BTEC LEARNER ASSESSMENT SUBMISSION AND DECLARATION

When submitting evidence for assessment, each learner must sign a declaration confirming that
the work is their own.

Learner Name: Fotima Khusanova

Assessor Name: Hıkmatulla Fayzullaev

BTEC Programme Title: Pearson BTEC Internatıonal Level 3 Busıness

Enterprıse and Enterpreneurshıp
Unit or Component Number and Unit 3: Business Finance
Title:

Assignment Title: Efficient use of financial planning tools and

financial statements
Date Assignment Submitted: 22.01.2022

Please list the evidence submitted for each task. Indicate the page numbers where the evidence
can be found or describe the nature of the evidence (e.g. video, illustration).

Assignment task reference Evidence submitted

https://www.thebalancesmb.com/cash- About Cash Flow Analysis
flow-analysis-for-small-business-
owners-2947137.
https://smallbusiness.chron.com/risks-
bakery-61962.html. Risks of a sole trader

Learner declaration

I certify that the work submitted for this assignment is my own. I have clearly referenced any
sources used in the work. I understand that false declaration is a form of malpractice.

Learner signature: Date: 22.01.2022

Student ID: 6363 1

Table of Contents

1.0. Introduction...................................................................................................................2

2. Research Methodology....................................................................................................3

3.0. Cash flow and break even analysis...............................................................................4

4.0. Financial statements.....................................................................................................6

5.0. Financial ratios.............................................................................................................8

5.1 Conclusion.....................................................................................................................9

Reference list.....................................................................................................................10

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1.0. INTRODUCTION

From this report, I chose a sole trader business that specializes in cake production and/or sales.

They produce and sell wedding cakes, sweets, as well as other dessert products under the name

of cake. Fays cakes were first produced in 2020. The business started in the rented kitchen.

The business itself produces and sells wedding cakes, and the number of employees is only 4

people. This means that as a small business person, we always have the opportunity to run a

successful cake business. It is clear that sole enterpreneurs do not have to report to a

government agency (like Companies House for limited companies). However, they must

prepare an annual balance sheet and profit and loss account. Throughtout this report, I will

analyze financial statements and several types of financial ratios.

2. RESEARCH METHODOLOGY

In the primary research, I did some surveys about the company. My brother helped me during

this survey because the business which I chose belongs to my brother. Using information about

the company, I also learned whether its economic situation contributed to or hindered its

success.

In the secondary study, I used official statistics, as well as various websites, magazines and

books. However, a lot of my data is taken from the Google platform.

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3. RESEARCH FINGDINGS

Cash flow is the movement of money within and outside a company. Cash received represents

revenue and expenditure represents expenditure. A cash flow statement is a financial statement

is a financial statement of a company that reports on cash sources and their use over a period of

time. A company’s cash flows are typically classified as cash flows from operations, financing

and investments. Several methods are used to analyse company’s cash flow, including free cash

flow, debt service ratio and cash flow. They can also sell products on credit, hoping to earn

income from interest, royalties, investments and license agreements and get a loan at a later

date. A break-even analysis involves calculating and verifying a safety margin for an

enterprise based on the revenue generated and the associated costs incurred. In other words, the

analysis shows how much sales need to be made to pay for running the business. By analysing

the different price levels that apply to different levels of demand, a break-even analysis

identifies what sales rate is needed to cover the company’s total fixed costs. Demand analysis

also provides important information to the seller about sales opportunities. A common features

of sole trader cash flows is that they do not have a steady income. Some months, especially

when offering seasonal products and services, record higher revenue than other months.

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Opening $ - $ 40 300 $ 48 200 $ 47 350
balance
Sales inflows $ 51 800 $ 17 100 $ 11 650 $ 42 600
Total Cash in $ 51 800 $ 57 400 $ 59 850 $ 89 950
Material $ 28 100 $ 26 900 $ 31 600 $ 28 400
Wages $ 4 000 $ 5 300 $ 6 140 $ 5 560
Other Expenses $ 11 680 $ 10 200 $ 13 600 $ 11 240
Total Cash out $ 11 500 $ 9 200 $ 12 500 $ 12 800
Closing Balance $ 40 300 $ 48 200 $ 47 350 $ 77 150

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Cash flow analysis examines the components of a business that affect cash flow, such as

receivables, inventory, accounts payable, and credit terms. By performing a cash flow analysis

on these individual components, we can more easily identify our cash flow problems and find

ways to improve cash flow. For example, if we look at the cake business, it is quick and easy

way to analyze cash flow is by comparing the total amount of your unpaid purchases with the

total sales you have to pay at the end of each month. Cash flow analysis is especially important

for the cake business I have chosen, where increased capital costs, high labor costs, new

equipment purchases, and increased inventory require large amounts of cash flow, while sales

in the growth phase and calculates the availability of cash.

3.3. BREAK EVEN ANALYSIS

Units Revenue Fixed cost Variable cost Total cost Profit
10 $ 125,00 $ 175,00 $ 55,00 $ 230,00 $ -105,00
15 $ 187,50 $ 175,00 $ 82,50 $ 257,50 $ -70,00
25 $ 312,50 $ 175,00 $ 137,50 $ 312,50 $ 0
35 $ 437,50 $ 175,00 $ 192,50 $ 367,50 $ 70,00
45 $ 562,50 $ 175,00 $ 247,50 $ 422,50 $ 140,00
55 $ 687,50 $ 175,00 $ 302,50 $ 477,50 $ 210,00
65 $ 812,50 $ 175,00 $ 357,50 $ 532,50 $ 280,00
75 $ 937,50 $ 175,00 $ 412,50 $ 587,50 $ 350,00
85 $ 1 062,50 $ 175,00 $ 467,50 $ 642,50 $ 420,00
95 $ 1 187,50 $ 175,00 $ 522,50 $ 697,50 $ 490,00

Selling Material Total varaible Contribution Break enen

Labour cost
Price cost cost margin point in units
$ $
26,00 $ 4,00 $ 15,00 $ 19,00 7,00 25,00

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As we can see in the table above, the business I have chosen will have to make 25 cakes to get rid
of the loss, if it makes more cakes than planned (25 units), her business will be profitable. So,
Fays mus t sell 25 cakes to break-even.

3.4. ANALYSIS OF CASH FLOW FORECAST AND BREAK EVEN CHARTS

This is why cash flow management is so important. By compiling cash flow reports at regular

intervals, they will be able to track all cash flows in their small business. As their business

grows, it will be possible to compare cash flows over time to ensure that they are developing

their business properly and maximizing all the opportunities that come their way. You will

also be able to find out if cash is hidden in the business and how to access it. Along with the

income statement and balance sheet, the cash flow statement also helps determine the financial

condition of their business. Sole traders need to understand decontamination analysis as it helps

them choose the best pricing strategy and make decisions about the short or long-term

profitability of their products. To avoid the risks in the cake business, I created my own break

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even charts. Throughout my calculations, I have clearly understood that if it produces a cake

in numbers below break-even point (25), this figure will be less than the total cost and will

cause great damage to the business. If it sells 26 cakes, it will make $7 profit, because after

break-even has been reached, the contribution per unit no longer has to contribute towards

fixed costs and therefore becomes profit. So, it sells 100 cakes, the profit will be 0.5 times

higher than total cost.

4.0. FINANCIAL STATEMENTS

Statements of comprehensive income is a report that contains information on income, losses or

expenses of sole traders, which is not carried out in the preparation of financial statements for

the reporting and is presented after net profit.

Statement of Comprehensive Income for the year ended 30 November 2021, Fays

$ $
Sales 259 000,00
Less Cost of Good sold
Opening
Inventory
Purchases 115 000,00
Closing Inventory 16 200,00 98 800,00
Gross Profit 160 200,00
Less Expenses:
Salaries 21 000,00
Advertising 6 300,00
Rent 15 600,00
Insurance 1 200,00
Telephone 1080,00
Packing 10 000,00
Lighting and 12 540,00
heating
Total Expenses 67 720,00
Net Profit 92 480,00

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The following above table shows that the cake business earned $259,000 from product sales.

The business spent money on various expenses like rent, advertising, heating and lighting

expenses, packing , with a total cost of $67,720. Then to calculate its net profit, we subtract its

total expenses from the proceeds from the sale of the product so that we have a net profit of

$92,480.

Statements of financial position , also known as an income statement or sales account,

calculates the results of income activities for a specific period such as a year, quarter or month.

The net income of a sole trader is the amount of income that exceeds the expenses of that

period. However, if the costs exceed the income, the sole trader will suffer a net loss. Income is

an increase in the business of owners from services or the sale of goods. This balance sheet or

statement of financial position provides a statement of an entity at a particular time. The

financial position of the cake business is reflected in the amount of assets it owns, its liabilities

and the amount of equity of the owner. The following is an example of a cake business’s

consolidated operations report or income statement for the years ended November 30, 2021.

Let’s take a closer look at P&L first and then read its distribution below. We know very well

that in order to calculate assets ($206,400), it is necessary to add capital ($126,400) to

liabilities ($80,000). If the numbers turn out to be the same as the assets, we will have

calculated correctly.

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Statement of Financial Position for the year ended 2021, Fays

Non current Assets $ $

Kitchen equipment 120 000,00 120 000,00

Current Assets
Debtors 46 000,00
Cash at Bank 14 500,00
Cash at Hand 9 700,00
Stock available 16 200,00 86 400,00
Total Assets 206 400,00
Non current Liabilities

Current liabilities
Creditors 80 000,00
Capital 40 000,00
Add retained profit 92 480,00
Less Drawings 6 080,00
Total Liabilities and Equity 206 400,00

5.0. FINANCIAL RATIOS

Profitability Liquidity Efficiency

Gross profit margin Current ratio Trade Receivable

6% 1,08 65 days

Mark Up Acid Ratio Trade Payables

2% 0,87 112 days

Net Profit margin Inventory turnover

1% 60 days

Return on Capital Employed Average inventory

11% 16 200,00

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There are several key areas that can help increase profitability, which include increasing

turnover, reducing costs, increasing efficiency and increasing labor productivity. We will also

need to expand new market sectors in cake business or develop new products or services. Ways

to increase the liquidity ratio of any business include the payment of liabilities, the optimal

management of payables and receivables, the use of long-term financing and the reduction of

certain costs. To run a successful business, you need to be an efficient and well-organized

business. When asked how a company can increase efficiency, it can be said that there are

simple ways to increase efficiency in a number of areas of business including: service

distribution and customer. The role of the customer is the most important in any business. By

listening to what people have to say about the cake business and its products, it will be possible

to significantly improve the service the business provides.

Firstly, if we consider the ratio od gross profit as a percentange of sales turover for the cake

business, it shows how much gross profit is left for every $1 sold after deducting the cost of

goods sold. Gross profit is 6 percent, which means 6p gross profit remains for every $1 sold.

We can consider mark-up profit as a percentange of sales value. This indicates what

percentage of the selling price must be added to achieve the selling price. For example if the

price of raw material used to make the cake is $15 and we need 2 per cent premium. Then the

product would have to sell for $15,3. Net profit margin can also be considered as a share of net

profit in sales turover. This shows how much of it will remain as net profit after all expenses

are deducted for every $1 that comes out of the sale. So in the cake business, 1 per cent net

profit remains as 1 cent net profit for every $1 sold, but I think that is not a very good

indicator. ROCE indicates the interest income it receives from the capital used to generate that

income in business organizations. It shows how much interest is returned for dollar invested in

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the cake business (owners’ capital or retained aernings). An 11 percent ROCE means that 11

cents will be produced as a net profit for every dollar invested in the business organization. The

current ratio means that for every $1, the cake business owes short-term debt and it owns $1.08

in current assets. It also indicated that the business entity has sufficient liquidity to cover short-

term debt. The acid ratio means that for every $1 that the cake business owes on short-term

debt, it has only 87 cents (current assets other than inventory) in its liquid assets. This is not a

good indicator because the business will not be able to repay its short-term debts if immediate

payment is required. Trade receivables days means that it takes a customer 65days to pay for

their purchases. It is long payment terms for cake business. Trade payables mean that the

business organization pays its suppliers in 112 days. Inventory turnover means that, on

average, a business converts or sells its inventory once every 60 days. Gicen that this is a cake

business, I mean, it is not a good indicator.

5.1 CONCLUSION

To sum up, the cake business is very successful. If someone is looking for a profitable

business, this business will help them. Interestingly, women too can start this business at

home. A sole trader concern is an interprise that is invested and managed by one person, in

which the sole trader assumes all the risks and responsibilities for the business. The business

benefits a person and the damage is covered by a person.

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REFERENCE LIST

AccountingTools. (n.d.). Income statement analysis definition. [online] Available at:

https://www.accountingtools.com/articles/income-statement-analysis.html.

Chron.com. (2019). Risks of a Bakery. [online] Available at:

https://smallbusiness.chron.com/risks-bakery-61962.html.

firm, F.B.F.T.S.W. wrote about small businesses for T.B.S.B. for 18 years S. has run an I.
consulting, designed and Ward, presented courses on how to promote small businesses R.T.B.
editorial policies S. (n.d.). Why Every Business Owner Needs a Cash Flow Analysis. [online]
The Balance Small Business. Available at: https://www.thebalancesmb.com/cash-flow-
analysis-for-small-business-owners-2947137.

Hayes, A. (2021). Break-Even Analysis. [online] Investopedia. Available at:

https://www.investopedia.com/terms/b/breakevenanalysis.asp.

Maverick, J.B. (n.d.). How Can a Company Quickly Increase Its Liquidity Ratio? [online]
Investopedia. Available at: https://www.investopedia.com/ask/answers/011215/how-can-
company-quickly-increase-its-liquidity-ratio.asp#:~:text=Ways%20in%20which%20a
%20company.

smallbusiness.chron.com. (n.d.). Financial Statements of a Sole Proprietorship. [online]

Available at: https://smallbusiness.chron.com/financial-statements-sole-proprietorship-
14717.html.

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