Hamble Ltd Financial Report: Budgeting, Ratios, and Performance

This report provides a comprehensive financial analysis of Hamble Ltd, a London-based food packaging business. It begins by examining the company's cash budget, highlighting its increasing cash in hand but also its reliance on credit sales. The report then evaluates various sources of finance, including retained earnings, trade credit, lease financing, public deposits, and commercial banks, discussing the advantages and disadvantages of each. It also touches upon the advantages and disadvantages of issuing shares. The second part of the report calculates and compares financial ratios for Norwich Ltd and Salford Ltd, two companies Hamble is considering purchasing. Based on profitability, efficiency, and liquidity, the report recommends purchasing Norwich Ltd. Finally, the report prepares a sales budget for Hamble and identifies factors that could affect the increase or decrease in demand for its products. The analysis emphasizes the importance of financial statement analysis for informed decision-making.

Budget Report

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART 1 ...........................................................................................................................................3
Examine the cash budget.............................................................................................................3
Analysis of the cash budget.........................................................................................................4
Evaluate the advantages and disadvantages of the various sources of finance...........................4
Advantages and disadvantages of issue of shares......................................................................5
PART 2 ...........................................................................................................................................6
Calculation of the ratios..............................................................................................................6
Compare the performance of the two companies.......................................................................8
PART 3............................................................................................................................................8
Prepare the sales budget for the firm..........................................................................................8
Identify factors affecting the increase and decrease of demand.................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
A budget report can be defined as statement providing the list of estimated expenditures
and revenues that can be generated from a particular project. Is provides a base for comparing
the actual results with the estimated results (Beck and Blumstein, 2018). It assists in analysing
the performance of the business along with the cash flow statement and accounting ratios. This
report is based on Hamble Ltd, a London based food packaging business. The report is divided
into three parts. The first part analysis the cash budget of the firm. The second part compares the
ratios of two different companies and the third part is based on the sales budget analysis.
PART 1
Examine the cash budget.
Cash Budget of Hamble Ltd from April to September month

Analysis of the cash budget
According to the cash flow statement, Hamble is performing good as its cash in hand is
increasing continuously but the firm needs to increase its cash sales. Company deals more in
credit sales which tends to shorten its liquidity position as in the month of june. Though the
decrease is due to the replacements of the delivery vehicles. In future there can be some
situations which can demand more cash in hand. So the firm, being a packaging company
requires an average amount of liquidity with it.
Evaluate the advantages and disadvantages of the various sources of finance.
SOURCES OF FUNDS
Retained earnings- The part of the earnings of Hamble which is not distributed to the
shareholders in the form of divided is known as retained earnings. The net portion of the earning
is retained in the business for the future investments and reserves. It is a source of internal
financing.
Its advantage is that it is a permanent source of fund available to the company which do
not involve any explicit cost.
The disadvantages is that it may create the dissatisfaction among the shareholders as they
will get low dividends by having the excessive ploughing of profits. The opportunity cost
associated with this is not recognised by the company (Dufour and et.al., 2020).
Trade credit- It is the credit extended by one trader to another for the purchase of goods
and services. Without immediate payment it facilitates the purchase of supplies to Hamble.
The advantages of this source to Hamble is that it is a convenient and continuous source
of fund and helps in promoting the sales of organisation.
The disadvantage is that the availability of the trade credit is easy and flexible which will
indulge the company in over trading which may add risk to the firm. It is a costly source of fund
as compared to others and only limited amount is generated from it.
Lease financing- It is an agreement between the parties where the owner grants the
access the right of use of asset to other party in the return for the periodic payment. In the lease
contract, the terms and conditions are mentioned.
Its advantage is that it enables the lessee to acquire the assets with the lower investment
and provides finance without diluting the ownership or control of business to Hamble.

Certain restrictions are usually imposed on the use of the assets and normal business
operations are affected in the case lease is not renewed which is its biggest disadvantage.
Public deposits- The organisation directly raises the deposits from the general public and
rate of interest is offered.
The advantage of this source of Hamble is that it has simple process to obtain the
deposits and cost of public deposits is generally low the cost of borrowings from the banks
(Kellison and et.al., 2020).
The disadvantage are for the new company it is difficult to raise the funds and it is
unreliable sources of finance which do not respond when the company have requirement of
money.
Commercial banks- It occupies the important position as the funds are provided for
different purposes for different time periods. The bank extend the loan in many ways such as
cash credits, overdrafts, term loans etc.
The advantage is the bank provides the timely assistance by offering funds in accordance
to their needs (Ma and Lv, 2019).
The disadvantage is funds are generally available for the shorter period and takes the
detail investigation regarding the company affairs, financial structure etc.
Advantages and disadvantages of issue of shares.
Issue of shares
The capital obtained by the issue of shares is known as share capital which is divided into
small units called as shares. Each share has the nominal value. The issue of shares can be of two
types Equity shares and Preference shares (Reid and Myddelton, 2020).
The advantage is to raise the money from the issue of shares. The sales can be proceed if
they want and provides the flexibility in the issue of shares as the company can decide when to
issue and how much to issue shares. The issued shares can be repurchased by the company.
The disadvantage are it cost the company more to raise the money from the issuing
shares. The share issuance provides the voting rights to shareholder who votes to change the
company policies and board of directors can be replaced.

PART 2
Calculation of the ratios.

Various Ratios of the firm
Gross Margin Ratio 27.64 19.73
operating margin ratio 15.04 6.09
Return on capital employed 63.83% 31.61%
Asset turnover 3.3 2.43
Current ratio 3.83 3.6
Acid test 1.38 1.61
Inventory days 78.21 98.5
Trade receivable days 32.03 64.56
Trade payable days 26.07 34.35

Working capital cycle/operating
cycle
84.16 128.71
Gearing ratio 0.23 0.57
interest cover ratio 61.6 8.78
Compare the performance of the two companies.
Hamble is considering to purchase one of the two companies- Norwich Ltd and Salford
Ltd. For which a company has to conduct some analysis to know the financial position of the
firms. Here is the ratios analysis of both the companies.
 Considering the profitability conditions , Norwich is earning more profits as compare to
the Salford company. There gross as well as profit margins both are more as compared to
the other firm when addressing to their sales.
 Also, the efficiency of Norwich is more as compared to the Salford. The former company
is earning around 64% return on capital as compared to the the later firm who is earning
just 31% returns. The assets turnover ratios is also high for Norwich that means the assets
of this company are bringing more profits to it (Velupillai, 2019).
 The turnover of both the companies are not so good. Both the companies have to pay
their credits before receiving their payments from debtors which means they demand high
liquidity. Form the above ratios, it can be concluded that the both two companies have
good liquidity condition and again Norwich is performing good in this aspect too.
 The gearing ratios of Solford is better than Norwich because where the former can pay its
debts 50 times, the later can don it only around 25 times.
According to the above analysis it is recommended that the firm should opt to purchase
Norwich Ltd as it is performing well with regard to profitability, efficiency and liquidity.
PART 3
Prepare the sales budget for the firm.

Identify factors affecting the increase and decrease of demand.
There are various factors which affect the increase and decrease in the demand of the
product of Hamble.
Factors affecting the increase in demand:
 Increase in the income of consumer- when the income of the consumer increases, its
spending power increases which can increase the demand of the products of Hamble.
 Decrease in the price of the related goods- If the price of those good those which
Hamble packs decreases, then there demand will increase which will automatically affect
the demand of Hamble positively (Bertocco and Kalajzic, 2018).
But along with these factors there are various factors which tends to decrease the demand
of the product. These are:
 Decrease in the number of customers – sales of any firm depends only on its
customers. If the customers of that product decreases, then the demand for Hamble will
also fall.
 Expectation of further decrease in price- if the customers feel the prices of the
products are going to decrease in near future, they reduce their purchase in present. This
will also reduce the demand of Hamble products.
CONCLUSION
It can be concluded from the above report that it is very important to conduct analysis of
any type of financial statement as they not only help in generating knowledge if the present
situations but also helps in framing future budgets and policies. They helps in taking investment
and disinvestment decisions for any firm.

REFERENCES
Books and Journals
Beck, A.J. and Blumstein, A., 2018. Racial disproportionality in US state prisons: Accounting
for the effects of racial and ethnic differences in criminal involvement, arrests,
sentencing, and time served. Journal of Quantitative Criminology. 34(3). pp.853-883.
Bertocco, G. and Kalajzic, A., 2018. How much does finance benefit society?. PSL Quarterly
Review. 71(287). p.419.
Dufour, D and et.al., 2020. Accruals quality and leverage adjustments. Journal of Applied
Accounting Research.
Kellison, T and et.al., 2020. Global perspectives on democracy and public stadium
finance. Journal of global sport management. 5(4). pp.321-348.
Ma, X. and Lv, S., 2019. Financial credit risk prediction in internet finance driven by machine
learning. Neural Computing and Applications. 31(12). pp.8359-8367.
Reid, W. and Myddelton, D.R., 2020. The meaning of company accounts. Routledge.
Velupillai, K.V., 2019. Classical Behavioural Finance Theory. Review of Behavioral
Economics. 6(1). pp.1-18.