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Question about Cash Flow Decision-Making

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For a business organization to sustain its operations over an extended period of time, it is necessary to maintain proper management over its cash flow.

For each of the following scenarios, describe in detail the practices you would recommend.

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.

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.

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Scenario 1
The first thing that needs to be done is for the company to analyse its cash flow statements for the past five years. By analyzing its cash flow statements, the company can pinpoint the specific activities that have been using its cash for the past few years (Anthony, Hawkins & Merchant, 2004, p. 359). Was it operating activities? Investing? Financing?

Most probably, the cash flow from the company's operating activities can not provide the cash that the ...

Solution Summary

Cash flow decision making is analyzed.