Business finance

PART 1

i. a) Determining the meaning and difference between profit and cash flows.

b.) Reviewing meaning of working capital, payables, inventory and receivables.

Working capital: This is usually referred to as the difference between current assets and current liabilities (Maxwell, 2017). This helps in determining the ability of the firm to meet short-term obligations.

Payables: This is referred to as the amount owed by the company for the purchase of particular goods and services (Jordà, Schularick, and Taylor, 2016). Account payable mainly includes supplies, utilities, legal and accounting services, etc. This is reported in a balance sheet under the category of short-term liabilities.

Receivables: This is the amount owed to a company by customers for particular goods and services given on credit (Connolly and Jackman, 2017). The unpaid balance in the account receivable account is considered to be a current asset, which is listed on the balance sheet of the company.

Inventory: This is referred to as an array of various finished goods that are mainly used in the production of particular goods (Mahieu, Vroman, and Calluy, 2015). Inventory mainly consists of raw material, work in progress, transit inventory, buffer inventory, finished goods, etc.

c.) Determining how changes in working capital tends to affect cash flows.

Changes in the working capital of the business are reflected on the cash flow statement of the firm. If the business transaction increases or decreases the current assets and liabilities by the same significant amount, then there will be no change in the working capital and it will not affect cash flow of the business (Jordà, Schularick, and Taylor, 2016). An increase in working capital states that more cash is invested in the working capital, which in turn leads to a reduction in cash flows. Purchase of the particular fixed assets tends to decrease the cash flow of the business because of the decrease in the cash position of current assets. On the contrary, selling a fixed asset of the company tends to boost up the working capital and cash flow of the business (What changes in working capital impact cash flow?, 2018). This is because of higher generation of cash inflow for the business. Also, if the company purchases inventory with the cash, then there will be no change in the working capital, but it would result in a reduction in cash flows (Burnsand Dewhurst, 2016).

ii.) Determining how the way a company is managed tends to affect financial results.

Bright Lawns Ltd. (BLL) is giving goods on credit to the customers, which in turn leads to a large amount of cash being outstanding for the business. This in turn leads to higher accounts receivable for the company, and this in turn affects the cash flows and profitability of the business (Kraemer-Eis et al., 2019). The company has faulty workmanship, which in turn largely influences the financial performance and productivity of the business. Faulty workmanship is considered a costly mistake, which in turn leads to lower profitability for the business. Bright Lawns Ltd. (BLL) has a large amount of supplies and stock of material at the London site of the company. His in turn results in higher inventory cost and lower profitability for the business (Mathuva, 2015). Overinventory stocking in turn results in additional cash outflow and an unfavorable effect on the cash balances of the company. Outstanding disputes and additional payments to technical specialists and lawyers largely affect the operations and profitability of the business.

iii.) Analyzing and recommending ways to improve the cash flow of the company through working capital management.

Working capital management is considered an effective business strategy that mainly focuses on ensuring that the company tends to operate in an appropriate manner by effectively utilizing the current liabilities and assets of the company. Bright Lawns Ltd (BLL) can improve the cash flow of the company through working capital management by effectively managing the accounts receivable of the company. They should focus on reducing the time period for the goods given on credit (Aktas, Croci and Petmezas, 2015). The company should also focus on meeting various debt obligations, which in turn helps in improving the working capital of the business. It has been recommended that Bright Lawns Ltd. (BLL) focus on managing its inventory by effectively tracking the demand for particular products and services (Burnsand Dewhurst, 2016). The company should focus on tracking the stock level every time, which helps in eliminating understocking and overstocking of inventory. The company should also focus on decreasing the gap between accounts payable and accounts receivable. They should focus on resolving the outstanding disputes with the suppliers and customers. They should focus on analysing the expense and reducing debt service expenses (Le et al., 2018). This in turn helps in improving the cash flow of the company through working capital management, which in turn leads to higher profitability.

PART 2

i.) Understanding the purpose of preparing budget.

A budget is referred to as a detailed business plan, which helps in planning the various finances of the company for a short period of time (Rubin, 2019). The main purpose of preparing a budget is that it helps in providing a systematic spending plan which helps company in determining the income and expenditure for the future period. The key purpose of a budget is that it helps in long-term planning, coordinating, and controlling the performance of the business and also forecasts future income and expenditure (O'Shea, 2018). The key purpose of a budget is that it helps in communicating financial plans and also coordinates the financial activities of the company.

a.) Traditional budgeting approaches.

This is a method that mainly takes into consideration the last-year budget plan and makes necessary reliable changes in order to prepare the current-year budget plan.

Advantages of traditional budgeting approach

This method helps in providing an effective framework to control all the financial activities of the business (Miller, 2018). This approach is very useful in decision-making, which leads to higher operational growth for the business.

Disadvantages of the traditional budgeting approach

This method is considered to be inefficient because it is prone to several data entry errors (Burnsand Dewhurst, 2016). It is a time-consuming process because it has to make relevant changes related with expenses, inflation, interest and expenses to the previous year spending plan by taking into consideration relevant items.

b.) Alternative budget methods.

Rolling budget: This budget plan is continually updated with the incremental extension of current budget plan.

Advantages of rolling budget

The major advantage is that management of the company are more responsive to changes and helps in making adjustments to attain higher operational goals (Mahieu, Vroman, and Calluy, 2015).

Disadvantages of rolling budget

It is a time-consuming process because they have to forecast the whole plan from start. 

Zero-based budget (ZBB): It helps in justifying all the expenses and income from the zero (Aktas, Croci and Petmezas, 2015). It is used to effectively analyse every function of the organization in accordance with their need and cost. 

Advantages of zero-based budget

It is very useful for managers in justifying the operating expenses of the company. It helps company in determining the areas which are generating higher revenue.

Disadvantages of zero-based budget

This method is resource-intensive and takes a lot of time to closely review every element of the budget (Aktas, Croci, and Petmezas, 2015). 

Activity-based budget: This budget is prepared using several overhead costs, which in turn focus on assigning costs to the activities.

Advantages of activity-based budget

This budget method is useful in determining all unnecessary business activities (Jordà, Schularick, and Taylor, 2016). This is very useful for saving business cost and focusing on those activities which generate higher profits.

Disadvantages of activity-based budget

This is considered to be an expensive and time-consuming method. Additionally, it also requires additional assumptions, which in turn results in budgeting inaccuracies.

ii.) Demonstrating how the company use future cost management.

Boat World Plc tends to focus on using traditional budgeting systems. This budgeting method tends to encourage decentralization by taking idea from the proceeding year budget plan (Kraemer-Eis et al., 2019). This method makes it very difficult for the company to assess accurate formulation using traditional budget approach. Boat World Plc company focuses on evaluating the future cost management, which in turn helps in making relevant changes in the business plan. Use of alternative budgetary method such as zero-based budgeting is very beneficial for the company as it will be useful in determining the budget from scratch (Mahieu, Vroman, and Calluy, 2015). ZBB helps in future cost management, which leads to higher operational performance and productivity. This method is beneficial for the company in determining the several activities of the business associated with the management, HR, sales, finance and administration. This helps in evaluating the most profitable and non-profitable business operations and also helps in controlling expenses of the Boat World Plc company.

iii.) Analyzing alternative or traditional budgetary systems.

It has been sought to analyse that the zero-based budgeting method is useful for Boat World Plc company because it helps improve cost savings and it helps Boat World Plc company manage their debts and expenses (Rubin, 2019). This method helps company eliminate deficiencies. This helps company evaluate the future needs of the company and prepare plan accordingly. This helps company in allocating various resources for the company, which in turn helps in cutting off the spending level for the business. The zero-based budgeting method is considered to be one of the most effective approach as it helps in planning every activity of the business from zero, which in turn is very crucial in mitigating the needs associated with future cash management (Connolly and Jackman, 2017). This is useful in analysing the cost associated with various activities of the business from zero in order to predict the income and expenditure for particular accounting period.

CONCLUSION

From the above-conducted study, it has been concluded that business finance is crucial because it focuses on proper short-term planning and helps in determining the cash inflow and outflow of the money. It also evaluates that profit is the financial gain after considering all expenses, but cash flows are the difference between financial inflow and outflow of cash for particular period. This study also summarizes that working capital is useful in determining the ability of the company to meet short-term needs and obligations. Furthermore, this study evaluates that a budget helps a company make a spending plan and coordinate all the activities.For more assistance, Global Assignment Help Australia & free grammar check services can provide valuable support.

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