AE1 Budget report Understanding Finance Assignment Sample

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AE1 Budget report Understanding Finance Assignment

Part A

01. Cash Budget for Hamble Limited

02. 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 company provided payments to their welder within 30 days which was negative cash outflow for the business activity (DeFranco, A.L. and Schmidgall, R.S., 2017). In the month of May and June, there are additional post occurs which indirectly effect on the cash flow due to less cash available for the company to operate their respective it so it is suggested that company rating on their credit policies and also ignore any potential cash investment in the business for a certain time to be a stable liquidated status.

03. 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 requirement of the company.

  • Issue of Shares
    • Advantage – Issues of shares helps the company to generate major source for their financial liabilities without any additional financial risk or Interest Cost on business activities.
    • Disadvantages – Issues of share major effect 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 issue of debenture they are required on the minimum interest rate for a long term period so if someone is looking for long term borrowings from the market on a lower interest rate then they can go for the directors as this can be the advantage for the company which can be used by Humble limited (Kasri, R.A., and Putri, N.I.S., 2018).
    • Disadvantage - Debenture can be the effect on the initial cost of the company which increased 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 loan and working capital loans are the short term 12 in which helps management in Saturn down their emergence libraries for celebrities for their business activity and also help 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 on the short term period for a higher interest rate which is a measure and disadvantage of term loans and working capital loans.
  • Venture Funding
    • Advantages - Venture capital can be the funding option that can provide expansion of business activities that did not require any kind of collaterals 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 balance cash flow and also provides additional capital funding with low capital expenditure
    • Disadvantages - Lease Finance comes with limited furniture benefits and also certain please expenses which companies need to wear from time to time for their business activities.

04. Impact of Raising Fund through Shares

Here are some of the Key Advantages and Disadvantages are mentioned below for a better understanding of fundraising through the Issue of shares.

Advantages –

  • Issue of shares can be the WIN-WIN Condition for both as the company had funded for business activities and investor attracts return on their investment.
  • Share 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 creditor or debenture holders can do at the time of bankruptcy.

Disadvantages –

  • 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 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

01. Financial Ratio Analysis

02. 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 is indicates that nor Norwich limited all 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 provide just double returns and the competitor of the company.

  • Efficiency of Company

As for the efficiency of the company, Norwich limited reflects the complete their working operating cycles in 122 days against 179 days which is considered by Salfror limited to complete 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 node outdoor with limited is higher than Salfror limited but when it comes to acid test ratio Norwich limited is not able to be higher than Salfror limited as Salfror Limited has an asset ratio of 1.62: 1 and Norwich have 1.39:1 which indicates that Salfror is more effective in repayment of their current libraries 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

01. Flexible Sales Budget

02. Factors affecting Demand of Product

  • Increase in Demand
    • 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 income of the customer then they are more attracts to purchase a product which can increased demand for the product in the market (Baqaee, D. and Farhi, E., 2020).
  • Decrease in Demand
    • Taste and preference Changes can negatively be affected to the demand of the product if the taste of the product changes for the product of Hamble Limited.
    • Decreased in the price 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.
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