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

Financial Decision - Making - Assignment ExampleFor example, it would not have enough cash to turn over creditors the 180,000 due in October, to give birth 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 short letter during the period. The beginning cash balance includes the 30,000 in cash on 30 September 2006. The beginning and terminus 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 dismission (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 paym ents for activities required to generate the sale, to which we add agents commissions, direct (flight and hotel) and varying 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 followsSummary from Table 3BALANCE SHEET31-Mar-0730-Sep-06Fixed Assets568,000 560,000 Current Assets(40,000)30,000 Trade Creditors0 (180,000) Loans(90,000)(110,000)Total net assets438,000 300,000 Share capital100,000 100,000 Reserves200,000 200,000 Profit and Loss138,000 Tot al shareholders cash in hand438,000 300,000 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 lavatory be booked as advances from owners that need adjustments (as a current liability or additional equity). We have also added the net