Essay
Business Financial Performance level 3 M1 UNIT 2
- Institution
- PEARSON (PEARSON)
Analyse the importance of cash flow, working capital, costs and budgets and break- even to a selected business
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I will be explaining the importance of cash flow, working capital, costs and budgets and break-even toASDA.
Cash inflow is money entering the business such as sales and cash outflow is money going out of the
business which will be their expenses. Break-even is when a business does not lose money or make a
profit. Cost is the expenses of the business such as what they have to pay or buy such as rent. Budget is
their plan and how much they can spend in a certain time on something. Working capital is the measure
of the businesses liquid funds; current assets-current liabilities will equate to liquid funds which is what
the business owns that can be turned into money.
Cash inflow is important because it shows if the business can afford to keep running and if they are
doing well. Cash inflow will give ASDA the opportunity to afford to pay any debts in difficult situations
and they can also afford to expand and create ideas to make more cash inflow. If ASDA wanted to make a
loan or was looking for an investor cash flow is what will make the bank or investor make the decision to
borrow ASDA money or the investor to invest in them as they will need to know if they will certainly get
their money back. Cash inflow is important because the business will be able to use the money for
emergencies and they will not be stuck in an difficult situation and they can use the cash to meet their
important needs. Also cash inflow shows customers like their product or service. Cash flow is important
because it shows a business can manage their income and expenses, even though they are making
money they will also have expenses to pay such as their suppliers. Cash outflow is important because the
business will need to pay their employee’s wages and suppliers etc, in order to keep the business
running. In terms of cash flow ASDA could improve this by introducing new products which may increase
payment and they could also delay payment to their suppliers for a short time only so they do not lose
that supplier. Cash flow is important because it allows ASDA to be organised as they know what money is
coming in and what money is coming out. Cash flow can also be increased by making smart investments
which will bring in income and cash outflow can be decreased by finding cheaper suppliers and not
employing employees who are not needed as that is costly.
Break-even is important because even if a business does not make profit, they did not lose money either.
Break-even can happen when a business does a sale and it is important because it allows them to know
whether they should continue to do a sale like that or if they can come up with another type of sale
which will bring them profit and not break even. Also break-even is important because it also allows a
business to know that their costs must be paid first before they can make a profit. Break-even lets a
business know if they are selling their products too high or too low and if they need to find cheaper
suppliers because if their suppliers charge them a lot and it cost them a lot to make the product and they
do not make a profit or loss, they should find cheaper suppliers for them to actually make a profit. In
terms of break-even ASDA could try to have a lower break even for example instead of needing to sell
10,000 products to break even they should try and make it 4,000 which would be easier for them and
they could do this for good advertising, promotion and selling different brands in their stores. Break-even
is also important because a business can figure ways to actually make a profit as they know how far off
they are for example if they need to sell 10,000 products they know that’s what they need to do and
they can just find techniques to do that such as doing sales.
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