Solent University: Hamble Ltd Budget Report - Understanding Finance

This report presents a comprehensive financial analysis of Hamble Ltd, a food packaging and distribution business. It includes a detailed cash budget, ratio analysis comparing Norwich Ltd and Salford Ltd, and an examination of social and environmental factors affecting Hamble Ltd's product demand. The analysis covers profitability, liquidity, efficiency, and gearing ratios to assess the company's financial health and make informed purchasing recommendations. The report also explores the advantages and disadvantages of different funding sources and the implications of issuing shares. Flexible budget calculations and relevant references are provided to support the analysis and findings. This document is available on Desklib, a platform offering study tools and solved assignments for students.

UNDERSTANDING
FINANCE

Table of Contents
PART-A...........................................................................................................................................3
Answer 1......................................................................................................................................3
Answer 2......................................................................................................................................3
Answer 3......................................................................................................................................3
Answer 4......................................................................................................................................4
PART-B...........................................................................................................................................5
Answer 1......................................................................................................................................5
Answer 2......................................................................................................................................5
PART-C...........................................................................................................................................6
Answer 1......................................................................................................................................6
Answer 2......................................................................................................................................6
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................2

PART-A
Answer 1
In excel
Answer 2
The best mode of resolving the issue of cash budget is to have a careful check over the
inflows and outflows. Accordingly taking of adequate steps including scratching out payables,
making selling of non-useful assets, reduction of expenses, raising of inflows in order to mitigate
annual expenses are few steps and solution with respect to Hamble Ltd.
Answer 3
Personal funding:
As per this source capital is being used as a source of fund. Saving and personal funds of
the owners are also included (ME, 2019).Advantages:
Personal funding enable the business owner to make arrangement of finance at low risk
along with high security. Likewise, owner exactly know that how much finance will be made
required in the business with regard to its running. In the same way it is a time saving technique.Disadvantages:
It may have a negative impact over the family and personal life. Likewise, it involves a
great percentage of risk of loosing of money.
Debt:
This is also a good source of funding by which funds will be made arranged through
debts. This will lead to have availability of funds easier.Advantages:
It includes division of risk and easy accessibility to funds. Likewise, it will lead to raise
high percentage of liquidity along with decrease in risk impact.Disadvantage:
It will raise the expense of company in terms of making payment of interest which need
to paid as fixed expense. Likewise, it make difficult for the company with regard to debt
repayment.

Family and friends:
With this source funds will be arranged by friends and family through the means of
borrowing.Advantages:
It is easy to make arrangement of funds with low risk and low incurring of expenses.Disadvantages:
Make repayment difficult in case if the business will be shut down. Likewise, it will
exploit family relation.
Bank loan:
Here funds will be arranged by taking loan from bank (Al-Afifi, 2019).Advantages:
Highly beneficial and reliable source of fund arrangement with low involvement of risk.Disadvantages:
Need to be more formalized along with requirement of keeping some security towards the
bank. Include fixed rate of interest.
Equity capital:
This is also a major source of funds under which share of the company are issued in the
stock market.Advantages:
Easy access to finance, diversification of risk, tax efficient are some of its advantages.Disadvantage:
Involvement of high cost with a raise in share of ownership and distribution of profit.
Out of the above sources the best and recommended source to Hamble Ltd is an equity
capital because it will make arrangement of funds with more efficiency and easily.
Answer 4
It is advantageous to make issue of share because it include the absence of fixed liability
like fixed rate of interest (Tamplin, 2021). It will not lead to make charge on asset. Less risk of
making repayment along with receipt of long term fixed capital.
However, on the other hand it is disadvantageous to make issue of share because it
includes danger of over-capitalization, manipulation. Likewise, company may also fall in such

situation wherein it needs to pay dividend at higher rate. Fluctuation in the rate of dividend is
also counted as major loophole with the issue of shares.
PART-B
Answer 1
In excel
Answer 2
Profitability ratio refers to those ratios of the company which is related with the firm's
capacity with respect to earning and making of profit (Husain and Sunardi, 2020).
Liquidity ratios are those which enable the company to have analysis regarding the liquid
position and cash availability with respect to company (Madushanka and Jathurika, 2018). This
means that whether the company is capable to make repayment of its short term obligation or
not.
Efficiency ratio shows the company capability with regard to making efficient utilization
of assets in order to generate income (Coulon, 2020).
Gearing ratio enable the company to make analysis of its capital in terms of debt and
equity (Lyle, 2017). Here comparison of equity with debt or borrowed funds are to be performed.
From the ratio analysis of Norwich Ltd and Salford Ltd it can be interpreted that
profitability ratio of Norwich Ltd are higher than Salford Ltd. This is because major profitability
ratio in terms of net profit or operating profit along with ROCE of Norwich Ltd are 28, 62 and
15% which are relatively very high with regard to Salford Ltd that holds a percentage of 20,20
and 6%.
With respect to liquidity, the liquid position of Norwich Ltd with respect to current ratio
is 3.83 which is higher than Salford Ltd that holds a ratio of 3.59. However, quick ratio of
Salford Ltd is still high i.e. 1.61 in comparison of Norwich Ltd i.e. 1.38.
In case of efficiency ratio the performance of Norwich Ltd is far better than Salford Ltd.
This is because majority of ratio including debtors collection period, creditor payment period,
operating cycle inventory days shows favourable results in comparison of results of Salford Ltd.
With regard to gearing ratio including debt-equity or interest coverage ratio, although the
ratio results of Salford Ltd was good with respect to Norwich Ltd but with an involvement of

more percentage of debt in the capital structure of Salford Ltd the performance is not said to be
quite good.
Thus, from the above analysis and interpretation, Hamble Ltd need to make purchase
from Norwich Ltd rather than Salford Ltd because the overall performance of Norwich Ltd with
respect to ratio and its analysis is much better than the other. This means that making purchase
from Norwich Ltd is safe and profitable along with highly recommended.
PART-C
Answer 1
In excel
Answer 2
Social and environmental factors are mainly responsible with regard to increase in
demand of product of Hamble Ltd. This is because with the changing trends and preferences of
the customers with regard to organic and natural food would lead to raise the demand of product.
Likewise, with the outburst of covid, demand of fresh and seasonal product get spike.
However, on the other hand the reasons that are responsible for a decrease in demand includes
imposition of restriction in regard to trade barrier for international trade is included. Likewise,
Fluctuating demand of customer with regard to product of the Hamble food because of
the changes in taste would also emerge as a reason of decrease in demand of product of Hamble
Ltd.

REFERENCES
Books and journals
Al-Afifi, A.A., 2019. Factors affecting decision makers preference of MSMEs in financing
sources choice.
International Journal of Business Ethics and Governance, pp.15-29.
Coulon, Y., 2020. Efficiency Ratios. In
Rational Investing with Ratios (pp. 31-45).Palgrave
Pivot, Cham.
Husain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on Profitability Ratios and
Dividend Policy.
Finance & Economics Review. 2(2). pp.13-26.
Lyle, N., 2017. Debt/Equity Ratio and Asset Pricing Analysis.
Madushanka, K.H.I. and Jathurika, M., 2018. The impact of liquidity ratios on
profitability.
International Research Journal of Advanced Engineering and
Science. 3(4). pp.157-161.
ME, S., 2019. Capital.
Online references
Tamplin, T., 2021.
Raising Funds by Issuing Shares. [Online]. Available through
<https://learn.financestrategists.com/explanation/management-accounting/raising-funds-
by-issuing-shares/>
1

APPENDIX
CASH BUDGET
Particular April May June July August September
Opening cash balance 90000
Cash inflows
Cash sales 600000 620000 900000 500000 350000 800000
Credit sales 11000000 12350000 14000000 13250000
Total cash receipt 690000 620000 11900000 12850000 14350000 14050000
Cash outflows
Credit purchase 8000000 8700000 6300000 5200000 5000000
Borrowing payment 100000
Tax 100000
Other overhead 2200000 2200000 2200000 2200000 2200000 2200000
Replacement of vehicle 1250000
Total cash outflow 2200000 10300000 12150000 8600000 7400000 7200000
Net cash
inflow/Outflow
-
1510000 -9680000 -250000 4250000 6950000 6850000
RATIO ANALYSIS
Particulars Formula
Profitability ratio analysis
Norwich
Ltd Salford Ltd
Gross Profit 2300 2220
Net profit 1170 146039
Sales revenue 8320 11250
Earnings before interest and tax or
operating profit 1252 685
Capital employed 1995 3395
GP ratio Gross profit / sales * 100 28% 20%
Return on capital employed EBIT / capital employed 0.627568922 0.2017673
Capital employed Total asset-current liability 1995 3395
Operating profit margin
Operating income 1252 685
Sales revenue 8320 11250
Operating profit margin ratio operating income/sales revenue 15.04807692 6.088888889
2

Liquidity ratio analysis
Norwich
Ltd Salford Ltd
Current assets 2020 4427
Current liabilities 527 1230
Inventory 1290 2437
Prepaid expenses 0 0
Current ratio
Current assets / current
liabilities 3.833017078 3.59918699
Quick ratio Quick assets/Current liability 1.385199241 1.61788618
Quick assets: Current assets -
(stock + prepaid expenses) 730 1990
Efficiency ratio analysis
Norwich
Ltd Salford Ltd
Cost of goods sold 6020 9030
Average Inventory 1290 2437
Turnover or sales revenue 8320 11250
Average total assets 2522 4625
Receivables or debtors 730 1990
Creditors or payables 430 850
Stock turnover ratio (In times) 4.666666667 3.70537546
Inventory days 365/Stock turnover 78.21428571 98.5055371
Total assets turnover ratio 3.298969072 2.43243243
Receivables or debtors turnover
ratio (in days) (Debtors * 365) / Credit sales 32.02524038 64.5644444
Creditors turnover ratio (in days) (Creditors * 365) / COGS 26.07142857 34.3576966
Operating Cycle ratio
Inventory days+Receivable
days-Payable days 84.16809753 128.712285
Gearing ratio analysis Norwich
Ltd Salford Ltd
Long-term debt 65 1450
Shareholder's equity 1930 1945
Gearing/Debt-equity ratio
Long-term debt / shareholders
equity 0.033678756 0.74550129
3

Interest coverage ratio
Norwich
Ltd Salford Ltd
EBIT 1252 685
Total interest 20 70
Interest coverage ratio EBIT/Total interest 62.6 9.785714286
FLEXIBLE BUDGET
Particular Budget Budget
Sales (unit) 200000 300000
Sales price Per unit 40 50
Sales revenue 8000000 15000000
Cost
Variable cost 4000000 5000000
variable production overhead 200000 3500000
Fixed production cost 400000 400000
Fixed administration cost 700000 700000
Total cost 5300000 9600000
Profit 2700000 5400000
4