Executive Summary of Business Finance

                Modern Garden Designs operates different factories in the city of Manchester. In the past year the organization generates the revenue of £220 million. The client of the organization include different retailers that are present in European Union and United Kingdom. In recent years the amount of debt has increased which means the liability of the organization has also increased significantly. The analysis of the Modern Garden Design organization shows that there is lot of room for improvement in the profitability and managing the working capital of the organization. The rising amount of debt is a matter of concern for the organization because the amount of debt has to be return and if the amount of debt becomes too much than the organization can suffer from insolvency.

Profit of Business Finance    

        The profit is that amount which the organization generates from deducting all the expenses of the organization from the sales revenue of the organization. The profit of the organization also known as net income. It is important for the organization to generate profit because profit is required to sustain in the long run and providing significant amount of return on the investment of the investors. The profitability of the organization determine the success and growth of the organization. Organization use the amount of profit to expand their current business activities or improving their current operations. An organization who does not generate profit cannot become successful at all (Robinson, et al., 2015).

Cash flow of Business Finance

        Cash flow is that amount of money which flows in & out of the organization due to its operational activities, investing activities or performing financing activities. Organization needs cash to meet their daily expenses or for the payment of short term loans. If the organization is not generating significant amount of cash flow than it means that the organization will unable to meet it short term obligations. An organization can be profitable without having enough cash flow. It is important to maintain the significant amount of cash in the organization otherwise financial issues can arise which can lead to insolvency

Difference between Profit & Cash flow of Business Finance

        There is different between the cash flow and profit of the organization. Both financial parameters are highly important for the organization and organization should focus both of them if it wants to achieve success. The amount of profit comes after deducting the expenses from sales revenue. Whereas the cash Flow is the amount of cash which organization generates from various activities and kept in the organization so that it can pay its short term obligation. Having significant amount of cash Flow and profit is important to run the organization efficiently otherwise organization can face serious consequences like insolvency (Robinson, et al., 2015).

Working Capital of Business Finance

        Working capital can be defined as a difference between the current liabilities and current assets of the organization. The current assets of the organization include cash, raw material, account receivable and inventories. The current liabilities of any business include accounts payable and other short term obligations. The working capital of the business determine the operational efficiency of the organization. Through working capital of the organization it can be known whether the organization have enough resources to pay its short term loans or not. In simple words the working capital is the measure of liquidity of the corporation (Pandey, 2015).

Receivable of Business Finance

            The account receivable are included in the current assets of the organization. The account receivable are those clients of the businesses who have purchased goods on credit and will pay amount on the upcoming future date. The aim of the organization is to collect the account receivables as soon as possible so that no financial issue can occur. However sometimes bad debts occur because some of the customers unable to pay for the goods which they have purchased. It is important for the business to collect the account receivables efficiently otherwise the financials of the organization might get disturbed (Pandey, 2015).

Inventory of Business Finance

        The inventory includes the amount of material or the finished goods which the organization produce. Today many inventory management software are used to manage the inventory of the organization so that organization would only kept that amount in the inventory which required by the organization. If the inventory is not managed appropriately than the cost of the organization can increase. The inventory turnover ratio shows how much stock organization is selling. The high inventory turnover ratio indicate that the organization is selling huge amount of sales. If the inventory turnover ratio is low it means that business is unable to generate sales (Melville, 2017).

Payables of Business Finance

        The accounts payable is that amount which the business has to pay to the other organization or individual the accounts payable are usually included in the current liabilities. The business have to pay the amount of payables as soon as possible so that it can meet its short term obligations efficiently. If the organization is not going to focus on its short term obligations than organization might loss its reputation or good will. The goodwill of the business is created when the organization pay its account payable on time. Through this the business easily give goods on credit in future

Working Capital effect on Cash flow of Business Finance

        As discussed earlier the working capital is the difference between current assets & current liabilities. The business will generate positive working capital when the amount of current assets are more than the amount of current liabilities. It means that the organization would have enough cash to pay its short term obligations (Melville, 2017).On the other hand the negative working capital occurs when the organization’s current liabilities are more than the current assets of the organization. In this situation organization will face difficulty in payment of short term loans. The working capital does have impact on Cash flow which can be understood from various business activities. For instance if the organization purchase machinery than the cash flow of the organization will decrease because purchase of machinery would result in cash outflow

How the company is managing its financials of Business Finance

        Modern Garden Designs operates different factories in the city of Manchester. In the past year the organization generates the revenue of £220 million. The client of the organization include different retailers that are present in European Union and United Kingdom. In recent years the amount of debt has increased which means the liability of the organization has also increased significantly (Watson & Head, 2016). Moreover the ongoing dispute regarding to the consignment is also causing problem for the organization. On analyzing the situation of the organization it can be said that the organization needs to manage its working capital efficiently in order to improve the performance of the organization. It is evident that the organization current performance with respect to accounts receivable, inventory and accounts payable is not satisfactory at all (SINHA, 2012).

Analysis & Recommendation of Business Finance

        The analysis of the Modern Garden Design organization shows that there is lot of room for improvement in the profitability and managing the working capital of the organization. The rising amount of debt is a matter of concern for the organization because the amount of debt has to be return and if the amount of debt becomes too much than the organization can suffer from insolvency. It is recommended to the organization to reduce its level of debt and optimize its capital structure. It is recommended to use inventory management software so that inventory can be managed accurately and cost of the organization can become less with the passage of time.

Executive Summary of financial ratio analysis

            The financial ratio analysis provide brief overview regarding the financial position of the organization. The financial ratio analysis critically explains the profitability, liquidity, efficiency and financial leverage of the organization. The financial ratio analysis helps the top management to take rational decision. Over the years the liquidity ratio of the organization has decreased. It is recommended to the organization that it should maintain enough cash from which it can pay short term loans. The current liquidity ratio is lower than required current ratio. . The gearing ratio of the corporation is not more than 50% which is a good thing. However the decreasing interest coverage is a matter of concern for the organization.

Financial Ratios

        The financial ratio analysis provide brief overview regarding the financial position of the organization. The financial ratio analysis critically explains the profitability, liquidity, efficiency and financial leverage of the organization. The financial ratio analysis helps the top management to take rational decision. Through ratio analysis it is known how the organization is managing its resources and whether the organization have enough cash to for operating activities. The financial ratio analysis of the Glow Sheets Ltd is performed to evaluate the financial condition of the organization. The financial statements of the organization are thoroughly analyzed for calculating the ratios

Profitability Ratios

        The profitability ratios of the organization provide brief overview regarding the profitability condition of the organization. Thorough profitability ratios one can determine how much profit is the organization is generating. The good profitability indicates growth and expansion of the business. The profitability ratios of GlowSheets Ltd indicates that the organization is generating significant amount of profit. In the year 20X9 the corporation has generated 30% operating profit. However over the next years the profit has decline up to 10.66% which is not a good sign. The profitability of the organization is showing downward trend in profitability. It is suggested that the organization should focus on its revenue so that it can increase its profitability. The gross profit of the organization has also decreased from 64% to 59.25%

Return on Equity

Return on capital employed

        The return equity is also used to measure the profitability of the organization. It can be seen that in 20X9 the corporation has provided 26.07% return over the equity which is a sign that the organization has generated significant amount of profit. In the upcoming years due to decrease in profitability the organization unable to pay higher amount of return on the equity. It means that the profitability of the organization have impact on shareholder wealth maximization. The reason for decrease in profitability is the increase in amount of expenses of the organization. If the organization is going to manage its expenses efficiently it can increase its profitability (Higgins, 2007).

Liquidity Ratios of financial ratio analysis

The liquidity ratios of the organization shows how much cash organization has to pay for short term obligations. The liquidity ratios of GlowSheets indicates that the organization have significant amount of cash to pay its short term obligations. In the year 20X9 the organization current ratio was 2.25. However over the years the liquidity ratio of the organization has decreased. It is recommended to the organization that it should maintain enough cash from which it can pay short term loans. The current liquidity ratio is lower than required current ratio

The gearing ratio of the organization shows the financial leverage. The gearing ratio of the corporation is indicating that the debt condition of the organization is stable. The gearing ratio of the corporation is not more than 50% which is a good thing. However the decreasing interest coverage is a matter of concern for the organization. The lowering interest coverage ratio indicates that the organization is facing difficulty in interest payment and if the organization did not focus on its financial condition then it can face insolvency condition

Revenue or sales of the corporation are growing with rate of 10%. The sales growth rate of the corporation is pretty good and organization have the opportunity to generate significant amount of profit. The organization will have to focus on its profitability and expenses so that after generating revenue the organization will able to generate profit. Moreover there is also need to improve the cash flow of the organization (Atrill, 2014).

Financial Statements of financial ratio analysis

Income Statement of financial ratio analysis

In the above table the income statement of the corporation can be seen. It is evident that the operating expenses have increased up to lot of extent which causes decrease in the amount of profit (Atrill, 2014).

Balance Sheet of financial ratio analysis

        In the above table the balance sheet of the organization can be seen which is depicting the assets and liabilities of the corporation. Both Assets and liabilities have increased significantly over the three year period.

Analysis & Recommendation of financial ratio analysis

        Over the years the liquidity ratio of the organization has decreased. It is recommended to the organization that it should maintain enough cash from which it can pay short term loans. The current liquidity ratio is lower than required current ratio. . The gearing ratio of the corporation is not more than 50% which is a good thing. However the decreasing interest coverage is a matter of concern for the organization. The lowering interest coverage ratio indicates that the organization is facing difficulty in interest payment and if the organization did not focus on its financial condition then it can face insolvency condition.

        The profitability of the organization is showing downward trend in profitability. It is suggested that the organization should focus on its revenue so that it can increase its profitability. The gross profit of the organization has also decreased from 64% to 59.25%. The reason for decrease in profitability is the increase in amount of expenses of the organization. If the organization is going to manage its expenses efficiently it can increase its profitability. The organization will have to focus on its profitability and expenses so that after generating revenue the organization will able to generate profit. Moreover there is also need to improve the cash flow of the organization.

References of financial ratio analysis

Atrill, P., 2014. Financial Management for Decision Makers. 7 ed. s.l.:Pearson Higher Ed.

Higgins, 2007. Analysis for Financial Management. s.l.:Tata McGraw-Hill Education.

Melville, A., 2017. International Financial Reporting: A Practical Guide. 6 ed. s.l.:Pearson Higher Ed.

Pandey, I., 2015. Financial Management. s.l.:Vikas Publishing House.

Robinson, T. R. et al., 2015. International Financial Statement Analysis, Third Edition (CFA Institute Investment Series). 3 ed. s.l.:John Wiley & Sons.

SINHA, G., 2012. FINANCIAL STATEMENT ANALYSIS. s.l.:PHI Learning Pvt. Ltd.

Watson, D. & Head, A., 2016. Corporate Finance: Principles and Practice. 7 ed. s.l.:Pearson Higher Ed.