DR.Pepper and discussion 2

RESPONSE FOR THE DISCUSSION:

In your response to your classmates, consider comparing cash generation techniques at your company versus his or her company. Draw distinctions based on the industry and tell your colleagues why those distinctions are necessary for the management of cash flow. Below are additional suggestions on how to respond to your classmates’ discussions:

· Ask a probing question, substantiated with additional background information, evidence or research.

· Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.

· Offer and support an alternative perspective using readings from the classroom or from your own research.

· Validate an idea with your own experience and additional research.

· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

· Expand on your colleagues’ postings by providing additional insights or contrasting perspectives based on readings and evidence.

Author: Shravya Jannu

Part – 1

Importance of Cash

I was working for telephone network provider company soon I realized huge availability of cash was required for paying the salary of the employees every month and it was important to retain the technical superiority and therefore employees were key and their effort was immensely crucial for the company to have good returns. Employees play important role in these industries and contribute immensely for the success through research and development paying out time was a challenge but important for long term stability.

Cash generated from the operation and trading and profit and loss statement differ due to accounting practices. In the income statement, capital expenses are not recorded therefore the cash used to purchase capital assets is not shown due to which the figure differs ultimately. In practice, the expense on long term assets are distributed over the life of the asset and charged annually in profit and loss statement but do not represent any outflow of cash (Medda, 2019).

Mostly accrual basis of accounting is followed therefore increase in accounts receivable though recorded in the profit and loss statement but do not represent receipt of cash. Transactions are recorded as it occurs, cash received or paid is overlooked and this reason income shown in income statement differ from cash generated from the business operations.

So, for a company say suppose the telecom industry to manage the cash flow should prepare cash flow statements which comprise of cash generated from the operation, cash from investing activities and cash from financing activities. In telecom industry towers and machinery are depreciated each year which needs to be added back and the cash expense on purchase of that machinery is to be subtracted to get the cash generated which is then used for payments of dividend or interests (Weber, 2018).

Application of Concepts/Financial Analysis

Managers require proper financial analysis of data and records for taking further investment decisions and to raise funds from an ideal source that would properly suit their project requirements. Financial analysis is mainly carried to find the financial risk tolerance and financial performance of an entity over a period. Financial risks are measured by calculating liquidity ratios and debt-equity ratio. The ideal short - term solvency ratio is 2:1 and anything below this is unsound. The debt-equity ratio means the contribution of outsiders and shareholders in the total capital invested. 1:1 is a sound debt-equity ratio anything below this is risky.

Creditors like financial institutions are users of financial information provided by the organization and depending on the status or soundness creditors decide whether their investment in such entity is reliable or not. R and sons, a company, required a loan for investing in a new project, but their application was rejected because the company could not satisfy the creditors with their performance. The growth over the last few years on the basis of the profit earned was quite below par and for these reasons, the loan was denied.

Financial analysis is based on financial information provided by the organization itself so there too much dependence on the data provided by those organizations. This is a drawback of financial analysis as accuracy and conclusions are not fully dependable. To understand the strength weakness opportunities financial analysis plays an important role from a business point of view and chief executive managers appointed based on such reports can shape their future goals. Hence financial planning is completely dependent on the financial analysis of an organization (Misra, 2019).

 

References

Lo, Y. C., & Medda, F. (2019). Bitcoin mining: converting computing power into cash flow. Applied Economics Letters, 26(14), 1171-1176.

Singh, K., & Misra, M. (2019). Financial determinants of cash holding levels: An analysis of Indian agricultural enterprises. Agricultural Economics–Czech, 65.

Weber, M. (2018). Cash flow duration and the term structure of equity returns. Journal of Financial Economics, 128(3), 486-503.