B100 Introduction to Business and Management Assignment Answers
• Referencing Styles: Harvard
• Course Code: B100
• Course Title: Introduction to Business and Management
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Explains the cash flow statement. This statement gives crucial insight into how cash is generated and used in the financial year leading up to the latest balance sheet. Cash is the only asset that can be used immediately to pay off debts or for sudden emergencies or opportunities, so needs to be managed very carefully. A business may have earned a large profit as shown in the income statement, but still not have enough cash available to stay in business. The accumulated or retained profit of a business (also known as capital reserves) that are invested, for example, in current assets such as inventory, or non-current assets such as machines, may not be easily or quickly converted into cash when it is unexpectedly and urgently needed.
It will introduce you to seven ratios that are the basis for analysing the financial performance and health of any business. While you will study how they apply to a particular situation, that facing Pipes & Installations Ltd, the same knowledge can be applied to any business, including the case study you will encounter in TMA 03.
The first three of these ratios assess financial performance. They address some key questions that stakeholders in a business want answers to.
1.What financial return do the owners of a business currently get for their investment?
2.How does the current return on investment compare with the previous year?
3.What is the profit or loss figure for the last financial year, and what are the different income and expenditure figures that determine this profit or loss?
4.How do these figures compare to those of the previous year?
The second four of these seven ratios assess financial health. They address other key questions that stakeholders in a business want answers to.
1.Does the business have enough current assets to pay current liabilities, such as bank overdrafts, corporation tax and payables as they fall due in the current financial period?
2.How is the business managing its inventory and its receivables in order to ensure that these two crucial current assets are used sensibly and efficiently to sustain and grow the business?
3.How much long-term debt does the business have compared to its net worth, also known as its total capital or equity?
Long-term liabilities, like current liabilities, have to be paid irrespective of the business’ ability to make profit and to generate cash. The greater the business depends on long-term debts such as bank loans, the greater the risk the business takes with respect to its future survival. A limited company, such as Pipes & Installations Ltd and the one you will encounter in the TMA 03 case study, only needs to pay dividends to its owners or shareholders when it chooses to. It will, however, have to pay the bank interest on its loan every year, irrespective of whether it can afford it or not.
or any business situation, such as the one in your TMA 03 case study, the answers to the seven financial ratios might reveal areas of the business that need specific actions to be taken to improve financial performance and health. Such actions should be expressed in specific goals that need to be properly identified and managed. These might include:
• reducing certain significant expenses by a planned amount because they have got out of control
• investing in advertising by a planned amount to generate sales revenue
• investing in new software by a planned amount to reduce administrative expenditure
Reducing the amount owed by customers by a planned amount by employing a credit controller