HR7003 Master of Business Administration Assignment Sample 

Introduction

“Budget is an important financial tool that helps to determine the actual financial position of the company. Nowadays most “large and medium businesses” prepare a proposed budget to compare the income and expenses with the proposed amount and the actual amount. A finance manager of the company prepares a budget to easily understand the financial position of the company. The proposed amount is set based on assumption; if the actual amount exceeds the proposed amount then it helps to determine the financial performance of the business easily. An effective budget also helps to take any decision as per business requirements. This report aims to analyze the financial performance of “London Docks cafe” as per the given budget.

a) Outlining the objectives of Budgeting

According to Abdalla (2020),http://HR7003 Master of Business Administration every company has to maintain a proposed budget analysis for determining financial performance. “Budget” helps to compare the different items between the proposed amount and the actual amount. The main objective of any business is how to maximize profit and control expenses; a proposed budget helps to fulfill this objective. In this case “London Docks cafe” prepared a budget for determining the actual financial position of the company. The objectives of preparing a budget are discussed below.

To improve the financial position

A company prepares a “budget” to understand the actual financial position. A proposed budget is scheduled at the beginning of the year based on assumptions but at the end of the year, the finance department compares the expenses and Income with the proposed amount and the actual amount. This comparison helps to improve the financial performance in the next year; therefore an effective budget is prepared to improve the financial performance of a company (Elayan et al. 2017).http://HR7003 Master of Business Administration

To maintain cash flow

Another important objective of preparing a “Budget” is it helps to maintain the cash flow system of the company. An effective budget reflects the proposed amount of business expenses and the proposed amount of business income; at the end of the year, these proposed amounts are compared to the actual amounts which help to maintain the proper cash flow system of the company.

To Decision Making

“Budget” is a very important tool to make any decision about the business which improves the efficiency of the business.

An effective “Budget” analysis helps the management make day-to-day decisions. The company needs to make a lot of different decisions about financial strategy; “Budget” is helping to make any decision.

To compare results

An effective “Budget” shows the proposed amount and actual amount, at the end of the year’s finance manager easily compares all expenses and income with the proposed amount and the actual amount. This comparison helps the management which expenses need to decrease and which need to be increased, this comparison also helps to improve financial performance.

Benefits

According to Aksom, (2017),http://HR7003 Master of Business Administration “London Docks cafe” prepares a budget for determining the financial performance, and the management of this company easily understands which expenses need to be decreased from this budget. This budget analysis shows the comparison between the proposed figure and the actual figure, this comparison also helps to implement a new strategy by which the company can improve financial performance. Another main benefit of this budget is it helps to make lots of decisions.

b) Revenue and spending variance

An effective “Budget” always shows the “Revenue” portion and “Expenses” portion with the proposed amount and actual amount, “London Docks cafe” prepared a budget for the month of September to show the revenue and spending variance of the company.

Table 1: Revenue and Spending variance

(Source: Created by the learner)

Revenue Variance – As per the above “Budget” analysis shows the proposed amount of revenue was £100000 but the actual amount of revenue is £90000, hence the variance is £10000. This variance indicates “Unfavourable” (U) because in this case the actual amount of revenue is lower than the proposed amount of revenue. This unfavorable (U) revenue of “London Docks cafe” indicates poor financial performance; therefore the management of this company needs to implement some strategy to develop its financial performance (Elayan et al. 2017).

Spending variance – According to Abdalla, (2020)http://HR7003 Master of Business Administration “Spending variance” means the difference between the proposed amount and the actual amount of all expenses. A finance manager of the company gets a clear idea about the spending variance from an effective “Budget”. The spending variance of “London Docks cafe” is discussed below

• As per the above table, the proposed amount of Raw material is £50000, but the actual amount is £45000, therefore the variance is £5000 which is favorable (F) for the business.
• As per the above table, the proposed amount of “wages and salaries” is £10500 but the actual amount is £10000 which is lower than the proposed amount, therefore this variance is favorable (F) for the business.
• The proposed amount of utilities is £3500 but the actual amount of utility is £3400 the variance is £100. This variance is favorable (F) for the business because the actual amount of expenses are lower than the proposed amount.
• As per the above table, the proposed amount of facility rent is £5000 and the actual amount of facility rent is £5500, the variance is £500. These expenses indicate an unfavorable (U) for the business because the actual amount is higher than the proposed amount.
• The proposed amount of insurance is £2800 but the actual amount is £3200, therefore the variance is £400 this variance is unfavorable (U) for the business because the actual amount is higher than the proposed amount (Wiratam, 2019).
• As per the above budget analysis, the proposed amount of fuel is £2500 but the actual amount is £2800, therefore the variance is £300. This variance is unfavorable (U) for the business because the actual amount is higher than the proposed amount.
• The above “Budget” analysis of “London Docks cafe” shows that the proposed “Net Operating Income” is £25700 but the actual “Net operating income” is £20100; therefore the variance is 5600 which is unfavorable (U). The actual amount of “net operating income” is lower than the proposed amount, which indicates the poor financial performance of the company.

c) Areas of management concern

An effective budget analysis helps the management to indicate the areas that need to be more concerned for improving financial performance. “Budget” of “London Docks cafe” also indicates the area where the management needs to implement some different strategy; management needs to be more concerned mainly on the “unfavorable” (U) items.

The proposed amount of revenue of “London Docks cafe” is £100000 as per budget but the actual amount of revenue is £90000; the management of this company needs to execute some strategy which helps to increase the revenue. Excess of the actual amount of revenue over the proposed amount is to indicate the good financial position of the company (Holdo, 2020).http://HR7003 Master of Business Administration

The “facility rent” of this company indicates the unfavorable (U) as per budget, the management should execute a different plan that how to reduce the amount of these expenses. Reducing the amount of these expenses helps to maximize the profit. Therefore this area the management of “London Docks cafe” needs to be more concerned. The amount of “insurance” also indicates the “unfavorable” (U) therefore the management needs to be more concerned, particularly regarding these expenses. Reduce the amount of insurance also helps to increase the profit amount (Elayan et al. 2017)http://HR7003 Master of Business Administration

The management of this company needs to be concerned about the “Fuel” expenses because as per companies budget the actual amount of “fuel” is higher than the proposed amount. The management of this company needs to execute a proper plan which helps to reduce the actual amount and maximize the profit (Husain, 2020).http://HR7003 Master of Business Administration

The proposed amount of “Net operating income” of “London Docks cafe” is £25700 and the actual amount of “Net operating income” is £20100. The actual amount is lower than the proposed amount which indicates the poor financial performance and poor managerial efficiency of these companies. The finance manager needs to be more concerned in this area and needs to implement some different strategies to increase the “net operating income” of this business.

If the management of “London Docks cafe” needs to be more concerned about the above mention area and implement some different strategy for developing its financial performance, therefore this company can easily increase its net profit and meets all business expenses (Karianga, 2016).http://HR7003 Master of Business Administration

d) The Profitability and sustainability

“Profitability” indicates the financial performance of the company; A manager can determine the “profitability” of a company with the help of different ratio calculations. Most of the company use the “Net profit Ratio” and “Operating Ratio” in order to determine the profitability of the business.

The Net profit Ratio analysis of “London Docks cafe” is below

[All amounts are in £]

Table 2: “Net profit ratio”

(Source: created by the learner)

“Operating Ratio” of “London Docks cafe” for the month ended 30th September 2020

[All amounts are in £

Table 3: Operating Ratio

(Source: created by the learner)

“Net Profit Ratio analysis” – The above “Net profit ratio” analysis of “London Docks cafe” shows the proposed “Net profit ratio” is 25.7% and the actual is 22.33%, the actual percentage is below than proposed percentage which indicates the poor financial performance of the business. The higher percentage of this ratio indicates managerial efficiency which is also attracted the new investor to invest in this company. A higher “Net profit ratio” compared to the “budget” indicates the goods financial performance of the company. Therefore “Net profit Ratio” analysis is constructive in determining the profitability of the company (Wiratam, 2019).http://HR7003 Master of Business Administration

“Operating Ratio Analysis” – “Operating Ratio” is another common ratio to determine the “profitability of a company”. The “operating ratio” shows the managerial efficiency by comparing the total operating expenses with net sales. In this case, the proposed operating ratio is 74.3% and the actual “operating ratio” is 77.67%. The higher “operating ratio” indicates poor performance but the lower operating ratio indicates good performance. The management of “London Docks cafe” needs to improve its financial performance as per the “operating ratio” analysis (Zamfir, 2019).http://HR7003 Master of Business Administration

Sustainability – Any going concern business needs to main “sustainability” for the better financial growth of the company. There are mainly 3types of “sustainability” there which are

Economic sustainability- This is one of the main sustainability factors of any kind of business, this sustainability indicates that a company how much uses its capital to meet its business expenses. This sustainability helps the growth of the business as well as helps the growth of the economy in a country.

Environmental sustainability – This is another common sustainability of a business, this “sustainability” indicate environmental pollution.

Social sustainability – This sustainability indicates that the company maintains all the social responsibility such as a donation to a charitable trust, which helps create a brand image of the business and also helps the growth of the business (Zamfir, 2019).http://HR7003 Master of Business Administration

Conclusion

Every company prepared a “Budget” to understand the financial performance of the firm, and this method help to improve the efficiency of the business. An effective “Budget” also indicates the area which needs to improve; this indication is really helpful for a manager to implement the strategy. The “Budget” analysis of “London Docks cafe” clearly indicates which area needs to improve and how to improve the financial performance of the business. This “Budget” analysis of “London Docks cafe” is also helping to expand their business. The comparison between the proposed amount and the actual amount helps the management to make a lot of decisions about the business.

 Bibliography

Abdalla, A., (2020). ‘Line Item Budgeting on Labor Costs to the Level of Income’. Journal of Asian Multicultural Research for Economy and Management Study, 1(1), pp.27-32.

Aksom, H., (2017). ‘Infused with value? Trajectories, discourses and institutional constructions in Beyond Budgeting diffusion’. International Journal of Management Concepts and Philosophy, 10(2), pp.199-225.

Elayan, H., Shubair, R.M., Jornet, J.M. and Johari, P., (2017). ‘Terahertz channel model and link budget analysis for intrabody nanoscale communication’. IEEE transactions on nano bioscience, 16(6), pp.491-503.

Holdo, M.,(2020). ‘Contestation in Participatory Budgeting: Spaces, Boundaries, and Agency’. American Behavioral Scientist, 64(9), pp.1348-1365.

Husain, T. and Sunardi, N., (2020). ‘Firm’s Value Prediction Based on Profitability Ratios and Dividend Policy. Finance & Economics Review, 2(2), pp.13-26.

Karianga, H.,(2016). ‘New Paradigm for Local Financial Management: A Review of Local Budgeting System’. Hasanuddin Law Review, 2(3), pp.398-408.

Ostaev, G.Y., Kotlyachkov, O.V., Markovina, E.V., Kravchenko, N.A., Mironova, M.V., Nekrasova, E.V., Konina, E.A. and Alexandrova, E.V., (2019). ‘Integrated budgeting at agricultural enterprises: functionality and management decision making. Amazonia Investiga, 8(22), pp.593-601.

Wiratama, D.H., (2019). ‘FEASIBILITY ANALYSIS OF INVESTMENT ASSETS FOR BUSINESS DEVELOPMENT IN THE CALCULATION OF CAPITAL BUDGETING IN SURABAYA UD RAHAYU’. IJESS: International Journal of Education and Social Science, 1(1), pp.16-27.

Zamfir, M., Monica, P. and Cristian, F., (2019). ‘The Budget-Reference System in Assessing the Performance of the Public Enterprise’. Academic Journal of Economic Studies, 5(2), pp.144-158.

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