of dates on the budget
Generally, the major or important events take place 2 to 3 months before the closing
of financial year. Therefore, based on the closing dates and budget the company can plan for
payment of the dues and collecting the dues.
4. Family business
a. Recommendation for technology
The company can use the software that will help to generate accurate information
regarding finance and applying proper control on important data. Data management tools and
workflow tools can be used for enhancing the consistency of the financial records.
b. Software that can be recommended
The company can use Microsoft Excel for maintaining proper records. It will help to
manage the employee’s wages related data, income and expenses data5.
4 Coates IV, John C. "Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications." Yale
LJ 124 (2014): 882.
5 Anderson, David, Dennis Sweeney, and Thomas Williams. Modern business statistics with
Microsoft Excel. Nelson Education, 2014.

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c. Software advantages
Using the software will help to improve the accuracy and speed of the preparing the
data. It also helps to modify, delete or add the data to the existing one.
5. Analysis of sales budget
a. Variance analysis
Financial
Year Budgeted Actual Variance Reason
2007/08 $ 350,000.00 $ 290,000.00
Unfavourabl
e
Variance is unfavourable as actual sale
is lower by $ 60,000 as compared to
budget
2008/09 $ 400,000.00 $ 250,000.00
Unfavourabl
e
Variance is unfavourable as actual sale
is lower by $ 150,000 as compared to
budget
b. Justification
 Sales were less than expectation as actual revenue is lower than budgeted sales
 The price of raw material may have been increased as compared to the previous year.
6. Case of Adam Smith
a. Requirement not met
Mr. Adam did not maintain the cash book, bank accounts, sales records and purchase
records those were required to maintain for smooth business operation and maintaining
proper records.
b. Recommended suggestion
Simple technique can be used by the owner of coffee shop to improve the budgeting and
accuracy. He must start with preparing the budgets for drinks and beverages requirements on
daily basis. Further, database can help to assess the the stock left with the shop and plan for

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new stock purchase accordingly. Moreover, it shall use the computing system instead of the
manual system.

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References
Anderson, David, Dennis Sweeney, and Thomas Williams. Modern business statistics with
Microsoft Excel. Nelson Education, 2014.
Bhandari, Shyam B., and Rajesh Iyer. "Predicting business failure using cash flow statement
based measures." Managerial Finance 39.7 (2013): 667-676.
Call, Andrew C., Shuping Chen, and Yen H. Tong. "Are analysts' cash flow forecasts naïve
extensions of their own earnings forecasts?." Contemporary Accounting Research30.2
(2013): 438-465.
Coates IV, John C. "Cost-Benefit Analysis of Financial Regulation: Case Studies and
Implications." Yale LJ 124 (2014): 882.
Farshadfar, Shadi, and Reza Monem. "Further evidence on the usefulness of direct method
cash flow components for forecasting future cash flows." The international journal of
accounting 48.1 (2013): 111-133.