CASH FLOW ANALYSIS AND THE ANALYSIS OF FINANCIAL MANAGEMENT OF THREE COMPANIES
TABLE OF CONTENTS
PART ONE
1 Introduction----------------------------------------------------------------------------------3
2 Understanding Cash Flow-----------------------------------------------------------------3
3 Difference Between Profit and Cash Flow---------------------------------------------4
4 Factors that could Cause Business to Fail----------------------------------------------4-5
5 Corrective Measures Managers can use to Avoid Insolvency in Business------5-6
6 Summary --------------------------------------------------------------------------------------7
PART TWO
1 Introduction-----------------------------------------------------------------------------------8
2 Understanding Financial Management and Financial Ratios-----------------------8
3 Company’s Profitability---------------------------------------------------------------------9
4 Company’s Working Capital Management---------------------------------------------10
5 Company’s Stock Market Performance [Investment Ratios]-----------------------10-11
6 The Company shares I would prefer to invest in, With My Reasons-------------11-12
7 Summary ---------------------------------------------------------------------------------------12 References--------------------------------------------------------------------------------------13 Appendices-------------------------------------------------------------------------------------14
Appendix A--------------------------------------------------------------------------------------14
Appendix B--------------------------------------------------------------------------------------14-15
PART ONE
INTRODUCTION
Understanding Cash Flow
If you ask me the aim of every business, whether small, medium, or large enterprise, it is definitely to make profit. But would you want to make profit today and tomorrow the business suffers bankruptcy? The answer is “No”. Therefore there is need to carry out proper efficient and effective management in a business. And how can this be done? Is when business, firms/enterprises exercise good cash flow management.
Cash flow is an important and most critical component for a successful business. It is the movement of funds in and out of a business at a specific period of time. According to (Rachchh M.2011:265) “cash flow statement indicates sources of receipt of money and the use of it.” In every business, taking an indication on sources of your money is necessary, which is the inflow of cash, that is; the various means which the money was obtained. While the outflow indicates how the cash is spent. “Cash flow statement as a statement of changes in the financial position of firms on cash basis” (Bose D.2010:374). This helps to check the balances on inflow and outflow of cash, and the business position concerned between two balance sheet dates and enumerates the net effects of various business transactions on cash.
The cash flow of a company is essential because it indicates the financial strength of a business and to enable them know when they lack sufficient cash to support their operations. The cash flow statement also assists the company to assess the impact of its current transactions operating, investing and financial activities on its performance and financial positions. Another major purpose is to identify potential weakness in a given credit situation and point the way to adopt measures to enhance, correct, or protect the bank’s exposure. It also helps to strengthen the borrowing capabilities of the firm and as well contributes significant role for the capital budgeting decisions.
Difference between Profit and Cash Flow
In business, in as much as profit is important, the
