Prepare and interpret cash-flow forecasts to explain liquidity, timing and solutions to cash-flow problems in IB Business Management SL.
Piper Industrial (PI)
Piper Industrial (P I) manufactures pipe. The company is highly profitable and its corporate tax rate is 20 % . P I is forecasting major capital expenditure for 2019.
Table 1: Selected forecast financial information for the year ending 31 December 2019
Table 2: Annual cash flow forecast for the year ending 31 December 2019
Using Table 2, calculate the net cash flow (Z) for PI for 2019 (show all your working).
Explain the difference between profit and cash flow.
Fishers
Fishers manufactures baseball caps. In 2017, it sold 75000 caps. The variable cost per cap was $ 6.70 % of Fishers's annual sales occur from April to September. Starting in March, Fishers experiences a significant increase in current assets and current liabilities, which start to decrease in October.
Table 1: Selected data for Fishers for 2017 (figures in \$000s)
Table 2: Selected forecasted financial information for Fishers for 2018
Sales price per cap will remain the same as in 2017.
Explain why Fishers experiences a significant increase in current assets and current liabilities from March to October.
The Imperial had early problems with cash flow and liquidity management and later faced seasonal working-capital pressure and difficulty following its monthly budget. Monitoring cash flow helps Martin forecast cash inflows and outflows, avoid shortages and plan payments. The restaurant, hotel and special-events services were separate profit centres, while housekeeping was a cost centre. Global Properties required profit and loss accounts and balance sheets for financial accountability. Craig Chapman operated an orphanage near Nairobi and continued to work for non-profit organizations; non-profit objectives can include providing a social service, improving beneficiaries’ welfare and meeting humanitarian needs rather than maximizing profit. External changes affecting operations include political unrest, tourism growth, competition from newer hotels, seasonal demand, airport access, technology such as fast WiFi and changing customer interest in safaris and cultural tourism.
Describe the importance of monitoring the cash flow at The Imperial.