Financial Decision - Making Assignment Example | Topics and Well Written Essays - 2000 words

Financial Decision - Making - Assignment Example For example, it would not have enough cash to pay creditors the 180,000 due in October, to pay the salaries of staff on time until perhaps January 2007 when a cash inflow of over 1 million is expected, and even to pay its promotional expenses. Note from Table 1 that the 42,000 depreciation, since it is not a cash transaction, is not included in the cash forecast as an outflow from the business during the period. The beginning cash balance includes the 30,000 in cash on 30 September 2006. The beginning and end balances reflect the cash balances at the start and end of the month. If the cash forecast showed a negative amount, how could there be a net profit at the end of the period The answer is that the Profit and Loss (P&L) Report captures the business activity during the period, which is profitable (note the gross and net profit margins of 6.3 and 4.6 percent respectively). The cost of sales includes payments for activities required to generate the sale, to which we add agents' commissions, direct (flight and hotel) and variable costs, administrative overhead, and penalties if booking target volumes of 10,000 holidays are not reached. Two cash transactions are not in the P&L because they refer to past business activities (like paying a 180,000 loan in October 2006 and the 20,000 principal for a previous loan by March 2007) or investments (fixed asset investment of 50,000 in March 2007) that will generate returns over the coming years. Loan repayments and investments in fixed assets are balance sheet transactions and not included in the P&L. The Balance Sheet as in Table 3 before adjustments on 31 March 2007 is as follows: Summary from Table 3 BALANCE SHEET 31-Mar-07 30-Sep-06 Fixed Assets 568,000 560,000 Current Assets (40,000) 30,000 Trade Creditors 0 (180,000) Loans (90,000) (110,000) Total net assets: 438,000 300,000 Share capital 100,000 100,000 Reserves 200,000 200,000 Profit and Loss 138,000 Total shareholders funds: 438,000 300,000 The balance sheet includes figures from Tables 1 and 2 and shows where profits during the 6-month period were used. The negative cash flow of 40,000 from our cash forecast is included as current assets column. This overdraft can be booked as advances from owners that need adjustments (as a current liability or additional equity). We have also added the net