Cash Flow Management and Forecasting | Case Study

Cash Flow Management and Forecasting | Case Study Cash flow management Cash flow management is the process of monitoring, analyzing and adjusting business’ cash flows[1]. â€Å"Cash is king† is the often heard business clichà ©, yet it is borne out of reality. It is monitoring of actual cash flows against the cash flow projections for the period, analyzing the reasons for variation and then implementing the necessary actions to manage business financials. Cash flow management is based on cash flow projections which is different than profit and loss account and, in times of cash shortage, may be more important (Oxford, 1997). Importance of preparing a cash flow forecast A cash flow forecast shows the projects in flows and out flows of cash in a business. It is an important tool in cash flow management as it helps to identify the gaps in cash over the projected period. Let’s look at the importance of cash flow forecast for different stakeholders Owner / investor. Cash flow forecast shows the maximum shortfall in cash during the projected period and gives idea about maximum capital funding is required. Banks / lenders. It helps in analysing the credit worthiness of the business and matches it with lenders’ appetite for risk. It also shows whether business will generate sufficient cash over time to meet repayments. Creditors. If business is not in a strong position, creditors like to see cash flow forecast to analyse whether to give stock on credit and under what terms. Cash flow forecast Annexure I shows the cash flow forecast for the year ending 31 Dec 2004. It shows minimum cash balance of  £0 in February 2004 and is based on the following assumptions: Sprint X is a high street sport shop with no sales on debtor accounts. All sales immediately result in cash in flows. The profits generated are small and hence company pays no tax. The projected bank balance on 31st Dec 2004 is  £26,500. This is because Sprint X has yet to make the stock payments of  £12,500 for December 04 as these are due in January 2004 only. Though the minimum balance is  £0 in February 2004, in reality it might be even lower. The intra-month cash position could be even worse because of the following: The above cash flow forecast of  £0 in February 2004 is based on month end. Monthly rent of  £2,500 for March is due on 1st March 2004. So the cash balance on 1st March 2004 could be as low as - £2,500. Payment terms and dates of utility providers and suppliers. Payment dates of bank charges. Advantages of using a spreadsheet for cash flow forecasting Spreadsheet software for personal computers is a powerful tool for cash flow forecasting. Its major advantages are: Arithmetic errors are virtually nonexistent (Horngren, Sundem Stratton, 1998) It is easier to operate and understand than using professional financial packages. Small business owners don’t need to understand financial jargon for building and updating cash flow forecasts. It reduces the tedium of carrying out repetitive calculations. If actual cash flows in a month are different from the projections, it would change the following month end cash flows. Spreadsheet model makes it much easier to update cash flow forecasts. Sensitivity analysis. Spreadsheet cash flow model also makes it more convenient in analysing the impact of variation in different sales and cost elements on the cash flows. Bankruptcy due to cash flow problems Sprint X could go bankrupt if runs out of cash to make payments to its creditors. Creditors can then take force Sprint X into liquidation. Sprint X has to order supplies before it can sell them and once it orders and receives deliveries, it is liable to pay whether or not it is successful in selling them. Based on the cash flow projections in Appendix I, John and Mary expanded the business with  £2,500 additional capital for rent payment on 1St March 2004. Suppose sales in both February and March 2004 are  £5,000 less than the budgeted amount. The cost of goods is 60% of sales on average (based on ratio of annual cost of goods to annual sales). Though the cash receipts are lower in February and March, the benefit of lower cash outflows would be seen in March and April only due to one month lag in credit payments. Appendix II shows the revised cash flow forecast. Sprint X has a negative cash of  £5,000 at the end of February 2004. Even after adding an initial capital inflow of  £2,500, the company is no cash to meet full supplier payments for February and rent on 1st March 2004. Under such scenario, both suppliers and landlord can take the company to liquidators. Even though the company may end year with more cash than initial capital inflow, yet its inability to tide through emergencies may force it into liquidation. Strategies for effectively controlling cash flow problems Regular entry of receipts and payments will keep the cash flow updated and will give owners sufficient time to take care of shortfalls, if any. Analysis of trends will help in taking timely decisions of cost cutting to reduce cash outflows or to plan for higher sales. Owners shouldn’t take out cash from the business based on single month’s net cash flows. The picture may be distorted due to one month delay in higher stock payments. They should look at the year end figures and maximum cash requirements before taking out any earnings. The company should establish a line of credit with a bank which will not only take care of maximum cash requirements but also leave some headroom for any emergencies. Owners should keep business account separate from personal accounts to get clear cash position of the business. Reconcile monthly bank statements for both deposits made and cheques drawn. Use of financial recording system to manage Sprint X’s business finances Sprint X should fortnightly look at the sales trends and plan future expenditure accordingly. Regularly updation of cash flow forecast based on the latest trends will help in planning for any shortfall in funding gap. It should also use financial recording system to keep a tab on inventory to prevent excess inventory build-up. This will prevent unnecessary goods write-off and losses. Trends in fashion change very fast and a good company should keep an eye on what is selling and what is just occupying shelf space and requiring unnecessary working capital. Appendix I – Sprint X’s cash flow forecast Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Receipts Invoiced sales 15,000 20,500 35,000 35,000 35,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 15,000 20,500 35,000 35,000 35,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 Payments Stock (3,000) (17,500) (17,500) (17,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) Telephone (1,000) (1,000) (1,000) (1,000) Electricity (1,500) (500) (500) (500) (500) (500) (500) (500) Rent (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) Wages (2,000) (2,000) (2,000) (2,500) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) Bank loan (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (10,500) (26,000) (26,500) (25,500) (21,000) (20,500) (20,500) (21,500) (20,500) (20,500) (21,500) (20,500) (12,500) Net cash flow 4,500 (5,500) 8,500 9,500 14,000 (500) (500) (1,500) (500) (500) (1,500) (500) (12,500) Opening bank balance 1,000 5,500 0 8,500 18,000 32,000 31,500 31,000 29,500 29,000 28,500 27,000 26,500 Closing bank balance 5,500 0 8,500 18,000 32,000 31,500 31,000 29,500 29,000 28,500 27,000 26,500 14,000 Appendix II – Sprint X’s cash flow forecast with reduced Feb and Mar sales Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Receipts Invoiced sales 15,000 15,500 30,000 35,000 35,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 15,000 15,500 30,000 35,000 35,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 0 Payments Stock (3,000) (17,500) (14,500) (14,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) (12,500) Telephone (1,000) (1,000) (1,000) (1,000) Electricity (1,500) (500) (500) (500) (500) (500) (500) (500) Rent (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) (2,500) Wages (2,000) (2,000) (2,000) (2,500) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) Bank loan (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (3,000) (10,500) (26,000) (23,500) (22,500) (21,000) (20,500) (20,500) (21,500) (20,500) (20,500) (21,500) (20,500) (12,500) Net cash flow 4,500 (10,500) 6,500 12,500 14,000 (500) (500) (1,500) (500) (500) (1,500) (500) (12,500) Opening bank balance 1,000 5,500 (5,000) 1,500 14,000 28,000 27,500 27,000 25,500 25,000 24,500 23,000 22,500 Closing bank balance 5,500 (5,000) 1,500 14,000 28,000 27,500 27,000 25,500 25,000 24,500 23,000 22,500 10,000 Bibliography Horngren, C.T., Sundem, G.L. Stratton, W.O.; â€Å"Introduction to management accounting†, Eleventh Edition, Prentice Hall International, Inc., 1998 Oxford (1997); â€Å"Dictionary of Finance and Banking†, Oxford University Press, Second Edition, 1997. [1] http://sbinfocanada.about.com/cs/management/g/cashflowmgt.htm

American Film Industry Essay -- Media History, Cinema

The American film industry has become the most dominant over all other national cinemas. Millions of people now watch feature films all over the world but there is, and always has been one prevailing place where the films originate and this is the ‘cinema of the United States of America’ better known as Hollywood. This essay will explain how Hollywood has become the dominant force over all the other national cinemas in relation to historical factors which have affected the high quality of the films, the economic supremacy of Hollywood’s budgets and revenues, aswell as the glamour of high-profile actors and actresses. Through discussing each of these concepts and comparing the success of Hollywood to other national cinemas, in particular British cinema, we can discover how it has become the most dominant cinema in the past to this present day. Before looking into the rise to dominance of Hollywood, we must gain an insight into the history of the cinema industry. The first practices of cinema entertainment was with Thomas Edison’s invention of the kinetoscope in 1896, which gave the audience the chance to view nickelodeons in fairgrounds and later on short films but it wasn’t until 1903 with the ‘Great Train Robbery’ (directed by Edwin Sporter) The pistol shot used in the Great Train Robbery is used in more contemporary films such as James Bond. The audiences started to show interest as now the cinema developed a narrative for the first time with the story shown through a series of various camera shots. It was then that longer movies with more complex story lines and innovative editing were released, and cinema’s possibilities as a form of market as well as entertainment were then recognised. The Motion ... ...gn markets and America’s investments in them could be jeopardized by restricting distribution. The 1948 Anglo-American Film Agreement, allowed American companies to withdraw only a fraction of their huge annual profits, in exchange for the abolition of import quotas. As Balio (1976: p397) points out, the Americans held veiled advantages under the act- ‘American companies could spend there frozen earnings in Britain†¦ to acquire story rights and buy real estate and studios.’ Similar terms could be found in the 1948 Franco-American Film Agreement, where ten million dollars of ‘blocked’ profits could be used to co-produce films with French companies and gain distribution rights. It is through Government collaborations such as this that Hollywood was able to attain the status of an expansive commercial enterprise within the U.S. and indeed outside it that it has today.

Kinematics analysis of data Essay

From the data we gathered on this experiment, the effects of the height of the track can greatly affect the acceleration of the cart. Base on the data on the table, the higher the height of the track will have higher acceleration and will lead to higher sinÃŽ ¸. From this, it implies that the higher the displacement of the track will lead to the higher acceleration of the cart. The reason why the cart will have higher acceleration to higher displacement is because of the continues gravitational pull to the cart without restriction to its track. Time and the inclination of the track are interrelated to each other. As for the higher the inclination of the track will lead to shorter time to takes the cart to goes down to the track. The time will become shorter because as for the higher the inclination of the track will also have higher acceleration which means the cart will become faster and that’s why it will takes shorter time to goes down to the track. The difference between the picket fence’s acceleration and the value of g is the value of the slope of a graph of average velocity versus time will be the acceleration due to gravity of the falling object. And also the value of g is the computed value for the free fall acceleration, while the picket fence’s acceleration is the value that gathered by manual experimentation for the free fall acceleration, that is also why the data on the g of table 2 and the data on table 3 have the similarities on the digits or values.

A Commentary on the Geranium by Theodore Roethke Essay

Mallory Goss English HL Mrs. Riggs October 2nd 2012 Poetry Analysis The poem â€Å"The Geranium† by Theodore Roethke tells the story of a bachelor, formerly a party animal, now a lonely, aging man, through a sustained metaphor which uses the speaker’s geranium as a symbol for the disregard of his own health. The plant is never well, nor is he, due to the speaker being as inconsiderate to the geranium as he is to himself. With imagery, alliteration, and symbolism, much is learned about the speaker through a simple geranium to which he is intrinsically intertwined. We can see right from the beginning with lines such as â€Å"limp and bedraggled . . . / . . . like a sick poodle / Or a wizened aster in late September,† (2-4) that our speaker†¦show more content†¦. . on gin, bobbie pins, half-smoked cigars, dead beer† (10) as well as the consequences of such irresponsible actions; he talks of being â€Å"shriveled† and â€Å"dried out†. It’s clear both the speaker and his plant have suffered from such a way of living. It also seems to reveal the careless and somewhat incompetent nature of the speaker. After all, if you can’t even take care of a plant, how can you take care of yourself? In the next stanza we get another glance into our speaker’s former life. He talks of â€Å" . . .dumb dames shrieking half the night† (16) as well as more mention of alcohol. The pieces of the speaker’s past we have received thus far can be put together to form the image of a reckless bachelor who gives no thought of tomorrow. With the current events of the poem, we can see how this lifestyle doesn’t do much for our speaker now that tomorrow is here. In this stanza we also get to hear the narrator describe himself directly for the first time, but he still ties himself to the plant, showcasing how heavily interconnected he and the geranium are. The speaker says that they are both â€Å"seedy†, which is a rather interesting play on words du e to the fact that it means sordid or shabby, or could be used in the context of plant seeds. The term acknowledges both the similarities and differences between the speaker