Business Finance Report: Uber Tools Ltd and Madagascar Analysis

This report provides a comprehensive analysis of business finance, focusing on the financial performance of Uber Tools Ltd (UTL) and Madagascar Industries Ltd. It begins by defining key concepts such as profit, cash flow, and working capital, highlighting their differences and interrelationships. The report examines the components of working capital, including receivables, inventory, and payables, and assesses their impact on cash flows within UTL. Furthermore, the report applies these concepts to a case study involving UTL, analyzing its financial position, including its profitability, debt levels, and working capital management. The second part of the report delves into the financial performance of Madagascar Industries Ltd, examining elements such as revenues, profits, and operational efficiency. Ratio analysis is employed to evaluate the company's financial viability over a three-year period, with recommendations provided to assess and improve financial performance. The report concludes with a summary of findings and recommendations for both companies, emphasizing the importance of effective financial management for achieving organizational objectives.

Business Finance

Table of Contents
PART 1............................................................................................................................................1
1. a) Profit and Cash flow and their difference:...........................................................................1
b) Working Capital:.....................................................................................................................2
c) Effect of working capital over cash-flows:..............................................................................3
2. Application of concepts:..........................................................................................................3
3. Analysis and recommendation to Uber Tools Ltd (“UTL”):...................................................4
EXECUTIVE SUMMARY.............................................................................................................4
PART 2............................................................................................................................................4
1. a) Elements of financial performance......................................................................................4
b) Calculations of ratios of company...........................................................................................4
c) Application of ratios................................................................................................................5
2. Recommendation to board to assess financial performance of business:................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business finance simply implies to, credit and funds engaged or invested in activities
related to business. Finance is core need of business organisation as it provides assistance in
running its day to day activities and functions. It is an essential resource of an organisation and
proper utilisation and management of finance provides competitive advantages to organisation
and helps to achieve organisational objectives in long run (Covas and Den Haan, 2012). This
report describes various financial aspects which are directly and indirectly concerned with
business finance like profit, cash flow, receivables, inventory, payables and working capital
management in the context of Uber Tools Ltd (“UTL”). This report also provide an explanation
about ratio analysis along with practical sum with regards to Madagascar Industries Ltd.
EXECUTIVE SUMMARY
Business finance combines various activities that assist in organising and controlling
different activities associated with finance. Funds in a business organisation acts a lifeline which
provide assistance in attaining financial objectives an even ensures survival. Business finance
generates data and information related to actual financial condition of organisation that helps in
formulation of financial statements and annual report to provide true and fair view or actual
picture of a business organisation. Managing business finance helps in attracting new potentials
and opportunities, and provide assistance in developing a framework for taking effective
investment decisions. This project provide a discussion as per given financial data related to
profits and cash flow in the context of Uber Tools Ltd (“UTL”) to mange working capital.
PART 1
1. a) Profit and Cash flow and their difference:
Profits: It is monetary amount that is earned through trading and business activities and
against which cost is incurred. It is simply refers to remaining amount of income after deducting
various direct and indirect expenses. Profit is essential element in order to compute amount of
tax and dividend. Profit is generally reflected in or indicated by decrease in liabilities, increase in
amount of assets and increase in shareholder's funds. In Uber Tools Ltd profit is reported
because there is there income remaining after providing all costs and expenditure. Company has
earned operating profit of £36 million in last year before charging interest and tax (Finance,
2017).
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Cash Flow: It refers to movement of cash in business organisation. It exhibits organisation's
efficiency to generate cash during a particular period. An effective cash flow exhibits
organisation's ability to generate cash flow. It will assist Uber Tools Ltd in operate its financial
activities effective as per predetermined goals and objectives.
Profits Cash Flow
Profit is part of revenue which is calculated
by subtracting all cost from gross revenue and
income.
Cash flow or net cash flow is computed by
deducting all cash outflows from aggregate
cash inflows.
Computation of profit is purely based on
accrual concept of accounting.
In cash flow calculation accrual concept is
ignored and all calculation is done on cash
basis.
Company would be in profit making situation
if there is sales above the break even sales.
A positive cash flow is flow ensures
availability of working capital to run its day to
day operations.
b) Working Capital:
Working capital is a financial term which represents difference between company's
current assets and liabilities. It helps to define organisation's liquidity condition. A negative
difference between current assets and current liabilities indicates that organisation's ability to pay
its day to days expenses is poor where as a positive difference indicates that organisation is able
to meet its day to day expenses (Burns and Dewhurst, 2016). Here current asset includes trade
receivables, cash and cash equivalents, inventory etc. and current liabilities includes trade
payables, bank overdraft and other current obligation. Amount and importance of working
capital may differ as per change in nature and size of business. In Uber Tolls Ltd various
operating expenses are managed and controlled to maintain working capital. Following are the
major terms related to working capital are discussed below:
 Receivables: It refers to debts owed to a business organisation by its customers and part
of current asset. Generally receivables are of short term in nature. These are classified as
current asset in UTL and mainly includes amount of credit sales made during a particular
period,
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 Inventory: It refers to goods or product of business organisation that is held for resale or
for making a final product to sell. In UTL inventory is classified as raw material, spare
parts, work in progress and finished goods. Inventory is recorded under current assets as
inventory (Inventory, 2019).
 Payable: it is amount of debt owed by business organisation to its suppliers. UTL is
owed £12 million pounds for a series of large orders placed by D&R last year which
should be classified as payable in the books of company. It is an item of current
liabilities.
c) Effect of working capital over cash-flows:
Working capital in UTL reflects its efficiency to pay its current liabilities using current
assets. It is availability of amount in business organisation to pay its various short term expenses.
Some factors exists in a organisation which have impact on organisation's working capital.
Movement of cash influence the amount of working capital such as payment of any current
liability leads to decrease in current liabilities which changes the working capital amount on a
particular date and increases cash out (Casadesus-Masanell and Tarzijan, 2012). A positive
working capital is situation when organisation's current assets is more than current liabilities
which indicates that company is able to pay its short term dues and expenses of next 12 months.
It sign of better financial performance of an organisation. On other hand positive cash flow
ensures availability of cash in organisation to pay its expenses. Change in working capital is part
of cash flow statement which points out that change in working capital affects cash-flows of
organisation. Cash is part of current assets which acts as a basis for calculation of working
capital of an entity. Companies always tries to achieve a positive working capital to avoid any
adverse liquidity condition.
2. Application of concepts:
As per given case scenario Uber Tools Ltd is able to meet its various expenditure which
are essential to manage its business functions and activities. UTL has reported its operating profit
before charging tax and interest of amounting £36 million which is reflects that company is
enjoying good profitability position. In next year also company is estimating more profit because
there it seems to be plenty of work coming in this year. However it is notable that UTL's debt has
increased to £350 million from £250 million the year before which may affect organisation net
profit after charging interest. There is a clear requirement of investment by shareholders in order
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to reduce this debt. Moreover management of company is required to manage expense and
effectively utilise funds. Beside this UTL is owed £12 million pounds for a series of large orders
placed by D&R last year which indicates that in current year company's overall debts is
increased. There is also an outstanding dispute about a £35 million consignment for BricoFrance
completed in 2017 that can occur in current year so company should manage their finance to this
contingent liability. So all events and possible circumstance brings requirement of managing
finance to avoid these inconsistency which affects results (Cole, 2013).
3. Analysis and recommendation to Uber Tools Ltd (“UTL”):
Finances in the business acts as blood in a human body and very important to perform
various business operations on day-to-day basis. A financial viable organisation is always
attractive investment opportunity and from financial performance of UTL organisation it is seen
that business organisation is loosing its financial viability by rising more and more debts. Having
a sound cash flow system in business organisation is important for each business unit to have
effective working capital to operate efficiently. To have effective cash flow system and
enhancing financial performance of the company investments that do not results in generating
revenues will be minimised to bring positive cash flow in the company (Yunus, 2017). Inventory
is termed as current assets and become important part of working capital to reduce cost of
holding inventory economic order quantity system will be used so the cash flow can be managed
effectively. When realisation of funds invested in inventory for business gets delayed it affects
all the cash flow and working capital system as this leads to outflow of cash and no
simultaneously cash is realised for the outflow.
When liabilities in the business keeps on increasing this reflects poor condition of the
business as because business organisations are not efficient to collects amount of debt on time.
Each business needs to maintain a proper timing in the process of funds paid to all the creditors
and receipt made from debtors. Proper management of inflow and outflow of funds in the
business is required to have effective working capital in the company. Debtors and creditors and
inventory of Uber Tools Ltd needs to be managed for effective working capital and cash flow
management.
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EXECUTIVE SUMMARY
This part of the project report is based on jewellery business of Madagascar Industries
Ltd. This parts includes information regarding elements of financial performance that is served
as tool for measuring financial performance of business. Together with this ratio analysis of the
business is done to calculate financial viability of the company. Application of various ratios is
done so that financial position of jewellery business of Madagascar Industries Ltd. of last three
years can be evaluated to make perfect decision of investment (Tutunea and Rus, 2012).
PART 2
1. a) Elements of financial performance
Financial performance is measuring the results of a firm's policies and operations in
monetary terms. This can be done by measuring profitability margins and accounting ratios and
reviewing business finances. All the details of the business such as revenues, expenses and net
income is identified in this business report. Report for financial performance is important tool to
communicate past success as well as future expectations (Zubair, 2014).
Revenues: Effective revenue generating capability of the company is one of the primary
indicator of good financial performance of business. Sales are considered as main source of
generating revenues in business and by analysing information provided from financial statements
of Madagascar Industries Ltd. It is seen that sales are growing continuously and this reflects that
business is operating successfully and gives positive financial results.
Profits: Amount of revenue that is more then cost incurred for generating that revenue
then that portion is termed as profits in the business. Profits are the ultimate objective of
performing various activities and no business can survive without earning profits in long run.
From financial statement of Madagascar Industries Ltd. It is seen that profits of the past three
years is highly unpredictable as in the recent years it gets shattered and that is because of high
amount of operating cost and depreciation charged form profits of the current year.
Operational Efficiency:Managing all the finances effectively and investing finances of
the business in most productive manner results in high operational efficiency. Finances are
termed as resources in the business and they needs to be employed well to get desired results
form various business operations. Madagascar Industries Ltd. Is unable to utilise its resources in
best manner as cost is increasing on continuous basis which has reduced revenue of company.
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Capital Efficiency and solvency: A business is termed solvent when amount of debt fall
due is paid by the company on time. Performing various functions in business that brings profits
and enhance capability to repay the amount due then it is termed as business is solvent.
Madagascar Industries Ltd. Financial position reflects solvent position of business as total of the
assets in the business is more then liabilities due.
Liquidity: It is termed as position of the business in which assets available can be
utilised to pay off its current liabilities in the most effective manner. Madagascar Industries Ltd.
Have liquid position as amount that needs to be paid as liability is less in comparison of assets
and availability of current assets in business is high. Liquidity position of the company in the all
the three years is not stable and it gets reduced in the last year due to fall in the amount of current
assets availability in the business (Jochimsen and Thomasius, 2014).
b) Calculations of ratios of company
PARTICULARS 2009 2010 2011
Sales 360 396 459
1 Sales growth Sales Y2 - sales Y1)/sales Y1 - 10.00% 15.91%
Gross Profit 230 252 272
2 Gross Profit Margin Gross Profit/Sales (%) 63.89% 63.64% 59.26%
Operating Profit 108 101 49
3
Operating Profit Margin Operating Profit/Sales
(%) 30.00% 25.51% 10.68%
Total Debt 215 300 462
Shareholders fund 304 347 344
4
Gearing {Total Debt/Total Debt + Shareholder}
Funds (%) 41.43% 46.37% 57.32%
Finance Expenses 9 12 16
5
Interest Cover Operating Profit/Finance Expense
(x) 12
8.4166666
667 3.0625
Current Assets 65 114 94
Current Liabilities 29 48 102
6 Liquidity Ratio Current Assets/Current Liabilities 2.2413793 2.375 0.921568
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103 6275
Net Profit 79 72 26
7
Return on Equity [Net Profit/Shareholders Funds
(%)] 25.99% 20.75% 7.56%
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Return on Capital Employed [Operating
Profit/Total Debt + S’holder Funds (%)] 20.81% 15.61% 6.08%
c) Application of ratios
Gross profit margin: After calculating ratios for Madagascar industry Ltd. it has been
analysed that the company is experiencing decrease in gross profit margin. The reason behind it
is increase in value of cost of productions that can hampers the growth of company in long run.
Operating profit margin: From ratios it has been identified that the operating profit of
company is decreasing which is not a suitable condition to be displayed in financial statement.
The reason behind fall in operating profit is that the company has incurred huge operating
expenses within current year.
Gearing: Gearing ratio depicts that the organisation's debt is increasing which has made
the financial position weaker. So it is essential for business to look after their debt.
Sales growth: The sales growth of respective company is increasing per year. For
instance there was 10% growth rate in 2010 and by 2011 this percentage has increased from 10%
to 15.91%. Therefore, this is a positive sign for company and they should maintain it.
Interest coverage: This rations of respective company is continuously decreasing as the
profit of company is falling down whereas the debt are increasing. This reflects ability of profits
of company to cover its interest cost (McLean and Zhao, 2014).
Return on equity: In all three respective years the amount of employing shareholder has
been decreasing. This reflect that company may not be considered attractive for investors.
Return on capital employed: The profitability of Madagascar industry Ltd has been
decreasing reflects that the production or operations of company are not productive.
Liquidity ratio: Liquidity ration for Madagascar industry Ltd is below one which means
it is tough for company to pay back its short run creditors. This shows that company can only
pay its short term or current liability from current asset.
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2. Recommendation to board to assess financial performance of business:
Financial performance helps in depicting the financial position of company like liability
or liquidity ratio of company so it is essential for company to maintain various ratios and
expenses. In Madagascar industries limited the company the liquidity of company is low and
operating expenses are high. Thus, company should take valuable action against it like, fair
depreciation can only be charged by enhancing the liquidity of company. Thus, company must
lower down its current liabilities to enhance their financial performance.
CONCLUSION
From above report it has been articulated that finance in a business organisation is
essential element which not only ensures survival of organisation but also assist in attaining
various financial objectives and sustainable growth. Main motive of business organisation is to
achieve and enhance profitability in business which is only possible through effective
management of finance in organisation. Beside this profit, cash flow and working capital is
major aspect in business decision making. Working capital management is purely depends upon
effective cash flow. Various financial ratios are also play a major role in order to analyse and
asses actual performance of organisation.
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REFERENCES
Books and Journals
Covas, F. and Den Haan, W. J., 2012. The role of debt and equity finance over the business
cycle. The Economic Journal. 122(565). pp.1262-1286.
Finance, C., 2017. Empirical Corporate Finance. A Cap, 1.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Casadesus-Masanell, R. and Tarzijan, J., 2012. When one business model isn't enough.
Cole, R. A., 2013. What do we know about the capital structure of privately held US firms?
Evidence from the surveys of small business finance. Financial Management. 42(4).
pp.777-813.
Yunus, M., 2017. Social business entrepreneurs are the solution. In The Future Makers (pp. 219-
225). Routledge.
Zubair, H., 2014. Islamic banking and finance: an integrative approach. Oxford.. www.
investopedia. Com.
Jochimsen, B. and Thomasius, S., 2014. The perfect finance minister: Whom to appoint as
finance minister to balance the budget. European Journal of Political Economy. 34.
pp.390-408.
McLean, R. D. and Zhao, M., 2014. The business cycle, investor sentiment, and costly external
finance. The Journal of Finance. 69(3). pp.1377-1409.
Tutunea, M. F. and Rus, R. V., 2012. Business intelligence solutions for SME's. Procedia
Economics and Finance. 3. pp.865-870.
Online
Inventory. 2019. [Online]. Available through:
<https://www.shopify.in/encyclopedia/inventory>
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