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In this assignment I will be explaining in detail the importance of cash flow, working capital, costs, budgets and breakeven in selected business and also why it is used in selected businesses.

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Introduction In this assignment I will be explaining in detail the importance of cash flow, working capital, costs, budgets and breakeven in selected business and also why it is used in selected businesses. In addition all of these factors will help my client make her final decision. Task 1 Cash flow Cash flow is the amount of money that is being spent or received by a business over a period of time. The extent of the cash flow can be used to measure several things such as: Evaluating the performance of a business Determine problems with liquidity To generate projects Returns on the ratio of money gained or lost on an investment relative to the amount of money invested. Examine the growth of a business. Cash flow can be classified into different categories Operational Cash flow - This is the cash received or cash outgoing as a result of the business activity. Investment Cash flow - This is cash that has been received or spent due to investment. Financing Cash flow - This is cash received or expended as a result of financial activities, such as receiving or paying loans, issuing or repurchasing stock, and paying dividends. For Cadbury Schweppes cash acts as their lifeline, it is the one aspect that allows the business to survive. The amount of cash that Cadbury Schweppes throws away shows how healthy it is. In order for Cadburys to have the best possible chance of survival they need to have sufficient control over the cash flow that is going into and out of the business. Cadburys will obviously want more cash going into the business than out but for them to ensure that is the case they will need to have a good grasp of the cash flow. These are some examples of cash going into Cadbury Schweppes. � The payment for goods/services from their customers � any bank loans that they might have taken out � the interest that they collect on savings and investments � ...read more.


Profitability Ratios Return on total assets ratio: Return on Total Assets (ROTA) = PBIT * 100 Total Assets For Cadbury Schweppes the ratio will be Return on Total Assets (ROTA) = 924000 * 100 7867000 = 11.7% Dividends payout ratio The payout ratio provides an idea of how well earnings support the dividend payments to the shareholders. More established companies will tend to have a high payout ratio. Dividends payout ratio is calculated as: Dividends / Net income For Cadbury Schweppes -240000 / [21] Return on capital employed The most useful indicator of how well a business has performed is the return on capital employed (ROCE). This ratio compares the profit made in a year to the size of the business, as shown by the value of the funds invested funds and the significance of the level of profit relative to the size of the business. ROCE is calculated as: Operating profit / Capital employed x 100 = % ROCE 924000 / 3286000 x 100 = 28.119 = 28% A figure of 28 per cent means that for every �1 of funds used by carphone warehouse, 28p profit has been earned. Some of this will have to be paid in tax, some may be paid in dividends to shareholders and some may be retained. This indicates a return of funds borrowed or invested, so the higher the ROCE the better. For me to know if 28% indicates a good performance I will compare it to the previous year's ROCE to see if it has increased. ROCE is calculated as: Operating profit / Capital employed x 100 = % ROCE 888000 / 3183000 x 100 = 27.898 =27% After comparing the ROCE of 2007 to the ROCE of 2006 I can see that the ROCE of 2007 indicates a good performance because the previous year had a lower ROCE. Gross and net profit margins To help a business understand how and why it earned the profit it did, it can examine its profit and loss account more closely. ...read more.


The production budget also estimates the various costs involved with manufacturing those units, such as labor, material, and other expenses. The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps Cadbury Schweppes determine when income will be sufficient to cover expenses and when the company will need to seek outside financing. The problems with budgets are that they are estimates and not 100% accurate. The execution of a budget is not automatic lots of procedures must be made. Budgets cannot take the place of good management and most of all good budgeting requires a lot of time and patience. Breakeven analysis Breakeven analysis provides Cadbury Schweppes simple means of measuring profits and losses at different levels of output. Sales revenues and total costs are analysed for each different level of production. The analysis is done on a break even chart. Cadbury Schweppes can use break even analysis to calculate the minimum amount of sales required in order to be able to break even. To see how changes in output, selling price or costs will affect profit levels. Cadburys will also be able to calculate the level of output required to reach a certain level of profit and to aid forecasting and planning. The limitation of break even analysis is that its accuracy depends upon the accuracy of the data used. Forecasting the future will be very difficult for Cadbury Schweppes, especially in the long term. It assumes there is a simple relationship between variable costs and sales. Sales income does not necessarily rise in a constant relationship to sales volume. In addition external constraints have to be recognised. Merit 2 [21] I did not know how to find the Net income [22]How do I explain this? [23]What should I write about this? [24] I cannot see the long term liabilities in the balance sheet. ?? ?? ?? ?? BTEC National Award in Personal and Business Finance Autumn Term 2 Tunji Alli ...read more.

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