Prepare and interpret cash-flow forecasts to explain liquidity, timing and solutions to cash-flow problems in IB Business Management SL.
Wong Corporation (WC) manufactures clothes dryers.
Wong Corporation (WC) manufactures clothes dryers. WC pays tax at a rate of 20 %.
Wong Corporation (WC)
Wong Corporation (WC) manufactures clothes dryers. WC pays tax at a rate of 20 %. WC has a hierarchical organization structure. Table 3 shows selected forecasted financial information for the company for 2022, and Table 4 shows its annual cash flow forecast for 2022.
Table 3: Selected forecasted financial information for WC for 2022 (all figures in \$000s)
Table 4: Annual cash flow forecast for WC for 2022 (all figures in \$000s)
Using Table 4, calculate WC's net cash flow for 2022 (show all your working).
Explain the difference between WC's profit and its cash flow.
In the first six months of 2022, increased competition led to a fall in AXL’s sales. For the final two months of 2022, AXL plans to increase the trade credit period it offers to customers from 30 to 60 days.
AXL
AXL has two factories, in which it manufactures aluminium cans for the soft drinks industry. AXL has a maximum production capacity of 80 million cans per year.
Table 1: AXL's forecasted sales revenue and costs for 2023
AXL plans to close its two factories and move production to a new, larger factory to obtain economies of scale.
In the first six months of 2022, increased competition led to a fall in AXL's sales. For the final two months of 2022, AXL plans to increase the trade credit period it offers to customers from 30 to 60 days.
Explain the potential impact on A X L if it implements its planned increase in trade credit period.
The 1950s were a turbulent time in Kenya. Following the Second World War, independence movements emerged throughout the British Empire. Fearing that the situation would turn violent, in 1959 Roger’s son and heir Jeff Williams, decided to sell all the family properties in Kenya, including The Imperial. In the decades that followed, The Imperial was bought and sold several times: between 1959 and 1989, The Imperial had five different owners. Investors were often interested in the hotel, as it was an attractive 200-room property with a private beach and easy access to Mombasa airport. However, because of recurring political unrest in neighbouring countries, the owners feared the situation in Kenya would deteriorate. They often panicked when the political situation seemed to worsen and sold the hotel.
Though the country experienced some post-election violence in 2008, it was generally safe and stable.
When appointed manager, Martin had to address a long-term problem: the fact that over the years, the competitive position of The Imperial as Mombasa’s premier seaside hotel had slowly deteriorated. New luxurious hotels were opening in the vicinity; with their spas, themed restaurants and fast WiFi Internet access, they offered better facilities and better services than The Imperial. They had a modern, high-tech feel; in comparison, the colonial charm of The Imperial looked old-fashioned. Its market share was shrinking. Because GP’s interest in The Imperial was solely for profits, Martin was only given a limited budget each year for improvements and renovation. The long-term trend for The Imperial was worrying: there was a steady decline in room bookings, at a time when ironically tourism in Kenya was doing rather well. The number of tourists travelling to Kenya was increasing annually, and other hotels were experiencing a general trend of increasing, not decreasing, occupancy rates (Appendix 1). Martin read statistics from the Kenya National Bureau of Statistics and other sources of secondary market data. He conducted a marketing audit, constructed a position map and realized that The Imperial could attract new types of traveller interested in safaris or in cultural tourism.
Besides his long-term marketing challenges, Martin had found that managing the working capital sometimes proved difficult in the short term, especially because of the seasonality of hotel operations. The Imperial occasionally had problems to follow its month-by-month budget. Now that he was manager, and not just Head of Reception, Martin had to design and implement strategies for dealing with those liquidity problems.
Martin also had a problem of human resources: how to improve his working relationship with Susan Chapman, the Head of Housekeeping. Susan’s grandfather, Craig Chapman, had travelled to Kenya from Liverpool (UK) in the early 20th century to open and operate an orphanage near Nairobi. Unlike Roger Williams, who was already wealthy before he left England and went to Kenya to make even more money, Craig Chapman had a humanitarian motivation. When Kenya became independent, Craig stayed and continued to work for other non-profit organizations.
Describe the importance of monitoring the cash flow at The Imperial.