The often-reported reason for business failure is poor cash management. On the contrary, how much cash generated and how much cash at hand is the universally accepted measure of business success (Periu, 2016). Hence, understanding the flow of cash that goes in and out of the business is of paramount importance. But first, what is cash anyway? Cash is an available money that can be readily retrieved - usually through banks- if needed for business operations and transactions (FindLaw, “The Importance…,” n.d.). Performing cash flow analysis requires the preparation of statement of cash flows – a document that provides information about cash receipt and payment transactions and the changes resulted at the end of a period (Heisinger …show more content…
CASH FLOW ANALYSIS
The calculated missing items for The Nice Suit Dry Cleaning Company’s statement of cash flow are presented as highlighted figures in Table 1.
Line A that pertains to Cash paid out to suppliers and employees is a cash outflow transaction for operating activities that is allotted for the materials required for daily operation and salaries to employees, thus, this is expected to be a negative amount. To obtain this value, subtract the rest of the items under the operating activities including the given Net cash provided by operating activities from Cash received from customers.
Line B is the Net cash used in investing activities under the investing activities. This item is the resulting value when all investing activities are accounted. Since only one activity was recorded, that is, Purchase of equipment which a form of cash outflow, thus, it is expected to be a negative value. Therefore, Net cash used in investing activities is just equal to Purchase of equipment.
Table 1. Cash Flow Analysis and Calculation
Cash Flows from Operating …show more content…
This is the change that occurred for the cash available at hand from the start to the end of a particular period. This is the value obtained when all the net cash amount of the different activities (operating, investing, and financing) are accounted. Summing Net cash provided by operating activities, Net cash used in investing activities, and Net cash used in financing activities will give the value of Net Increase in Cash. Lastly, Line E is the Cash balances, beginning of year. This is the value of cash available at hand during the start of the period under consideration. Since the Cash balances, end of year is given, and the Net Increase in Cash was obtained, taking the difference between these two items will give the value of Cash balances, beginning of year.
The Nice Suit Dry Cleaning Company managed to obtain a positive cash flow balance at the end of the period based on its statement of cash flows. This is a good sign the company’s business has been running smoothly. High positive cash flow is the preferred state for any business as this will create opportunities to further the growth and make new investments. The key to a positive cash flow requires organization and planning (Clarke, 2014). Furthermore, an understanding of cash flows and the nature of each cash transactions will be a valuable tool in managing and planning business