M1 - Analyse cash-flow problems
Introduction:
A cash flow is an accounting statement and is normally called the statement of cash flows. A cash flow statement shows the amount of cash generated and used by a company in a given period. The cash flow is calculated by adding noncash charges to net income after taxes. It is important and crucial for businesses to have a healthy cash flow because it helps with the survival of a business. A business might experience cash flow issues due to the direct link between the low profits or losses and cash flow problems; the loss makes the business eventually run out of cash. They can also experience cash flow problems due to the business holding too much stock, this tie up cash and there is an increased risk that stocks cannot be sold. Businesses can also experience cash flow problems due to the over investment.
Findings:
Signature has experienced some problems with their cash-flow, the problems that they faced are:
- The balances are negative.
- The opening balance in January is 0.
- The outflows are high and inflows are low.
- The credit sales and commission received in January is 0.
- The investment is low and needed to be higher.
I will be analysing these problems to give a reason as to why they have faced these problems and how they can resolve these problems.
One of the problems that Signature has faced with their cash flow is their negative balance in the first few months. In the forecast there are some negative balances in
The statement of cash flow shows the amount of increase or decrease in cash that the company has on hand every quarter. This statement reports what a company pays out each quarter. Most of the time when a company has a major contract the money won’t be received until a later date.
The balance sheet (BS) is significant to a business due to its ability to provide a “snapshot” of a company’s assets and liabilities at any given time. This financial document is a cursory representation of a business’s health. The use of comparative BS whether it be yearly, quarterly, or monthly provides the interested parties a tool to observe trends that are positive, negative, or neutral to a company’s financial health (Finkler, Jones, and Koyner,2013) .
The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from the operating, investing, and financing activities of a company during a period in a format that reconciles the beginning and ending cash balances
By using the consolidated income statements, balance sheet and cash flow statement, we can assess the company’s financial position. On the income statement, the company’s operation revenue increased by 4.5% ($393.4 million) from year 2006 while its operating income decreased by $65.1 million in the same period. Without considering the net-cash settlement feature expense recorded in 2007, operating income increased $103.6 million. Even though including the net-cash settlement feature
The cash flow statement shows the amount of cash within a company. Items that affect the cash balance are listed on the statement. The first section of the cash flow statement is operating activities, which shows the cash flowing in and out of the company in relation to its business operation. The operating activities section also includes net income and the change in dollars of certain accounts listed on the balance sheet. The next section, investing activities, shows cash the company received and spent on a company's capital investments. The financing activities section shows the inflows and outflows of cash related to the company’s issued financial securities, which is also listed on the balance sheet and statement of shareholders' equity.
The lack of a cash cushion is one primary reason small businesses fail; therefore for small businesses, it is important to understand and manage the company 's cash cycle (Byrd, 2012). The cash flow statement records the amounts of cash and cash equivalents entering and leaving a company, and includes three components by which cash enters and leaves a company: core operations, investing, and financing (Heakal, 2010).
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With slow sales, the company had to keep some expenses flat, such as administrative salaries, web creation / maintenance and executive compensations. This is a weakness and as stated before, the company will need to increase sales to increase profits to raise its strength. On the balance sheet for years 7 and 8, the current assets increased in accounts receivables. This is probably due to slow pay and/or unpaid accounts receivables. The change between years 7 and 8 reported -15% with a decrease change of $107,640. Total assets change was -0.2% and this position reflects a financial weakness for the company. Cash and cash equivalents can be used to satisfy during this period, although there was a change of 348.2%, this increase could have been used for operating expenses. This is too much cash sitting idle and not working for the company. Competition Bikes can assess where to put this cash to work for the company.
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