Business Finance Report: Bright Lawns and BoatWorld Financial Analysis

This comprehensive finance report delves into the financial performance of two companies, Bright Lawns Ltd and BoatWorld Plc. Part 1 focuses on Bright Lawns Ltd, analyzing its profit, cash flow, and working capital management. It examines the impact of changes in working capital and recommends strategies to improve cash flow through better working capital management, including reducing credit periods, managing inventory levels, and automating accounts receivable. Part 2 shifts to BoatWorld Plc, exploring the purposes of budgeting, comparing traditional and alternative budgeting approaches, and analyzing their strengths and weaknesses. The report recommends alternative budgetary systems to effectively plan for future cost management. The report provides detailed financial analysis, practical recommendations, and a comparative study of financial management techniques, offering valuable insights for business decision-making and financial strategy development.

Business Finance

Table of Contents
PART 1............................................................................................................................................1
Executive Summary ........................................................................................................................1
MAIN BODY...................................................................................................................................1
a. Profit and cash flow.................................................................................................................1
b. Working capital........................................................................................................................2
c. Changes in the working capital................................................................................................2
ii) Concepts used to present the financial aspects to manage the impact of concepts upon
financial results............................................................................................................................3
Analyse and recommend what steps should now be taken to improve this company’s cashflow
through better Working Capital management..............................................................................3
PART 2............................................................................................................................................4
Executive summary......................................................................................................................4
1. Purposes of preparing a budget, explanation of traditional budgeting approaches and
alternative budget methods along with their strengths and weaknesses......................................4
2. Application of budgets to plan future cost management of business.......................................7
3. Analysis of appropriateness of traditional or alternative budgetary systems..........................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

PART 1
Executive Summary
The particular case study mainly based on the Bright Lawns Ltd that face many issues
and analysis the financial performance of the organisation where consist of profit, cash flow,
inventory and many others. Through these activities know the actual position and take decision
regrading to investment.
MAIN BODY
a. Profit and cash flow
Profit: It describes as the financial benefit that gain by the organisation when they have
extra income as compare of expenses. It is a amount of the income left over after all the
important and matched expenses and less for certain period of time. As per the matching
principle all the expenditure were consisted to generate the income and identified in the given
period of time. Many time company face net loss when expenses exceed to income. Businesses
use three types of profit to analysis various places of an organisation (Baldock and North, 2015). Gross profit: To calculate this profit required to less variable cost from the revenues from
the every product line. For this profit does not require fixed cost such as equipment, plant
& HR department. An organisation comparison in the product lines to see which is most
profitable. Net Profit: For this profit consist of all costs that present right position of the company in
present time and how much money the business is creating. While, many times it may
misleading to top directors.
 Operating Profit: In this profit consisted of fixed and variable costs. For this includes
some financial costs which is called as EBITA. It is calculated by the mostly organisation
to know the amount of the deprecation, tax and amortization.
Cash flow: It is the net amount of cash and cash equivalents that move into and out of
business. In finance, the particular term utilise to define the net amount of cash which is earned
in particular accounting period of time. There are different kind of cash flow that is essential use
by the organisation to run and presenting financial analysis (Butler, 2016).
Difference between profit and cash flow:
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Basis Profit Cash Flow
Tax There are tax amount paid after
calculation of the total profit then
paid it.
In the cash flow tax amount paid in
the instalments.
Statement To calculate the profit of the
organisation required to create
income statement.
To analysis the cash inflow and
outflow create cash flow statement
b. Working capital
Working capital: It is an indicator that presents the financial condition of the company
for short period of time and measure the overall performance as per the tasks. To calculate the
working capital require to follow particular formula such as:
Working Capital = Current Assets – Current liabilities
Through this indicator to know level of liquidity in the business and how much invest
into further activities.
Receivables: It is defined as the balance of money where firm supplier services and
products or utilised but not yet paid by the customers. It is shown in the balance sheet as a
current assets and amount of money collect through customer to buy made on a credit (Carbo‐
Valverde, Rodriguez‐Fernandez and Udell, 2016).
Inventory: It is a accounting term where stocks are available for sales and company use
different types of raw materials to manufacturer of product for sale. The stock level of any
organisation perform the most essential assets because the turn over in inventory.
Payables: It id different from the receivables because it is liability for the organisation
and required to paid amount to creditors in particular period of time. This amount shown in
balance sheet as the current liabilities section.
c. Changes in the working capital
As per the discussed of the working capital is based on the current assets and current
liabilities. The cash is main element in the cash flow that impact on the different organisational
activities. Through cash flow analysis the performance of the business along with cash flow from
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investing activities changes the value of the investments. So changes in the working capital
shows positive as well as negative way:
Positive Impact: As per the particular case the value of the current assets is increasing in
the working capital so it presents positive impact on the cash flow. It is because the value of
current assets helps to increase the value of cash flow in different activities like operation as well
as investing (Dang, Li and Yang, 2018).
Negative Impact: It is also affects in negative manner on the cash flow when current
liabilities increase so liquid level change of the company. It will become important for the
business entities to make payment through cash.
ii) Concepts used to present the financial aspects to manage the impact of concepts upon
financial results.
 Profit: In the presented case study British Lawns limited get the amount of the had last
year turn over about £50 million. They have reasonable profit like operating profit was £5
million last year before interest and tax. It presents good position of the company.
 Accounts Receivable: The company have mostly accounting receivables are stakeholders
that had taken in the fund and supplying goods in upcoming period of time. Such as they
have £1.5 million from C & P company with an assurance of delivering goods in
futuristic time (Soros, 2015)..
 Accounts payable: The above bright lawns company's debt amount are of £18 that
increased by £2 as compare to last year because in previous year it was of £16.
 Inventory: This company provides different types of products like valves, fittings and
many more. To produce these goods require to follow the procedure of raw material,
work in progress and finished goods.
Analyse and recommend what steps should now be taken to improve this company’s cashflow
through better Working Capital management
In order to improve cash flow by managing working capital in better manner, finance
department of BrightLawns Ltd are recommended to reduce credit period that managers offers
to their debtors. The CFOs of the entity should time to time review credit terms so to make sure
that credit levels provided to debtors are exact or accurate for managing cash flow requiremenst
of the business. By managing debtors effectively will ensure the entity that money is coming
inside the premise on time. With this, the company will be able to acquire the required funds and
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will maintain its cash flow in better manner. Similarly, by reducing expenses concerned with
debt services will help in dropping cash outflow at some extent which will further result in
improving cash flows with proper management of available cash. Reduction in expenses with
proper reviewing of fixed along with variable costs will ascertain the key areas that needs
improvements and hence managing working capital. Similarly, the essential factor that makes
working capital for the firm is prudent inventory management. It is also recommended to
manage desired stock level so that finished products are soon sold so to attain inflow of cash
and eliminating situations like overstocking. Excess stock puts heavy load on business cash
resources while insufficient stock shows lost sales addition to damaging customer relations.
With this, products and services at selected entity which are not performing or are unproductive
can be cut and working capital can be maintained in better ways. By automating accounts
receivable is also a strong option to manage working capital through better aspects. When
accounts receivable will be managed through computers then there will be less probabilities of
mistakes and will help in avoiding delays in account payments and streamlining entire working
capital procedure. Through this, customers will receive invoices digitally as well as can pay in
same manner prior or on due date that will improve inflow of cash that will further result in
managing working capital in proper manner.
PART 2
Executive summary
This part of the report is based upon analysis of BoatWorld Plc which is an international
leisure company that rents boats to holiday makers. This part summarises the purposes of
preparing a budget, explanation of traditional budgeting approaches and alternative methods of
budgets. With the help of them an organisation can plan for future cost management. The
organisation is recommended to use alternative budgetary system for the purpose of operating
business in planned form.
1. Purposes of preparing a budget, explanation of traditional budgeting approaches and
alternative budget methods along with their strengths and weaknesses
Budget: The financial plan which is formulated by the companies every year is known as
budget which helps managers to keep track record of funds which are spent upon different
operational activities of the company. It is beneficial for all the companies because with the help
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of it unnecessary spendings could be determined and decisions for resolution of them could be
formulated. In order to make sure that finance is allocated to all the operations appropriately it is
very important to formulate budgets. Most of the companies such as BoatWorld Plc generate
them for different purposes (Haas, 2014). All of them are as follows:
 Management create budgets to communicate financial position of business with top
authority.
 In order to coordinate with business process budget is prepared by companies.
 For the purpose of reaching set business goals budget are prepared so that funds could be
allotted to all the activities according to their requirements. In business entities are formulated to evaluate financial position by comparing actual
figures with budgeted ones.
Traditional budgeting: It is a method of preparing budgets by focusing on the financial
information of previous year. Under this type of procedure management create budget by
adjusting current year's records. Expenses which are recorded with the help of this technique are
based upon changes in different elements such as market situations, inflation rate, customer
demand etc. There is a main approach of it which is as follows:
Incremental budgeting: In this approach of traditional budgeting last year's budget is
considered as the base for current year's records. With the help of it managers make sure that
they allocate appropriate and reasonable amount to different procedures of the organisation so
that overspending of them could be stopped. The process of formulating budget under this
approach is very simple which helps internal as well as external users to determine actual
position of business. There are various strengths and weaknesses of it which are as follows:
 Strengths: With the help of it consistency and operational stability of it could be assured
because it takes previous year's data in to consideration. It guides managers to allocate
equal finance to all the departments sop that internal rivalry among them could be
reduced. Weaknesses: It is not possible to account changes in this approach of budgeting which
affects accuracy of it. It is based upon unreal assumptions therefore it results in negative
impacts of it on the potential growth of the company (Hull, 2014)
Alternative budgeting methods: In most of the companies different types of methods are
used for the purpose of formulating budgets. With the help of all of them position of organisation
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is determined on yearly, half-yearly, quarterly and monthly basis. There are three main examples
of these methods which are as follows:
Rolling budget: The financial plan in which continuous modifications are made on the
basis of changes in market situations is known as rolling budget. It keeps less details as compare
to the traditional methods in which detailed information was recorded to perform budgeting
related activities. With the help of it management gets aware of the steps which are required to
be taken by them for the betterment of organisation. The strengths and weaknesses of this budget
are as follows:
 Strengths: Changes could be made in this budget easily as it allows management to
make timely upgradation according to alteration in business model. With the help of it
managers can spend the money wisely because it helps them to analyse the actual
situation and they take spending decision (Lindley and McIntosh, 2017)..
 Weaknesses: For all the users of budgets it is very difficult to interpret the changes
which are made according to market situations. The process which is followed by
organisations to formulate it is time taking.
Zero based budget: It can be defined as a budget in which all the budgetary allocations
for all the divisions of the company starts from a zero and information of previous year is not
taken in to consideration to formulate current year's records. With the help of it top authority gets
aware of all the factors which may affect performance of business as for every new year a new
budget is prepared by ignoring records of prior year (Zero based budget, 2019). All the strengths
and weaknesses of it for the companies are as follows:
 Strengths: It guides management to make sure that they allocate efficient funds to all the
divisions according to their needs so that possibility of unnecessary spendings could be
reduced. With the help of it services and utilisation of cost effective methods can be
improved because it ignores information of previous year.
 Weaknesses: For the purpose of using it high manpower is required which may divert the
attention of managers from business to recruitment processes. This method is considered
as very expensive as compare to other budgets as high level of complexity is involved in
it (Minsky, 2016).
Activity based budget: Under this method of alternative budgeting an organisation can
record, analyse and evaluate all the activities which are resulting in costs to the company. Main
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purpose of preparing this budget is to reduce expenses by providing meaningful data to the
decision makers of company. Various strengths and weaknesses of it are listed below:
 Strengths: It is mainly based upon analysis of all the operational activities which helps
managers to make effective decisions for proper execution of them. It can help the
managers to formulate effective decisions according to the actual situation of company.
 Weaknesses: As it covers information of all the activities so it create difficulties to figure
out detailed information of all of them (Pilbeam, 2018).
2. Application of budgets to plan future cost management of business
In traditional budgeting previous year's data is used for the purpose of formulating
records of upcoming years. Incremental budgeting is one of the main approach in this procedure.
With the help of it managers can plan for future cost management as it can guide them to
estimate it on the basis of available information. In this approach products and processes will be
budgeted according to prior year's details.
Alternative system have three main types of budgets which are rolling, zero and activity
based budgeting. All of them could also be used for the purpose of planning future cost and
budgeting the products and processes of business.
Managers in BoatWorld Plc can open new outlets in Netherlands and Germany with the
help of rolling budget because it can help them to make proper adjustments according to the
situations which are taking place in the market. With the help of it future cost could be managed
properly as it will guide the managers to deal with them by making adjustments in the books.
Zero based budgeting can also be used by managers in BoatWorld Plc to budget the
products and processes because it starts with a zero base therefore only details of new outlets in
Netherlands and Germany will be taken in to consideration by this method. By focusing on them
it will also help to manage future costs (Pimenta and Fama, 2014).
Activity based budget are also beneficial for BoatWorld Plc for the business expansion in
Netherlands in Germany because it will help them to keep detailed information of all the
activities which will be performed for this purpose. It will also facilitate in the budgeting of
products and process by planning future cost management because with the help of it
management will be able to analyse the activities which may result in higher expenses.
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3. Analysis of appropriateness of traditional or alternative budgetary systems
There are two different ways of budgeting one is traditional and another is alternative
budgets. Both of them are good on their places as with the help of them managers can reach to
the judgements which may provide benefits to the business.
Traditional budgeting is focused with analysis of previous year's information but the
alternative methods ignore the prior records. As BoatWorld Plc is planing to open new outlets in
Netherlands and Germany so it is very important for the company to use best method of
budgeting. The most appropriate mode for them will be alternative methods which are rolling,
activity and zero based budgets. By using all of them management of the company will be able to
keep detailed information of current year's transactions and execute the business in the planned
future form (Scholtens, 2017)
CONCLUSION
As per the discussion, it is concluded that finance is core for all business. Business
finance is characterised as money addition to capital which is employed within business. Finance
is required for acquiring assets, material as well as to carry out operations for achieving
revenues. For analysing places within entity, types of profits like gross profit, operating profit as
well as net profit are used. To satisfy stakeholders, managers of company are required to share
essential information based on all elements with distinct stakeholders. Budgets are prepared for
communicating financial position, reducing overspending situations, coordinating business
procedures and identifying deviations. Methods for budget preparations are incremental
budgeting, rolling budgeting, activity based budgeting and zero based budgeting. At the time
budgets are prepared, accounting professionals must be having knowledge about correctitude of
tradition addition to alternative budgetary system. When budgets are properly applied then
business administrators can effectively plan cost management for coming duration.
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REFERENCES
Books and Journals:
Baldock, R. and North, D., 2015. The role of UK government hybrid venture capital funds in
addressing the finance gap facing innovative SMEs in the post-2007 financial crisis
era. Handbook on entrepreneurial finance, pp.125-146.
Butler, K. C., 2016. Multinational Finance: Evaluating the Opportunities, Costs, and Risks of
Multinational Operations. John Wiley & Sons.
Carbo‐Valverde, S., Rodriguez‐Fernandez, F. and Udell, G. F., 2016. Trade credit, the financial
crisis, and SME access to finance. Journal of Money, Credit and Banking. 48(1).
pp.113-143.
Dang, C., Li, Z. F. and Yang, C., 2018. Measuring firm size in empirical corporate
finance. Journal of Banking & Finance. 86. pp.159-176.
Haas, J. J., 2014. Corporate finance. West Academic.
Hull, J. C., 2014. The evaluation of risk in business investment. Elsevier.
Lindley, J. and McIntosh, S., 2017. Finance sector wage growth and the role of human
capital. Oxford Bulletin of Economics and Statistics. 79(4). pp.570-591.
Minsky, H., 2016. Can it happen again?: Essays on instability and finance. Routledge.
Pilbeam, K., 2018. Finance & financial markets. Macmillan International Higher Education.
Pimenta, A. and Fama, R., 2014. Behavioral finance: a bibliometric mapping of academic
publications in USA since 1993. Available at SSRN 2406763.
Scholtens, B., 2017. Why finance should care about ecology. Trends in ecology & evolution.
32(7). pp.500-505.
Soros, G., 2015. The alchemy of finance. John Wiley & Sons.
Online
Zero based budget. 2019. [Online]. Available through:
<https://www.finweb.com/financial-planning/pros-and-cons-of-zero-based-
budgeting.html>
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