Financial Analysis!

Full Answer Section

     

• Collection Strategies:Implementing efficient procedures for invoicing, credit control, and collections keeps cash flowing in.
• Disbursement Controls:Establishing clear approval processes and authorization limits for payments minimizes unauthorized spending.
• Reconciliation:Performing regular bank reconciliations ensures the accuracy of cash account records and identifies any discrepancies.

Example: Analyzing Cash Balances Let's revisit the company you chose from the Week 1 readings and case study discussions.

1. Locate the Cash Balance: Look for the "Cash and Cash Equivalents" line item within the company's balance sheet. This amount reflects the company's current holdings of cash and highly liquid assets.
2. Analyze Cash Flow: Review the company's cash flow statement. This will show the net cash flow from operating, investing, and financing activities.
3. Evaluate Cash Adequacy: Consider factors like industry norms, upcoming expenses, debt obligations, and growth plans. Having too much cash can signify missed investment opportunities, while too little cash can hinder operational needs.

Example (for illustration purposes only): Suppose your chosen company has a cash balance of $10 million and a net operating cash flow of $5 million. This might suggest a healthy cash position. However, if the company has significant upcoming debt payments or plans for a major expansion, this cash balance might be insufficient. Remember: The "ideal" cash balance is situation-dependent. It's crucial to analyze the company's specific circumstances to determine adequacy. Internal Controls: Management's Responsibility Management has a fundamental responsibility to establish a system of internal controls. These controls safeguard assets, ensure accurate financial records, and promote compliance with regulations. Here are some basic internal controls commonly implemented:

• Segregation of Duties:Dividing critical tasks (e.g., authorizing payments, handling cash, reconciling accounts) minimizes the risk of errors or fraud.
• Recordkeeping:Maintaining accurate and complete financial records is essential for monitoring cash flow, identifying irregularities, and preparing reliable financial statements.
• Access Controls:Limiting access to sensitive information and cash assets protects against unauthorized activity.
• Approvals:Implementing approval processes for significant transactions ensures proper oversight and minimizes the risk of unauthorized spending.

Real-Life Example: During my time working in a retail store, I witnessed several internal control measures in place. Cashiers couldn't access the cash register without a manager's login. Daily cash register takings were reconciled with sales receipts, and any discrepancies were investigated. Additionally, two employees were required to be present whenever the store safe was opened or closed. These controls ensured the accuracy of cash handling, minimized the risk of theft, and fostered a sense of accountability among employees. By effectively managing cash flow and implementing robust internal controls, management can safeguard assets, promote fin  

Sample Answer

     

Cash Control: A Balancing Act for Management

Management has a crucial responsibility to control a company's cash flow effectively. Here's an overview of the tools and strategies they can employ:

Cash Flow Management Tools:

• Cash Flow Forecasting: Predicting future cash inflows and outflows allows for proactive planning and avoids potential shortfalls.
• Cash Budgeting: Creating a detailed budget for cash receipts and disbursements ensures proper allocation of funds.