Business Finance Report: Financial Performance of Uber Tools Ltd

This report provides a detailed analysis of business finance, focusing on the concepts of profit, cash flow, working capital, receivables, inventory, and payables. It uses Uber Tools Ltd, a power tool manufacturer, as a case study to apply these concepts. The report explains the differences between profit and cash flow, the impact of working capital changes on cash flow, and the application of accrual and matching concepts. It analyzes financial performance elements such as assets, liabilities, equity, and expenses, and calculates various financial ratios, including sales growth, operating profit margin, gross profit margin, gearing ratio, and interest coverage ratio. Furthermore, the report analyzes and recommends strategies for improving the company's cash flow through effective working capital management, suggesting methods like leasing instead of buying, negotiating with suppliers, improving inventory management, and utilizing electronic payments. The report aims to assess the financial stability and wealth of the organization.

Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1 ..........................................................................................................................................1
a. Profit & cash flow and how it is different................................................................................1
b. Working capital, receivables, inventory & payables...............................................................2
c. Changes in working capital affect cash flow...........................................................................2
ii. Apply the concepts .................................................................................................................3
iii. Analyse and recommendation to improve this company’s cashflow through better Working
Capital management.....................................................................................................................3
PART B............................................................................................................................................4
a. Elements of financial performance .........................................................................................4
b. Calculate ratios.........................................................................................................................6
c. Ratios might have changed using the information in the scenario..........................................7
ii. Analyse & recommend how the board might assess the financial performance of the
business ......................................................................................................................................8
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
To start a business finance is most essential because it provide help to run the firm
effectively. An organisation can arrange the funds through various sources which involves equity
and debt. To conduct the operational activities and functions, finance is very important and it is
helpful to expand the business of corporation. Finance source & financing decisions can directly
or indirectly influence the company's liquidity & profitability position. This report discuss about
explanations about profit & cash flow and meaning of receivables and working capital.
Inventory & payables, how changes in working capital influence cash flow in context to
Uber Tools Ltd which owns & operates a factory in Newmarket producing power tools.
PART 1
a. Profit & cash flow and how it is different
The amount of incoming and outgoing of cash is known as cash flow which represents
the operating activities of a corporation. Profits are the surplus remaining after total cost has
deducted from total revenue and after calculating it tax has computed. If a company is earning
more profits than chances of growth can be maximize (McLean and Zhao, 2014). Difference
among profits and cash flow are mention as:
Profit Cash Flow
It is the money left over from sales revenue
once costs has been subtracted.
Cash flow reflects the money form distinct
sources.
Profit is computed before the money is
received.
It can be affected by the timing of payments
into and out of business.
Sales made beyond a BEP (Break even point) The strength of company can be reflect through
it that how much flow of cash it have.
With the help of effective cash flow management UberTools Ltd does not face the
problem of shortage of funds so that operations of company can run smoothly. If corporation is
able to generate enough profits than business of organisation can grow and the operating profit
before interest & tax is £36 million.
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b. Working capital, receivables, inventory & payables
Working capital: To conduct day to day operational activities money is needed and it is
helpful to analyse corporation's liquidity, financial health as well as efficiency. It involves
accounts receivables, stock, cash, short term debt. If an organisation have sufficient working
capital than its regular business operations does not get affected.
WC = Current assets – Current liabilities
Accounts receivable: In this process corporation receive money from their consumers
who have purchased the products on credit. Generally the period is short term which is ranging
from few days to months and in some cases it can be one year. As UberTools Ltd owned
£12million pounds for a series of large orders placed by D&R last year. It is necessary for the
organisation to reduce the credit period as a result it can get funds within short period of time and
the amount can be utilise to perform the operational activities associated with business of
company (Kotz and Podgorski, 2012).
Inventory : It refers to goods that are in different stages of being made ready for the
purpose of sale which involves: finished products, raw material, work in progress. It comes
under current assets.
Trade payable: It is an amount billed to a corporation by its suppliers for goods
delivered. It shows the obligation of organisation to pay debts to the suppliers and creditors.
Company record it under current liabilities in the balance sheet.
c. Changes in working capital affect cash flow
Working capital is needed by an organisation so that it can perform its business
operations and cash is required to conduct the business activities effectively as a result problem
of cash does not arise in front of company.
In the cash flow statement fluctuation in working capital has shown. For an instance, if an
organisation received cash from short- term debt that have to be paid within 60 days as a result
there are incremental in cash flow statement. Thus WC will not increase reason being the
proceeds from the loan may be a cash or current assets.
Cash flow can be minimize if the company spent money to acquire fixed assets which
involves building and machinery. The Working capital of a company can minimize since the
cash portion of current assets would be reduce hence in the current liabilities there will be no
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change because of it is long term. Fixed assets of UberTools Ltd has been sold than cash flow
and working capital both maximize.
If an organisation purchase inventory than there will be no changes can be seen in
working capital because stock and cash both are current assets. As a result cash flow will
minimize if company buy stock. Debt of UberTools Ltd has increased to £350 million from £250
million the year before so that cash flow can be affect. As a result it can be said that cash flow
can be affected when working capital has changed.
So it is necessary for the organisation to take effective steps in order to increase working
capital so that it does not face the problem of cash.
ii. Apply the concepts
To analyse the financial results there are various concepts can be used and if they does
not followed than financial results of company can be affect.
Accrual concepts: As per this concept expenses and income are needed to be recognize
in accounting period in which they relate rather than on cash basis. This concept suggest that
income must be recorded in that accounting period in which it actually arise. For an instance,
UberTools Ltd has earned £350 million operating profit which are recorded in same year in
which it earned (Halbert and Rouanet, 2014).
Matching concept: This concept states that it is require that expenses and revenues are
needed to be recognized together in the same accounting period. Major aim of this concept is to
avoid misstating earnings during a specified time duration. If UberTools Ltd is not able to
consider expenditures and revenues in same time period than its financial results of company will
not present true & fair information as well as data.
These are the concepts which can be used by the management of UTL so that its financial
reports provide true and fair information about the business of company.
iii. Analyse and recommendation to improve this company’s cashflow through better Working
Capital management
As capital management is the financial strategy which seeks to maintain equal &
sufficient level of current liabilities, current assets and working capital. It is helpful to ensure that
for a company it is important to have sufficient cash flow in order to meet short term debts. As
UberTools Ltd is emphasis to increase its turnover and for this it focuses to improve cash flow
with the help of working capital management through tracking accounts receivable, clear &
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concise invoices & secure payment option. Analysis starts with beginning balance & generates
an ending balance for all cash receipts & expenditures incurred by organisation.
Steps to improve cash flow & their recommendation
Lease, Don't buy: Leasing process used to end up being higher costly than buying. As
UberTool Ltd. have to pay small increments that is helpful to maximize cash flow. It is require to
be written off because it is business expenses.
Pay supplier less: It focuses to maintain effective communication with suppliers and
friendly environment is helpful to landing better deals with consumers. As UberTool Ltd. offer
creditors early payments if they are willing to give a discount in return.
Improve inventory: This system has focuses towards inventory management in the
company. It is important for the management of UberTool Ltd to sell the products instead of
buying new and to maintain stock FIFO method can be use (Cowling and Ledger, 2012).
Use electronic payments: The chances of mistakes can be minimize by using electronic
payment system. It is important for the management of UberTool Ltd to provide benefits to
consumers and allow them to use business credit card for grace period as long as 21 days.
PART B
a. Elements of financial performance
Financial performance of an organisation shows the financial stability and wealth and if
financial performance of a corporation is good than there are more chances that its business can
grow and get success. There are different various elements of financial performance which are
as: liabilities, revenue, assets, gains, expenses etc.
Assets: The thing which is helpful to generate revenue and give return to the company
can be known as assets. It includes, plants, building, machinery etc. In the year 2009 the assets of
UTL has increased which is £518000 and it shows that financial position of organisation is
better. It has two types such as: current assets and non current assets.
Liabilities: For a corporation it is the obligation and it is the burden which is require to
be settle. As long term liability of UTL is increasing and in the year 2011, it is £360000 which
shows that company has obligations which are needed to be settle off and if it continuously
increasing than profits of corporation can be influence. So that financial performance of
organisation can be affect.
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Equity: It shows the ownership interest in a business in the form of inventory & it is the
aggregation of liabilities & owner's equity. As equity is increasing which is better for UTL which
reflects the financial position of company is good and it provide support the growth of
corporation.
Expenses: These are not good for a company if it is increasing continuously because it
minimize the profits of corporation. From the year 2009 to 2011 the expenses in UTL are
increasing which is not a good sign for the organisation and it can influence the financial
performance of corporation. So it is essential for the corporation to reduce the expenses so that
profits can be maximize and it can be used in further expansion of business (Cole, 2013).
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b. Calculate ratios
c. Ratios might have changed using the information in the scenario
There are various ratios which are helpful to provide information about financial position
of company. These are as follows:
Sales growth ratio: In the income statement sales related information are available & it
can be sheen that year after year sales of company is increasing which is good sign for
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organisation. In the year 2010 incremental in sales growth ratio is around 6% as compare to the
previous year.
Operating profit margin: Operating profit is the amount which has earned by UTL
through business activities. Operating profits has been reduced in the year 2011 reason being
expenditures are increasing.
Gross profit margin ratio: Amount of profit from which the operating expenditures
does not deducted are termed as GP amount. In the year 2011 gross profit of UTL has reduced
because of rise in the amount of cost of sales.
Gearing ratio: It shows the amount of outside liability borrowed as compare to
shareholders funds. This ratio is continuously increasing which shows the poor performance of
company because borrowings are rising (Burns and Dewhurst, 2016).
Interest coverage ratio: The amount earned by organisation as compare to the amount
of interest expenditure of the same duration. As earning of UTL is reducing in the year 2011
which is not a good sign for the organisation and it can affect the financial performance of
corporation.
Liquidity ratio: It shows the liquidity that how much time it takes to liquid and in the
year 2011 it is reducing and become 0.92 and it shows that organisation does not able to pay
current debts by selling assets. So it can affect the profitability of company.
Return on equity: It shows that how much returns are generating from the equity and it
has reduced in the year 2011 to 7.55 from 25.98. It reflects that management of organisation is
not effective to generate higher returns from the equity.
Return on capital employed: It shows the operating profits generated by UTL by
employing capital in the business activity. This ratio has been reduced from (28.8) to (101.95)
reason being borrowing are increasing and working capital is minimising.
ii. Analyse & recommend how the board might assess the financial performance of the business
From the above table, it has been identified there are various financial problems and
issues has been arises in front of UTL which can affect the financial position of company. As a
result its profits can minimize. In the year 2009- 2010 operating profit ratio has reduced from 30
percent to 25.5 percent & in the year 2010 to 2011 it is 25.5 percent to 10.67 percent because of
incremental in total revenue. In the year 2010 liquidity ratio has increased from 2.24 to 2.37 as
compare to the year 2009 where as in the year 2011 it has been reduced. The main reason is
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current liability of UTL has increased. There are various recommendations which are helpful for
the organisation to grow and expand the business.
Recommendation:
 UTL can analyse balance sheet so that it can know the true and fair financial position of
its business. As a recommendation it can be said that management of organisation have to
analyse the performance of business by comparing the assets & liabilities.
 To maximize the revenue it is require to cut the unnecessary expenses as a result profits
of company can increase and it will contribute to the growth of business.
 With the help of ratio analysis financial position of company can be identify and by
comparing ratios with previous year UTL can know its current performance. Those ratios
which are not favourable for the the company than it needed to be emphasis so that
growth of corporation can be possible which can contribute the effective financial
performance (Bentley and Sharp, 2013).
CONCLUSION
As from the above report, it has been concluded that for an organisation it is essential to
manage the finance effectively so that business of company can grow and expand. By managing
the cash flow and working capital a corporation can continue its operations smoothly and it does
not face the problem of short of finance. By ratio analysis an organisation can know its
profitability, liquidity, efficiency and it shows that how company is performing and what are the
essential factors which contribute the growth of firm. Recommendations are helpful to make
appropriate strategies in order to enhance the profitability of firm.
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REFERENCES
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pp.777-813.
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during the current financial crisis. International Small Business Journal. 30(7). pp.778-
800.
Godechot, O., 2012. Is finance responsible for the rise in wage inequality in France?. Socio-
Economic Review. 10(3). pp.447-470.
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territorial networks and the (un) making of city-regions: an analysis of business
property development in Bangalore, India. Regional Studies. 48(3). pp.471-484.
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a revisit with applications to communications, economics, engineering, and finance.
Springer Science & Business Media.
Kraemer-Eis, H., Lang, F. and Gvetadze, S., 2015. European small business finance outlook. EIF
Research & Market Analysis.
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financial crisis. Research policy. 44(2). pp.370-380.
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.
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