Financial Analysis and Working Capital Management for Uber Tools Ltd

This report presents a detailed financial analysis of Uber Tools Ltd, examining key aspects such as profit, cash flows, and their differences. It explores working capital, receivables, inventories, and payables, along with the impact of working capital changes on cash flow. The report delves into the influence of financial results on the company's management activities and provides recommendations for improving working capital management. Furthermore, it includes a calculation and analysis of various financial ratios, offering insights into the company's financial condition and suggesting strategies to enhance its financial performance. The analysis covers sales growth, gross profit margin, operating profit margin, gearing, interest cover, liquidity ratios, and return on equity and capital employed, providing a comprehensive overview of Uber Tools Ltd's financial health.

Business

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
1 A) Explaining meaning of profit, cash flows and their difference...........................................1
1. B) Explaining meaning of working capital, receivables, inventories and payables................2
1. C) Effect of change in working capital over cash flow...........................................................2
2. Impact of financial results of the company over its management activities...........................3
3. Analysis and recommendation for the company as to improve its working capital
management................................................................................................................................3
PART 2............................................................................................................................................4
1.A) Explaining element of financial performance.....................................................................4
1. B) calculation of various financial ratios................................................................................5
1. C) Analysis of the financial ratios..........................................................................................6
2. Analysis and recommendation for the board for assessing the financial performance of the
business.......................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
A business is that organisation or the economic system that is concerned with the buying
and selling of goods and services with a key purpose of generating profits from those activities.
A sum of investments, customers, suppliers, etc. are the basic requirements of a business. The
present study is about Uber tools Ltd. It shows a detailed information about profit and cash flows
along with their differences. Description about working capital, receivables, stocks an trade
payables as well. It also shows impact of financial results over the company's management along
with a brief recommendations for the company as to improve its working capital management
(Pilbeam, 2018.).
Further, the study also shows calculations of various financial ratios of the Uber tools
Ltd. And a description of the financial condition of the company on the basis of those results.
The assignment provides a brief analysis and recommendation as to enhance the financial
performance of the company.
PART 1
1 A) Explaining meaning of profit, cashflows and their difference
Profit
The term profit can be defined as the total earning generated by the business after setting
of all the debts and expenses incurred by the business during a specific period.
Cash flows
Cash flows is that amount which flows inside or outside the business while performing
the business operations like operating, financing, investing and other activities of the business
organisation.
Difference between profit and cash flows
Basis Profit Cash flows
Meaning Profit can be define as all
expenses are less from the
revenue generate by the
company.
Cash flow define only cash
inflow and outflow from the
operational , financial and
investing activity.
Situation It is not dynamic and it It is realistic and dynamic
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depends upon all activities of
the company.
which is effected by day to day
activities.
1. B) Explaining meaning of working capital, receivables, inventories and payables.
Working capital
Working capital refers to the difference between all the current assets and current
liabilities held by the business. The working capital shows the amount of money held by the
business for the purpose of performing its business activities. In other words, the amount of
working capital shows the liquidity of the company (Alfaro, Bloom and Lin, 2018).
Receivables
In terms of the business, the receivables refers to the amount which has not been paid by
the customers against the goods or services delivered to them. Receivables of the company are
being taken as the current assets of the business organisation which would be received by it in
near future.
Inventories
Inventories can be defined as the stock held by the business for the purpose of using it in
the further production or selling it in the market. Inventories are the current assets of the
company for which the business has to develop a strong plan as to enhance the efficiency of the
company in using the assets.
Payables
Payables are the part of debts over the business organisation. These are the amount due to
the company against any asset or other business equipments received and used by the company.
1. C) Effect of change in working capital over cash flow
In the cash flow statement, the working capital is considered as a part of operating cash
flows. A higher amount of working capital shows the higher liquidity of the business and
financial strength of it as well.
Further, due to the higher amount of liquidity, the company's cash flow statement also
provides the positive result in terms of higher amount of cash inflow than the cash outflows. If
the working capital of the company changes, it would effect the liquidity of the business. As a
result the cash flow statement of the company will also be affected.
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In this regard, it can be evaluated that the change in working capital affects the cash flow
statement of the company.
2. Impact of financial results of the company over its management activities
Managers of the Uber told Ltd. Performs a major task of developing strategies and plans
for the company as to enhance its overall business capacity. For the purpose of performing the
business activities the managers analyses overall performance of the company as to analyse the
inefficiencies and improper working areas of the business (Masri and Abdulla, 2018).
For the purpose of analysing the financial performance, the managers needs to analyse all
the financial statements and reports. Further, as the main purpose of performance of managerial
functions is to enhance the financial capacity of the business, the performance of the managerial
functions depends upon the financial results of the company.
Furthermore, as the overall business performance of the company reflects the financial
results of the organisation, these impacts the management activities of the Uber tools Ltd.
3. Analysis and recommendation for the company as to improve its working capital management
Working capital management - It represents the relationship between current assets and current
liability of the company . Uber company work as key indicator the financial health of the
company. Working capital management monitor the debt management , account payable and
account receivable. It ensure about the company have sufficient liquidity to meet out the short
term obligations. If working capital below than one that indicate that company have no sufficient
liquidity to meet out the debt that impact on overall of the business.
Analysis and recommendation to improve working capital managment
From the case study analysis that from the beginning Uber company have sufficient
current assets for meet out the long term debt and short debt of the company. In the third year
they have no sufficient liquidity to meet out the debt of the company which impact on business
of the organisation and that reduce the image in the market. Uber company increasing financial
expenses and interest cover ratio impact on working capital because they have to pay all debt of
the company (Le and et.al., 2018).
Recommendation -
Uber company must follow recommendation to effective working capital management which use
to achieve target by increase current assets over the current liabilities that helps to achieve goals
and objectives.
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 Uber company must prepare strategies to balancing between current liability and current
assets because higher current assets and current liability are dangerous for company.
 Chief financial officer must effective manage the working capital in such way so they can
pay all liabilities on the time. It helps to build image among the investors and
shareholders by reducing the all short term debt.
 Manager should maker investment that helps to increase working capital that amount can
be used to pay debt amount.
 Uber' manager should prepare strategies , make planning and monitoring activities for
increasing sales and reducing the expenses like financial expenses etc.
 Company should not use working capital for finance fixed assets of the company because
it is more risky.
 Uber should maintain sufficient liquidity to meet out the current liabilities of the
company that helps to improve financial position of the company . Strong financial
position can increase the market share of the company that leads to increase investors
values (Derouiche, Hassan and Amdouni, 2018).
PART 2
1.A) Explaining element of financial performance
Financial performance- Uber told Ltd company can improve financial position by preparing
effective strategies which use to improve financial performance that helps to achieve objectives
and goals of the company. Element of the financial performance includes trading account , profit
and loss account , balance sheet , cash flow statement and financial ratios etc.
Profit and loss account - It is the part of financial statement that represent the all indirect
expenses and indirect receivable of the Uber Ltd company. All non operating expenses includes
selling and administration , advertisement expenses , depreciation etc. and operating profit
includes rent receivable etc (Durand, 2019). that impact on overall performance of the business.
Company prepare Profit and loss account which helps to take decision making and prepare
strategies to improve performance of the company.
Balance sheet - Uber company prepare balance sheet that represent the financial position. it
report the assets and liabilities and shareholder equity of the company that provide a snapshot of
the company. Company can easily assess that they have sufficient assets to meet out the debt of
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the company. Chief financial officer can determine the strategies which use to expand their
business in the future period. Balance sheet is important that provide financial information to
investors which helps to decide investment decision (Mone and London, 2018).
Cash flow statement - It represents the cash inflow and cash outflow of the company. Cash flow
statement to prepare strategies and decision which used to increase cash inflow rather than cash
outflow of the company. Uber evaluate and analysis that is importance to accomplish the goals
and objective of the company that helps to improve financial performance of the company.
1. B) calculation of various financial ratios
Required informations
Particulars 20x9 20x0 20x1
Sales 360 396 459
Gross profit 230 252 272
Operating profit 108 101 49
Total debts (short term debts
+ trade payables + interest
paybles) 21 26 73
Shareholders funds 304 347 344
Finance expenses 9 12 16
Current assets 65 114 94
Current liability 29 48 102
Net profit 79 72 26
Particulars Formulae 20x9 20x0 20x1
Sales growth
Sales y2 – sales y1/
sales y1 - 395 458
Gross profit margin Gross profit/sales % 63.88% 63.63% 59.25%
Operating profit margin
Operating profit/ sales
% 30.00% 25.50% 10.67%
Gearing Total debt/total debts + 6.90% 7.49% 21.22%
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shareholders funds %
Interest cover
Operating profit/ finance
expenses 12 21 17
Liquidity ratio
Current assets/ current
liabilities 2.24 2.375 0.92
Return on equity
Net profit/ shareholders
funds 307.76 349.76 344.35
Return on capital
employed
Operating profit/ total
debts + shareholders
funds 309.14 350.88 347.72
1. C) Analysis of the financial ratios
Financial ratio analysis is essential to understand and identify the financial result and
trends over the year. manager of the company can prepare effective strategies by evaluating
financial ratios which helps to improve financial performance and increase profitability. financial
ratio directly impact on financial statement of the company.
from the above calculation Uber company can analysis the financial position-
Sales growth
From the above solution Sales of company have increasing trend because company adopt
effective marketing that will increase the sales over the year. In the end of 2018 company sales
growth is 458 because company provide quality goods to customers. sales growth helps to
compare previous year sales and current year sales of the company which impact on 2018 sales
growth that was 458 pound.
Growth profit margin-
Gross profit margin of the company have decreasing trend over the year. In 2016 the ratio
was 63.88 % because company have sufficient Income after deducting cost of good sold. In 2018
it was decrease by 59.25 % but company should make effective plan and strategies that helps to
reduce direct expenses which improve the profitability ratio of the company.
Operating profit margin
Uber company's operating profit margin also decrease over the year. In 2016 operating
profit of the company was 30% . company doesn't manage the operating expenses and operating
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income of the company that is the cause of decreasing the ratio so in 2018 the ratio was 10.59 %.
Company can improve operation profit margin ratio by reducing the indirect expenses like
selling and administration , advertisement expenses etc which impact on financial position of the
company.
Gearing ratio -
Gearing ratio represent the leverage position of the company. Uber's gearing ratio
increase over the year. In 2016 the ratio was 6.90% but it was increase by 21.22 % in the last
year. High gearing ratio of the company represent the high debt to equity. Uber performance was
bad in 2018 because company debt was increase over the year that reprent the negative impact on
the investors.
Interest Ratio -
Uber Reduces the borrowing over the year so the ratio was 21% but it was decrease in
2018 that was 17% because company will timely pay the interest amount on outstanding debt .
the lower interest coverage ratio build image that helps to increase profitability.
liquidity ratio
In 2016 Uber have sufficient Liquidity to meet out the current liabilities of the
company but in 2018 it was decrease by .92 that depict the negative point . Company should
manage the current assets so that helps to meet out the obligation and improve current ratio.
Return on equity -
Uber company's equity on equity ratio have increasing trend. In 2016 the ratio was
307.76 . Company adopt effective strategies to increse profitability and build image that helps to
increase shareholder value so the ratio would increase 344.55 in the end of the 2018.
Return on capital employed
This company have increasing trend so in 2016 return on capital employees ratio was
309.14 . Uber company's return on capital employed ratio was 347.72 in the end of the 2018
because of effectively use capital to improve efficiency that helps to increases profitability.
2. Analysis and recommendation for the board for assessing the financial performance of the
business
Uber company's have enhancing sales growth over the year because they provide better
services to customers that helps to increase profitability . They doesn't mange all operating
expenses and non operating expenses that would reduce the profitability ratio that impact on over
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business. From the above calculation represent that company did not maintain liquidity to meet
out the short term debt so liquidity ratio decreased over the year. Return on equity and return on
capital employed ratio was increased over the year because company adopt effective strategy to
build image in the market that leads to increase shareholders value (Easton and Sommers, 2018).
Recommendations
 Uber company should prepare effective strategy for improve performance of the
company which helps to increase profitability.
 They should have to maintain sufficient liquidity to meet out the obligation that helps to
reducing the debt. The lower debt attract to investors and shareholder to invest their
money .
 Manager of the company should have to prepare such strategy that helps to increase sales
and reducing the all expenses that helps to improve profitability ratio. If profitability
ratio increase that helps to build image in the market (Boddy, McCalman and Buchanan,
2018).
 They have to prepare effective manage all activities that helps to provide quality
services to customers. It leads to improve profitability ratio and sales growth of the
company.
CONCLUSION
Above report summarised that every organisation focus on providing quality goods and
services to customer which helps to achieve goals and objective of the company. It included that
cash flow and profit both are differ because cash flow show the cash inflow and cash outflow
over a financial year and profit helps to provide situation of the company. This report also
explained about working capital , account receivable and payment. Further , described about that
changes the working capital impact on cash flow of the company because higher working capital
represent the company have sufficient liquidity to meet out the debt. Uber company manage all
activities that impact on financial position. Uber company can analysis and recommendation
should adopt which helps to improve performance of the company . This report also outline the
various financial ratio analysis use to prepare appropriate strategies for improving performance
and financial statement. Uber company analysis the financial ratio for assessing the financial
performance of the business which is important to increase profitability and sustainable growth
of the company.
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