Business Finance Report: Analysis of EEL's Financial Performance

This business finance report provides a comprehensive analysis of key financial concepts, using Excellence Electronics Ltd (EEL) as a case study. The report begins by differentiating between profitability and cash flow, explaining the importance of each in assessing a company's financial health. It then delves into working capital management, detailing its significance and outlining steps EEL could take to improve its working capital position, given its current high debt situation. The report further explores the capital budgeting process and various capital investment appraisal methods, emphasizing their role in evaluating potential investments and maximizing shareholder value. The analysis includes a discussion of the steps involved in capital budgeting, such as opportunity identification, cost estimation, cash flow projection, and risk assessment. The report concludes by highlighting the importance of proper financial planning and strategic decision-making for EEL's long-term financial stability and success.

BUSINESS
FINANCE

Table of Contents
BUSINESS FINANCE.............................................................................................................1
INTRODUCTION....................................................................................................................3
TASK1......................................................................................................................................3
1.1 Difference between profitability and cash flow.............................................................3
1.2Concept of Working Capital Management.....................................................................4
1.3.What steps should bet taken to improve the working capital of EEL............................6
TASK2......................................................................................................................................7
2.1 Capital budgeting process and the capital investment appraisal method.......................7
P.2.Application of the capital investment appraisal methods..............................................8
2.3. Analysing the methods which are suitable for the appropriate decision making..........9
CONCLUSION.......................................................................................................................10
REFERENCES.......................................................................................................................12

INTRODUCTION
Business Finance is an overview for the occurring of the financial activities. It
provides a brief of financial status and financial activities for the organisation. It helps in
providing the financial position of the company. The financial position helps in framing
decisions according for the organisation according to the financial stability. Excellence
electronics Ltd(EEL) maintains their financial position and stability of their company they
gets to manages their finance at suitable resources(Avery,Bostic,Samolyk,1998)Present
report is based on the Excellence Electronics Ltd which maintains their accounting records
regularly and operates their operations for maintaining the company's profitability and
proper regulation of workflow.
TASK1
1.1 Difference between profitability and cash flow
Profitability consists the state of gain or loss for the company.. Profitability state
consist with the generating profit after deduction of all the expenses the cost reserved
consists as the profit for the company. Profitability ratios are the parameters that identifies
how well the company is performing the work in terms of the profit. It identifies the firms
ability to generate the profits. Various profits margins are evaluated for measuring of the
profitability state(Chortareas, Girardone and Ventouri,2011)The profitable ratio evaluates
the performance and efficiency of the company. They also leads to measures the company's
performance which leads to identifying the working performance of the company.
Profitability ratios are of two types:
 Margin ratios
 Return ratios

Margin ratios consists of gross ,operate ,net flow and cash flow margin which
consists the operational activities of the goods sold and net cash flow derives at the certain
levels
Return ratios consists return on assets ,returns on equity and cash return on assets it
identifies the profitability on the assets and the investments measures.
By implementing the above methods it gets easier for any organisation to derives its
profitable state from the operational activities and measures the financial stability of the
organisation. It also helps in deriving the net cash outflow flow occurrence and cash inflow
of the organisation within the operational performance(Adjaoud, and Ben‐Amar, 2010).
Cash flow consists with the flow of cash within the organisation activities
performance. It is movement of the money within the business operations. It helps in
identifying the amount of money the organisation has invested and how much they are
deriving from the revenue(Cole,2013). It identifies the real occurrence of the money. It helps
in identification of the liquidity of the business and helps in overcoming from the affected
liquidity problems for the business.
It helps in analysing the risk factors within the organisation and enables the
organisation to build up them for the future upcoming challenges so that they can continue
their operations smoothly and effectively. It identifies the profit state for the organisation.
The positive cash flow depicts the a stability position of the organisation and helps them to
re investment in their operational activities and for the expansion in the business. The
negative cash flow situation defines the crisis for the organisation they loses there profit
stability and reaches to a debt situation and defines the decrement in the liquid assets.
Both the methods leads to a beneficial for the Excellence Electronics Limited to
evaluates their financial measure ability and maintaining their financial positions and
prepare themselves for the future challenges for the company by maintain g a stable
condition(Ayyagari, Demirgüç-Kunt, and Maksimovic, 2010.).
Along with the major difference between the profitability and the cash flow are:
Profitability Cash flow
 It defines the income and profit
statements
 It defines only the cash transactions

 It derives from the assets selling at a
profit state or at loss
 It derives the cash from the selling of
an asset.
1.2Concept of Working Capital Management
Working Capital Management defines the state of money required in performing the
daily operational activities of the businesses. It basically framed to evaluate the current
assets and the current liability to monitor the performance of the performance. The main aim
behind the working capital is to ensure that the company acquiring the sufficient cash funds
for its operational work. It consists of the excess of the current asses towards the current
liabilities. Working capital management is considered as the most vital component in the
business as it provides the the organisation to perform its daily operational work(Ballwieser,
and etal., 2012.)It defines the relationship between the the organisation short term assets and
the short term liabilities. The working capital involves the inventory management ,accounts
payable and accounts receivables and the cash. There main consists with the profitability.
There main motive is for the continue and smooth operations of the business by
overcoming all the obligations and meeting up with its short term goals. For the finding of
the appropriate level of working capital there is a relationship between the liquidity and the
profitability conditions.
It determines the conversion of the current assets into another state of like cash into the
inventory,the inventory converted into work in progress, the work in progress into finished
goods and the finished into receivables which consists of the liquid state.
A proper management of the working capital is essential for the Excellence
Electronics Limited for its financial measurement and for its operational working. According
to the financial position of the EEL it derives that the Excellence Electronics Limited is
having a high debt situation as compare to their last year debt situation .They are in critical
situation(Columba,Gambacorta and Mistrulli 2010). This depicts that company is not in the
profitable state and hence in the requirement of the more working capital. This results in the
decline state of the EEL and the instability of financial position of there company. They
require to fulfil there debts situation through paying with their assets which leads to decline
in the current assets and increase in the current liabilities of the EEL(Berger, and Black,

2011) .The increment in the current liabilities highlights the situation of the a high debt
which in results leads to an critical situation for there working. The situation may lead to get
Excellence Electronics Limited Solvency state in the future.
For overcoming from the unstable situation to the stable conditions the Excellence
Electronics limited they requires the more funding for overcoming from their debt situation
and requires a large number of investments in their business. There must be proper framing
of the business plan for the working and the strategies must be developed for the proper
financial management and for the operational work performance in the EEL(Bøhren, and
Strøm, , 2010. ).
1.3.What steps should bet taken to improve the working capital of EEL
The working capital is considered as the heart of any business as it measures the
daily operational work and measures the performance. Insufficiency in the working capital
leads to improper working in the organisation and effects on assets declination. A proper
maintenance of working capital leads to a smooth working in the organisation. The
Excellence electronics should be aims to maintain their working capital for the efficient
working and for the future long operations(Cuthbertson, Nitzsche and O'Sullivan2010).
The working capital can be maintained through the proper cash regulation and with
proper management of assets and liabilities. There are some steps which should be taken the
EEL for improving their working capital and their performance for their company.
 They must try to focus on the certain external factors related to the external issues of
the some legal environment or the factors which are effecting the business
environment.
 The EEL must provide attention towards their customers rather than focusing for
there operational activities. It results in a positive result and helps in identification of
the customer's demand this leads to planing of the goods according to the
requirements.
 The Excellence Electronic Limited can may avoid to dealing with the customers who
deals with the credit and gets delay in the payments. Also They must ignore those
consumers who keeps the payment on the hold and not fulfilled timely.

 Start dealing with those manufacturers or dealers who provides a good amount of the
discounts and provides beneficial offers this impacts on the finance and saves certain
amount of finance.
 There must be a good hold the inventory. The management of inventory must be
appropriately managed the overstock of goods must be be ignored by the EEL and
acquire the goods which are more in demand(Bushman, Piotroski, and Smith,
2011.)The production of goods must be produced matching to the requirements.
 The accounts record and transaction must be properly transited and measured for the
evaluation of financial position.
 The increment in the current assets and decline in the current liabilities position will
help the EEL to improve their working capital.
 They must properly evaluate the total cost fixed cost and the variable cost of there
company which later helps the company to remove the unsterilised or waste cost
expense from the company(Drake, and Fabozzi, 2010).
 Completing with the debt feature on time to develop a good image on the creditors
mind. This helps in taking a loan for the future purpose and making a good image of
company in the mind of public and the creditors.
 There must be proper funding present in the Excellence electronic limited so that
they get provide their employees with the timely salaries and incentives. This helps
in stability of the employees towards their company.
TASK2
2.1 Capital budgeting process and the capital investment appraisal method
Capital budgeting is a process which enables the business to evaluate their initial
expenses and the investments that are mainly broad in nature. Capital budgeting is also
considered as the investment appraisal. They mainly aims to increment in the value of the
firm to their stockholders. The capital budgeting aims at analysing the capital projects for
the company(Ghosh and Moon 2010.). They mainly aim to take decisions for the buying of
the new machine,identifying to take decisions for replacing of an old assets with new one
By implementing the capital budgeting method into the EEL they can develop their
warehouse providential and do increment in their business and helps in identifying the

requirement of purchasing of new tools and machinery for the business. It includes various
steps to be followed(Chortareas, Girardone and Ventouri, 2011).
 Identifying and analysing the potential opportunities- The process starts up with
the generation of the ideas and exploring of the opportunities. It mainly concerns
with the finding of suitable and appropriate options from the multiple findings.
 Estimating operating and implementing cost- This step includes how much
requirement of finance required for implementation of plan into the action. It
includes the research for the both the external and the internal factors(Cole, 2013.).
 Estimating cash flow or benefits- This step includes how much revenue generated
through the operations. The employees of EEL must measures proper cash flow
amount require and provides revenue(Columba,, Gambacorta, and Mistrulli,
2010.)They must imply with high technical assets with the up gradation for working
to bring efficiency in the working and saves the time .
 Asses risk- This step evaluates the risk factors attached with the working. This helps
in identifying the risk factors and able the managers to get overcome from it. Once
the risk gets evaluated by the EEL employees in there company they can analysis the
cash flow and aims at maximisation of the profits for their company and work
according to the suitability.
 Implementation-The EEL must select appropriate plan and measures all the factors
and identify a suitable plan which leads to get implemented and set the parameters
for the working according to plan chooses along with cost implementation.
There are certain methods of capital investment appraisal(Gitman, Zutter, 2012). The
methods are:
 Net present value method(NPV)- This method helps in identifying the cash flow
conditions whether they are in the state of excess situation or in short in nature. The
NPV considers the net cash flow at a particular point of time.
 Accounting Rate of Return(ARR)- This mainly focuses on the comparing of the
profit that can be gained through the concerned profits state to the availability of the
amount for the initial investments.
 Internal Rate of Return(IRR)- The IRR considers as the discount rate which
provides the value of zero to the the net present value.

 Pay back period- It considers on the basis of time considered to be required to reach
the initial investment level.
P.2.Application of the capital investment appraisal methods.
The different methods of capital investment appraisal helps in achieving the goals
and targets and helps in the increment level in the investments which leads to an factor of the
success and leads to an impact of good image in the public minds and sustain a goodwill in
the market. The Excellence Electronic Limited employees may adopted the various capital
investment methods like accounting rate of return, internal rate of return,pay back
period,discounted pay back period, profitability index, net present value and many other. By
the adaptation of these certain methods they can be able to take appropriate decisions for
there company which leads to be suitability(Drake, and Fabozzi, 2010.)By identifying the
profitability state they can adapt for more investments for the expansion of their business.
The projects performance can be evaluated and leads to for more betterment in the projects
evaluation(Hill, Perry, and Andes, 2011)This helps the EEL employees to take quick
decisions related to the working due to the availability of the information presented to them.
A better and maintained working in the company leads to improve the image of the
Excellence Electronics Limited in the public and also leads to improve the job satisfaction to
the employees and leads to increase in the morale of the employee's. The implementation of
the various methods leads to increase in the productivity and leads to a growth of the EEL
also improves the quality level of output production and betterment in the production. By
using the capital investment funds the EEL can utilise their funds in an effective manner
which in future provides the long term profits for their company. Identifying which capital
investment leads to be more profitable for the company and evaluating all the measures for
that investment and ensuring which capital business will be providing maximisation to their
company in return analysing all the detailed study about the investment and taking proper
action of choosing the capital investment(Ghosh, and Moon, 2010.).
The capital investment decision helps the EEL manager to evaluate the EEL manager
to take the decision against the resource allocated are suitable and provides ability to achieve
their targets. The capital budgeting provides the EEL mangers to take decision related to
their business for the buying of the equipments ,new machines requirement replacement of
old asset with the new ones and obsolescence of assets all these can be controlled through

the capital budgeting techniques. The internal return of return (IRR) is a method of
measuring the investments projects to identify the employee percentage rate which helps in
taking an appropriate decision for the employees(Gitman, and Zutter, 2012.)The choosing
of appropriate decision must be based on the opportunity cost comparison with the IRR and
the exceeded IRR projects should be chosen.
2.3. Analysing the methods which are suitable for the appropriate decision making
The Excellence Electronics Limited can adopt certain methods for the appropriate
decision making for their business. The employees working within the EEL can adopt the
method of profitability index for identifying the value of the investment per unit and
measures the investment in the profit state. It also helps in identifying the amount of money
invested . This helps in identifying the total money invested by the company in there total
operations and how much they are getting profits from the total investment.
The EEL can also imply the Internal Rate of Return method (IRR) that helps in
discounting value that helps in providing the value of zero to the net present value. It helps
in measuring the efficiency of the capital investment. The value related to higher IRR value
can be rejected by the company . The IRR helps identifying the time value of the money it
helps in analysing the project and helps in identifying which project is lacking in the high
accounting rate and helps in framing decisions according to it.
The net present value method can be also leads to suitability for the EEL decision
making it helps in identifying the cash flow stability of the company. It signifies the cash
flow situation whether it is in state of excess or having a declining stage having shortage of
cash flow which helps in further processing of EEL company to balance the cash flow
generation within the company. The NPV value helps in identifying whether the investment
considered as the beneficial for the company and creates the value fro the company or leads
to increment for the investor. It helps in identification of cost of capital and finding the risk
factors against the projects(Hillier, Grinblatt, and Titman, 2011.).
This helps in EEL to prepare themselves for the future challenges occurring for there
company and evaluating all the risk factors considering in their operational activities. It
helps in prediction for the future and helps in evaluating the future cash flow which helps in
evaluating the future performance of the company. The pay back period can also be acquire
for the decision making .It is based on the time study and helps the EEL to identify how long

the time would be taken by them to bring back their initial investment cost(Capital
Budgeting,2017.)They provides the time facility which helps in raising the funds for the
further growth of the business and also aims for reaching to the break even point.
It also helps in analysing the capital projects and it emphasis more on liquidity
factors for making the decisions related to the investments and considered as an easy process
to understand.
CONCLUSION
From the above report it has been analysed that business finance considered as the
vital components for the financial activities. Cash flow consists the cash outflow inflow
within the organisation .Working Capital is the most essential for performing the daily
routine activities and helps in measuring the efficiency. Working Capital can be derived
from the current assets minus current liabilities. Capital Budgeting helps in evaluating the
whether the organisation require the new assets for operations and appropriate methods can
be taken by the EEL for the decision making.