• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Impact of Finance on Business Decisions (Working Capital)

Extracts from this document...

Introduction

Impact of Finance on Business Decisions Task B Introduction The business which I will be looking into for its finances will be Dudley Hotel, as this is a well known business I have known for couple of years. Dudley Hotel is a private limited company as profits and limitations are all the owners. The owner has many current assets along with current liabilities which he has taken out to support his business. Also in my report I will show a diagram of Dudley Hotels Ratio. Also I will show an understanding of the working capital to see if the capital management is adequate. I will compare the two working capitals from the present year and previous to see how the business is doing. Working Capital Working capital is a valuation metric that is calculated as current assets minus current liabilities. Also known as operating capital, it represents the amount of day-by-day operating liquidity available to a business. A company can be capable with assets and profitability, but short of liquidity, if these assets cannot readily be converted into cash. ...read more.

Middle

Also the business can easily turn this amount into cash if not already. Dudley Hotel also has a current liability which it uses to pay off its creditors which need paying for purchases which have been made. Dudley Hotel Cash Flow Dudley Hotel Ratio Current Assets Debtor Collection Period 52.14 Days Stock (Opening) �20,000 Bank �5,400 Debtors �5,000 Total �14,000 Creditor Payment Period 243.33 Days Current Liabilities Creditors �10,000 Current Ratio 1.4:1 Total �10,000 Acid Test Ratio 1.1:1 Working Capital �4,000 Stock Turnover 1.83 Times Sales �35,000 Purchases �15,000 Stock (Closing) �15,000 Cost of Sales �32,000 (Diagram 1) What the Ratio's Show? From seeing the ratio figures in diagram 1 it shows us a better view of where Dudley Hotel is with paying back debtors and receiving payments from creditors. The "Debtor Collection Period" shows us that Dudley Hotel has 52.14 days to receive any debtors it has with any business. This figure is how many days the business has to pay back the money without it having any hassle, but if finances are not paid within this time limit then it could face severe penalties. ...read more.

Conclusion

From the cash the labour (employee's) are paid also with other purchases which are needed, after it is put into stock for customers to view, with Dudley Hotel it would be its bedrooms and services. Sales would be made which would lead to debtors and probably some cash towards the business. Evaluation of Managing Working Capital Working capital can be improved by increasing the rate of stock turnover and cutting back on debtor days. Within each of these categories there is a multiplicity of strategies, e.g. eliminating slow moving lines, offering discounts, prompt billings, charging penalty interest, etc. Another major source of working capital finance is creditors. Creditors can effect the finance operation without the owner being called upon to commit any of his own funds. In this way, goods can be bought on credit and be sold before the creditor has to be paid. In practice, strict control has to be kept on creditors and the type of stock that is purchased so that the working capital relationship is not eroded, thereby losing its effectiveness. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level People & Operations Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level People & Operations Management essays

  1. recruitment at the Marriott Hotel

    the Marriott's time checking through the applications of people who weren't up to the job. It is very important that the right person goes for the job that suits them because there is no point in an applicant going for a job where they need good qualifications and them not having the qualifications needed for the job.

  2. Tesco & NHS Business Introduction

    are met directly from general taxation from the government. NHS Structure This is a structure of the NHS, because it if funned by the government it will start with a government company which is the Department of health, then comes secretary of state for health. Then comes Strategic Health Authorities., and last comes primary care trust.

  1. Presenting Business Information

    This would obviously mean that the meeting would not take place, which in result is not beneficial to both parties. Fax (or facsimile) machines: This method allows the manager to send out the detail information between businesses or through the employees by using a telephone network.

  2. The main aim of this research is to evaluate the information on the human ...

    influence over the administration towards the strategic role during the way of becoming more strategic. The human resource's ability and skills are built up by the good administrative work. These human resource ability remains to be foundation so that the strategic influence in the organization is built up (Galford, 1998)

  1. Teamwork. There are several reasons why a business may organise their staff into teams. ...

    This management style would help to lead an effective team as it will motivate the employees, giving them a sense of responsibility and recognition. An example of when management has de-motivated its staff is at Principality.

  2. Unit 13 Applied Business

    Have over 100 attendees and supply great customer service. The objective is to have over 100 attendees; this will allow us to see how well our advertising techniques were used. In addition it is imperative to have good customer service throughout the function.

  1. Team working

    In my role as a Resources Investigator - I will be probably the most immediately likeable members of the team. My job is to keep good at communicating with people both inside and outside the company. This job is natural negotiators and adept at exploring new opportunities and developing contacts.

  2. Motivation within a workplace - examples from Asda.

    A hierarchical structure has many levels. Each level is controlled by one person. A hierarchical company tends to be a very big company just like ASDA is. In a hierarchical instructions are generally passed down from one person to another until it gets to the bottom of the hierarchical structure.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work