Essay on Cape Chemical Case Written Report Finished

1096 WordsFeb 17, 20155 Pages
Cape Chemical Case: Cash and Profits Throughout history, the business community doesn’t necessarily think of a chemical, wholesale distributor, as having the ability to reach double-digit growth rates, all while revolutionizing the distribution process. But that is exactly what Cape Chemical has done. By offering “next day delivery,” the company was able to differentiate itself from its competitors and gain a significantly larger market share than those same adversaries. But with the new increase in demand, a lack of borrowing power, a very “loose” accounts payable collection system and a growing inventory pool, Cape Chemical ran into cash flow issues. Since they are running into cash flow issues now, even with double-digit growth…show more content…
But with a hard payment structure, its customers may seek out other companies that allow them to pay in a less strenuous way. So for this reason, I must also infer that the growth rate of Cape Chemical will begin to slow at a faster rate than expected because both current and future clients will be taking their money elsewhere. Scenario two is a situation that can be internalized better than the first one. Cape Chemical should be keeping lower inventory levels than it currently does. The company has a whopping 50 percent average increase in inventory year over year, from 2005 -2007. By keeping their inventory at a minimum, they will still be able to offer their sought after “next day delivery” service as long as they forecast and plan correctly. By selling off excess inventory at a discount, and keeping inventory in the future at just the right quantity, Cape Chemical will have more cash to spend on other resources and other aspects of the business that could be useful to them in the future (such as full-time accountant so this situation doesn’t happen again). From 2008 -2010, free cash flow will increase by an average of roughly 1.5 million dollars. But in 2011 and beyond, you can see that the cash flow will increase by just over 2.3 million dollars and will continue to grow from year to year, eventually becoming cash flow positive. The third and

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