Scenario 1: Over the past five years, your organization ...



Scenario 1: Over the past five years, your organization has experienced increasingly negative cash flow, requiring the business to take out a line of credit through a local bank to supplement cash shortfalls. Describe, in detail, the practices you would recommend to improve cash flow. Consider credit policies, collections, product pricing, and accounting processes, for example. Be sure to consider options for operating, financing, and investing activities, in your answer.

If overall cash flow is in negative, it may be due to cash outflows for investment in new projects or payment of debts, more than the cash inflow from operating activities, in this situation only adjustment to be made for debt servicing or new financing to be arranged for debt servicing or new investment. The problem is rather bigger if cash flow from operating activity is in negative, it may be due to money stuck up in account receivable, the company has to improve its collection of account receivable. The another reason for negative operating cash flow is selling of goods less than its cost, if this is the case the company should try to improve its selling price, which is acceptable to the customer and can bring positive cash flows.

Scenario 2: Over the past three years, your business organization has experienced positive cash flow, in excess of the expectations of company management. Describe, in detail, your recommendations for bringing cash flow in line with management’s expectations. Be sure to consider options for operating, financing, and investing activities, in your answer

If the company has excessive cash flow than expectation, it may be due to unnecessary financing or selling of investment during these periods or it may be due to increase in sales or recovery of old account receivable or non payment of dividend.. If the cash flow is from operating activities such as increase in sales, then company should invest it into marketable securities or some other profitable investment. But if excessive cash flow is due to extra financing it must be paid immediately or if dividends have not been paid, it should be paid shareholders.

For each of the transactions, identify: If the transaction is a cash inflow (CI), or a cash outflow (CO), or a non cash flow transaction (NT). Each transaction as an operating activity (OA), an investing activity (IA), or a financing activity (FA), or a non cash flow transaction (NT). For example, payments to employees would be (CO) and (OA).

Proceeds from issuance of debt. CI FA

Payments for taxes. CO OA

Purchase of short-term investments. CO OA

Collections of dividends. CI IA

Payment of long-term debt. CO FA

Proceeds from sale of fixed assets (plant and equipment). CI IA

Payments to suppliers of goods and services. CO OA

Proceeds from sales of short-term investments. CI OA

Declaration of a stock split. NT NT

Collections from customers. CI OA

Payment of cash dividends. CO FA

Proceeds from issuance of common or preferred stock. CI FA

Payments to employees. CO OA

Purchases of fixed assets (plant and equipment). CO IA

Collections of interest. CI IA

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