The Cash Flow Budget of Hidetoseek Company Assignment

The Cash Flow Budget of Hidetoseek Company - Assignment Example This limit is only  £ 25000 but the negative balance of cash flows shows that in the month of July, the balance ( £ 36544) has crossed the limit. Therefore they have to think about any other source of the short-term loan. Another one issue is that before adopting the option of bulk purchase the company should determine the amount of short-term loan and their interest and they should compare it with the reduced cost. Because of cheap raw material if the company has to pay a huge amount of interest then it will be of no use. The difference between the cash and profit mainly lies between the working capital cycles. The process of calculating net profit and cash flow is different from each other. Before explaining or pointing out the differences it will be beneficial to understand the process of each method through the calculation of a particular month. In Task 1, the cash flow calculation has already been shown for the month of June now calculation of net profit can be shown. At first, it required the calculation of closing stock which will be as follows. {(8500 + 35000) - (16500*100/170)} = 33795. The next step is to calculate the gross profit and it will be {(33795+16500) – (8500+35000)} = 6795. Now all the expenses should be deducted from it to calculate the net profit. Therefore net profit will be {6795- (1333+2500+360+650+780+30000)}= (1828) whereas the closing balance of cash flow was  £ (9754). The above calculation depicts that not only the process but also the number of sales, purchase and other expenses are different. Here, the actual amount of all those items has been taken where in case of cash flows only the amount which is collected or paid during this month has taken. More specifically it can be stated that cash flow considers only the cash inflow and outflow but while calculating the profit all the actual sales, purchase and expenses are taken into account.