AE1: Budget Report Understanding Finance Assignment Sample

AE1: Budget Report Understanding Finance Assignment

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Part A: Financial Planning and Management for Hamble Limited

1. Cash Budget for Hamble Limited

2. Analysis of Cash Flow Issues and their solutions

Hamble limited test financial loss in May and June, which is due to credit policy related to the date and also the company provided payments to their welder within 30 days, which was a negative cash outflow for the business activity (DeFranco, A.L. and Schmidgall, R.S., 2017). In the months of May and June, there are additional posts that indirectly affect the cash flow due to less cash available for the company to operate their respective ones, so it is suggested that the company rate their credit policies and also ignore any potential cash investment in the business for a certain time to be a stable liquidated status.

3. Key Finance Sources for Company

Major financial sources for companies to attract additional funds for their business activities are discussed below for a better understanding of their business activities and the financial requirements of the company.

Issue of Shares

• Advantage: Issues of shares help the company to generate a major source for their financial liabilities without any additional financial risk or interest cost on business activities.
• Disadvantages: Issues of share major effects on control over the decision of the company, which can be indicated as decision control power, which can be affected through fundraising from share funding.

Issue of Debentures

• Advantages: As per the concern of the issue of debentures, they are required at the minimum interest rate for a long-term period so if someone is looking for long-term borrowings from the market at a lower interest rate, then they can go for the directors, as this can be an advantage for the company, which can be used by Humble Limited (Kasri, R.A., and Putri, N.I.S., 2018).
• Disadvantage: Debentures can have an effect on the initial cost of the company, which increases additional interest charges on revenue generation from business activities, which can be the major cause for businesses and a big disadvantage of the issue of the debenture.

Term Loan or Working Capital Loan

• Advantages: Term loans and working capital loans are the short-term 12, which helps management in Saturn down their emergency libraries for celebrities for their business activity and also helps to be a nice day working capital for a specific period (Kasri, R.A., and Putri, N.I.S., 2018).
• Disadvantage: These loans are provided for a short-term period for a higher interest rate, which is a measure and disadvantage of term loans and working capital loans.

Venture Funding

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• Advantages: Venture capital can be the funding option that can provide an expansion of business activities that did not require any kind of collateral or securities for the loan amount.
• Disadvantages: Venture capital distributes the ownership and control of the business activity, which is the major drawback of the funding option, to the management of the company (Kasri, R.A., and Putri, N.I.S., 2018).

Lease Finance

• Advantages: Lease Financing can be identified as a very good source of free funding rising for business activities of the company as it has a balanced cash flow and also provides additional capital funding with low capital expenditure
• Disadvantages: Lease finance comes with limited furniture benefits and also certain lease expenses, which companies need to wear from time to time for their business activities.

4. Impact of Raising Fund through Shares

Here are some of the key advantages and disadvantages mentioned below for a better understanding of fundraising through the issue of shares.

Advantages:

• The issue of shares can be the WIN-WIN condition for both, as the company had funded business activities and the investor attracted a return on their investment.
• Shareholders can't be the debts of the business, which management is required to pay before liquidation through their assets.
• If there is a risk of liquidation, then shareholders of the company can't force the company for liquidation, which creditors or debenture holders can do at the time of bankruptcy.

Disadvantages:

• The company and management can lose their control on decision-making power for business activities of the company.
• There can be the risk of replacement of management as shareholders have all voting rights for the selection of directors or managerial staff of the company.
• Dividend payments to shareholders are taken as non-deductible expenses so they can't be claimed in profit & loss for the company.
• If the company is listed or they issue shares in the market, then they are required to disclose financial information as per the accounting standard for the interest of shareholders.

Part B: Understanding and Analyzing Financial Ratios

1. Financial Ratio Analysis

2. Interpretation of Financial Ratio

Profitability of Company:

As per the above table, Norwich Limited reflects an operating profit margin of 15.05% against 6.09% of Salfror Limited, which indicates that Norwich Limited is in better condition as for the profitability for the year (Karale, U., 2020). Furthermore, Norwich Limited provides better returns on capital employed to their shareholders for the shares, as the company provides just double returns and the competitor of the company.

Efficiency of Company:

As for the efficiency of the company, Norwich Limited reflects the completion of their working operating cycles in 122 days against 179 days, which is considered by Salfror Limited to be the completion of their operating cycle (Karale, U., 2020). Norwich also gets fewer days to complete their inventory cycle and trade receiver cycle, which implies that the company is better performing as per the efficiency of production activity and business activity.

Liquidity of Company:

When it comes to the current ratio, the node outdoor with a limit is higher than Salfror's limit, but when it comes to the acid test ratio, Norwich's limit is not able to be higher than Salfror's limit, as Salfror has an asset ratio of 1.62:1 and Norwich has 1.39:1, which indicates that Salfror is more effective in repayment of their current liabilities through quick assets.

Gearing capabilities of the company:

The gearing ratio reflects the better performance of Norwich Limited, as the company had lower gearing on the capital employed and also a higher amount of profit to cover the interest charges for the year as compared to Salfror Limited.

Part C: Understanding Sales Budget Flexibility and Demand Influencers

1. Flexible Sales Budget

2. Factors affecting Demand of Product

Increase in Demand

• The price of related goods can be affected positively on demand if the price is increased for the same product and the company provides availability of the product at a lower price.
• Income changes also impact the demand of the product so if there is a positive change in the income of the customer, then they are more attracted to purchasing a product which can increase demand for the product in the market (Baqaee, D. and Farhi, E., 2020).

Decrease in Demand

• Taste and preference changes can negatively affect the demand of the product if the taste of the product changes for the product of Hamble Limited.
• Decreased prices of substitute products can also be the responsible factor for the decline in demand of the company, as the customer can switch from Hamble Limited's product to a substitute product in the market.

References

• DeFranco, A.L. and Schmidgall, R.S., 2017. Cash Budgets, Controls, and Management in Clubs. The Journal of Hospitality Financial Management, 25(2), pp.112-122.
• Karale, U., 2020. Financial Statement Analysis: Definition, Meaning and Multi-step Income Statement; Methods of Financial Statement Analysis Continued..; Ratio Analysis: Definition, Meaning, Importance and Limitations; Ratio Analysis: Types of Ratios: Liquidity Ratios and Interpretation; Turnover or Activity or Efficiency Ratios; Profitability Ratios; Solvency or Leverage Ratios; Ratio to Balance Sheet: Simple Sum on Preparation of Balance Sheet; How to Prepare Balance Sheet from Accounting Ratios: Simple and Easy Sums ....
• Haleem, A., Kumar, S., and Luthra, S., 2018. Flexible system approach for understanding requisites of product innovation management. Global Journal of Flexible Systems Management, 19(1), pp.19-37.
• Baqaee, D. and Farhi, E., 2020. Supply and demand in disaggregated keynesian economies with an application to the covid-19 crisis(No. w27152). National Bureau of Economic Research.
• Kasri, R.A. and Putri, N.I.S., 2018. Fundraising strategies to optimize zakat potential in Indonesia: An exploratory qualitative study. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah (Journal of Islamic Economics), 10(1), pp.1-24.