Business Finance Report: Cash Budget and Working Capital Management

This report provides a comprehensive analysis of business finance, focusing on profit, cash flow, and working capital management. Task 1 delves into the core concepts of profit and cash flow, highlighting their differences, and examines working capital components like receivables, inventory, and payables. It also evaluates potential changes in working capital to benefit a firm's long-term financial health. The report then applies these concepts to a specific company, analyzing how its management practices affect financial results, and recommends steps to improve cash flow through better working capital management. Task 2 involves preparing a monthly cash budget for four months and offers observations and recommendations for the company's management. The report concludes with an overall assessment of the financial strategies and their impact on the business's performance.

Business
Finance

EXECUTIVE SUMMARY
This report is a summarised document that is related with accounting and its related aspects
that are very important from the company’s point of view.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
TASK 1............................................................................................................................................4
I (a) Discussing the concepts of profit and cash flow and their difference in a detailed way.....4
(b) Identification of the concept of working capital and detailed examination of the different
concepts that are receivables, inventory, and payables...............................................................5
(c) Detailed evaluation of the changes in the working capital that can be done which can help
the firm in the long run................................................................................................................6
II Apply the concepts in (i) above to this company to show how the way the company is being
managed might affect its financial results...................................................................................6
III) Analyse and recommend what steps should now be taken to improve this company’s cash
flow through better Working Capital management.....................................................................7
EXECUTIVE SUMMARY (TASK 2)............................................................................................7
TASK 2............................................................................................................................................7
1. Prepare a monthly cash budget for the four months from 1st Jan to 30 April 2021................7
2. Are there any observations or recommendations that you would make to the management of
Thorne Estates arising from your analysis...................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

TASK 1
I (a) Discussing the concepts of profit and cash flow and their difference in a detailed way
There are a number of different concepts that possess a lot of importance and value for a
firm and the above mentioned two factors that are profit and cash flow are one of the most
essential aspect as it helps in determining the true value and positioning of the company so that
appropriate decisions can be taken which can help the enterprise to grow and prosper in the
current market situation which is highly dynamic as well as competitive in nature (Grashuis and
Su, 2019). Below are the two concepts explained in detail with the difference between them
included in it so as to differentiate between the tow in an accurate and precise manner.
Profit- It is a very crucial term for each and every business firm that is operational in the
current market circumstances irrespective of the industry in which it is operating as it is the
amount that is left with the company after paying all the shareholders and also after deducting all
the expenses and expenditure that are incurred while producing goods and services that it renders
in the market. There are mainly three things that are included in it or it can be said that there are
majorly three sub heads of the term profit that are net profit, operating profit, and gross profit.
Net profit is the amount that is left after paying all the shareholders while gross profit is the
amount that is left with the firm after deducting all the expenses that are incurred while
producing goods and services. Operating profit is the one that is left with the organisation after
deducting expenses that are related with the operations that are done in the company on a regular
basis. It is very important to analyse and evaluate all the aspects in a well accurate and precise
way so that it can help the firm to grow, increase, and improve its sales and subsequently
profitability in the long term context (Khan and Anuar, 2018).
Cash flow- It is a term that is evaluated by majority of the firms that are operating in a
market in a very precise format since it involves three different factors that are operating
activities, investing activities, and financial activities. Operating activities involves the activities
that are related with the transactions that are performed on a daily basis while financing activities
are those that are related with the finances of the company. Investing activities are those which
are related or rather include sales and purchase of fixed assets and investments that are done by
the enterprise during a particular period of time. it is mainly the inflow and outflow of cash that
is generated over a period of time because of the transactions that are done by the company in the
long run scenario. It is very crucial to examine and do a detailed research on the flow of cash so

that costs can be reduced that can help the firm to increase its volume of sales and then
profitability so that it can sustain and survive the tough competition of the industry in a very
effective and efficient manner.
There are a number of differences between the two aspects that are explained above while
the major one among all of them is that the profit term is a narrow concept that does not include
cash flow in consideration while cash flow is a much bigger concept that includes profit and its
related terms in it. Also another difference between the two is that the former includes only
profitability in it while the latter also includes other factors too that impacts the overall working
of the organisation (Suzuki and Avellaneda, 2018).
(b) Identification of the concept of working capital and detailed examination of the different
concepts that are receivables, inventory, and payables
Working capital- It is a very important concept since it includes the capital that has been
invested a long ago while the business was set up and in addition to it also includes the currently
used capital and thus takes that into consideration too. It can be calculated by adding all the
assets and liabilities that are of current in nature and then deducting the former one with the latter
one. This is a very crucial aspect as it helps in determining the true condition of the firm and also
enables the higher management to take important decisions on the working of the company if the
amount of working capital is not satisfactory enough according to the team of management
(Özataç and Gökmenoglu, 2017).
Receivables- These are the debtors of the company that possess a lot of value in the
current market situations and each and every firm tries to increase the value of their debtors since
it determines that the company is selling its products and services in the market on a credit basis.
If a firm has a low receivables in the balance sheet that does not mean that the enterprise is not
performing well in the market but it can be a sign that the organisation does less sale on credit
basis and the ones that it does on credit basis it recovers due amount from the debtors in a quick
period of time resulting in intact chain of supply so that it can help in building the image and
market value of the company in the long run that can prove beneficial in increasing the level of
profitability in the industry in which it is operational and that too within a limited time frame.
Inventory- It is the most important factor on which the overall working of the firm
depends since it is considered as well as regarded as the backbone of each and every company
that is operational in the market. It is the quantity of the stock that is available with the

organisation over a period of time and thus it is very essential and crucial to strike a balance
between the needed quantity and the quantity that is ordered so that it can result in saving of the
funds and reducing unnecessary wastages and also helps in the optimum utilisation of the
resources that are currently available with the firm.
Payables- These are the creditors of the company whom the firm is liable to pay a
particular sum of money because of credit purchase of raw material that it has done in the past
period. It is very important to not increase the amount of the creditors since it can result in
increased debt on the company whereas the amount should not be low enough too since it can
result in losing all the funds in the process of procurement only which will subsequently affect
the operations that are performed by the enterprise on a day to day basis (Phuoc, Kim and Su,
2018).
(c) Detailed evaluation of the changes in the working capital that can be done which can help the
firm in the long run
There are various changes that can be made in the working capital aspect so that it can help
in the well being of the company in both ways that is external as well as internal. The foremost
thing that can be done is that the gap between debtors and creditors must be reduced so that it
can help in maintaining stability in the company over a period of time. Secondly, there must
increase in current assets and decrease in current liabilities so that it can result in increased
volume of working capital in the long run. Apart from that assets can be sold also which can help
in fetching a good amount that can prove beneficial from the company’s point of view in the
market to beat stiff competition and to stand well ahead from all the rivals that are prevailing in
the current market (Phuoc, Kim and Su, 2018).
II Apply the concepts in (i) above to this company to show how the way the company is being
managed might affect its financial results
It is very essential as well as crucial at the same time to manage the company in an
effective and efficient manner so that it can help in improving its performance in the market and
also to cut down all the irrelevant expenses that are incurred by closely monitoring all the
activities that are performed in the business firm. The company that is mentioned above has a
total turnover of £300 million in which profit of the firm amounts to approximately 32-33
percent that is around £95 million that shows that the company is very well placed in the market
and has low debts in the organisation that results in improved performance level of the company

in the long run. Also the total investment that has been done by the company over a period of
time was around £20 million which shows that the firm have enough sources of funds from
where it can fetch good rate of return and then reinvest that amount in some other from which
can help the company in gaining good returns in the near future. Apart from that the enterprise is
consistently profitable over the year which shows that the market value and image of the
company is also very good in the industry (Poza and Daugherty, 2020).
III) Analyse and recommend what steps should now be taken to improve this company’s cash
flow through better Working Capital management
There are many things that can be changes in the company so that it can help in improving
the present cash flow through better working capital management and the foremost thing that can
be done is that it can try to use sustainable methods of production and using the available
resources to its maximum so that it can help the business firm to earn good amount of profits and
also to reduce the costs that are incurring while producing goods and services. Also a balance
must be strike between the inflow and outflow of cash so that it can be closely monitored which
can result in decreased losses over a period of time which can substantially help the company to
grow and prosper in the current market conditions that are prevailing in the industry which is
highly competitive and dynamic in nature (Sanz Bayón and Vega, 2018).
EXECUTIVE SUMMARY (TASK 2)
This is a summarised document that is related with the budget that is of cash in nature and
appropriately analysing and observing the results are also summarised in this report.
TASK 2
1. Prepare a monthly cash budget for the four months from 1st Jan to 30 April 2021
Particulars January February March April
Receipts:
Cash fees 18000 27000 45000 54000
Credit fees 36000 36000 54000 90000
Sale of asset 20000

Total receipt 54000 63000 99000 164000
Payment:
Salary 26250 26250 26250 26250
Bonus 6300 12600
Expenses 9000 13500 22500 27000
Fixed overhead 4300 4300 4300 4300
Taxation - - - 95800
Interest - 3000
Total payments 39550 44050 62350 165950
Net cash flow 14450 18950 36650 -1950
Opening balance -40000 -25550 -6600 -30050
Closing balance -25550 -6600 -30050 -28100
Working notes:
Month December January February March April
Units sold 10 10 15 25 30
Sales value 1800 1800 2700 4500 5400
Cash fee at 1% 18000 18000 27000 45000 54000
Cash fee at 2% 36000 36000 54000 90000 108000
Variable cost
at 0.5%
9000 13500 22500 27000
Monthly salary cost= (35000*9)/12=26250
Bonus for March= (25*20)*140*9=6300
Bonus for April= (30*20)*140*9=12600

2. Are there any observations or recommendations that you would make to the management of
Thorne Estates arising from your analysis
There are various observations that have been done while doing the calculation of Thorne
Estates and the one that was often seen is that pattern of sales of the company in which it can be
seen that the sales of the firm shoot up in summers while it was low in winters (Sievänen, Rita
and Scholtens, 2017). As it is seen that the sales was minimum during December and January
combined while it was maximum for the month of April and thus this pattern continues on
repeating itself each year. Thus the organisation can try different methods to increase its sales in
winters so that it can fetch good amount in whole year which can prove beneficial from the
company’s point of view. Apart from that it is also observed that the costs were also at its
minimum in the month of January while it was maximum for the month of April. The receipts of
the company were more in the months of summer that around in April while it was at its lowest
during the month of January while the expenditure of the company was mainly the salary that it
gives to the individuals that are working for eh company and it accounts for around 15-17
percent of the total expenses or rather payments that has been made by the company over a
period of time at different intervals. Thus from the above it can definitely be observed that there
is a set pattern of sales for Thorne Estates and thus the higher management of the company must
try to apply and implement different plans so that it can help the company to gather attention of a
number of people so that it can result in increase in the volume of the sales of the company and
profitability at the same time (Wang, 2018).
CONCLUSION
From the above it can be conclude that the concept of accounting and finance that is related
with business and its other aspects possess a lot of importance in the current market scenario and
thus it is very crucial for every business firm that is operational in the armlet to closely observe
all these factors so that it can add value to the company in the long term context. Apart from that
it can also be concluded that the above mentioned two firms are performing very well in the
market and is also very well placed in the industry but still there are many loop holes in their
working that has to be managed and rectified as soon as possible so that it can help the
organisation to work in a much better way as compared to the operations it is doing currently.

REFERENCES
Books and journals
Grashuis, J. and Su, Y., 2019. A review of the empirical literature on farmer cooperatives:
Performance, ownership and governance, finance, and member attitude. Annals of
Public and Cooperative Economics. 90(1). pp.77-102.
Khan, S. J. M. and Anuar, A. R., 2018. Access to finance: Exploring barriers to entrepreneurship
development in SMEs. In Global Entrepreneurship and New Venture Creation in the
Sharing Economy (pp. 92-111). IGI Global.
Özataç, N. and Gökmenoglu, K. K. eds., 2017. New Challenges in Banking and Finance: 2nd
International Conference on Banking and Finance Perspectives. Springer.
Phuoc, L. T., Kim, K. S. and Su, Y., 2018. Reexamination of Estimating Beta Coecient as a Risk
Measure in CAPM. The Journal of Asian Finance, Economics, and Business. 5(1).
pp.11-16.
Phuoc, L. T., Kim, K. S. and Su, Y., 2018. Reexamination of Estimating Beta Coecient as a Risk
Measure in CAPM. The Journal of Asian Finance, Economics, and Business. 5(1).
pp.11-16.
Poza, E. J. and Daugherty, M. S., 2020. Family business. Cengage Learning.
Sanz Bayón, P. and Vega, L. G., 2018. An outlook on the role of Finance Regulation under the
Fourth Industrial Revolution. Archives of Business Research. 6(10). pp.423-434.
Sievänen, R., Rita, H. and Scholtens, B., 2017. European pension funds and sustainable
development: Trade‐offs between finance and responsibility. Business strategy and the
environment. 26(7). pp.912-926.
Suzuki, K. and Avellaneda, C. N., 2018. Women and risk-taking behaviour in local public
finance. Public Management Review. 20(12). pp.1741-1767.
Wang, J., 2018. Inclusion or expulsion: Digital technologies and the new power relations in
China’s “Internet finance”. Communication and the Public. 3(1). pp.34-45.