Final Paper/ Powerpoint

Running Head: FINACIAL ANALYSIS 1

FINANCIAL ANALYSIS 2

Financial analysis

Trae’Von Clavo

Belhaven University

MSA 643

Financial analysis

Reply to question 1

Cash vs. Accrual

The cash basis of accounting recognizes revenues when cash is received, and expenses when they are paid. The use of cash accounting seems more often within small businesses as it's easier for them to track the actual money the company has. While larger businesses often use the accrual methods as they can consider payment after a project is due. A small business doesn’t always have the funds to count for money they don’t physically have in their account. During the accrual process since the payment is recorded when something is completed rather than when a payment has been received the company may have to pay taxes on money you haven’t received yet. For larger businesses this is not always an issue but for some small ones this can break the business depending on their financial situation.

However, there are some disadvantages of both cash and accrual systems. While using the cash method this can also give an investor or own the thought process that they have more money than the business does. One disadvantage of the accrual process is that it can cause a company to have a short-term cash flow problem as money is recorded when a project is completed not when it received.

Reply to question 2

Even, we have this information, it is hard to tell exactly whether we should stretch the payables based only on this information. At the first glance, it is clearly worth to extend the payables, as we can borrow for lower interest rate than in a bank. However, a couple of questions are in place here. First question is that we must have a project (or necessity) on asset side or part of the business that internal rate of return is higher than the marginal costs of borrowing. There are also other consequences. By stretching the payables, we may economically ruin the supplier and thus we must find new one so, it also depends on how hard is possible to substitute the supplier what are the costs connected to that. They can also seek the new customers and stop to cooperate with us, so again we must find a new supplier that would bring additional costs. The supplier can also increase the price of supplied goods to cover losses coming from stretching payables, so we must consider also supplier power in that area here again some cost analysis is necessary. So, based only on hard data I would stretch the payables, if the company need short term financing, but as I said there is necessary to do some cost-impact analysis before our final decision.

Cash Budget for Stars basketball team
	1st Q	2nd Q	3rd Q	4th Q
Beginning Cash Balance	$ 250	$ 150	$ 156	$ 97
Add Cash Collections	$ 5,600	$ 6,720	$ 8,280	$ 20,600
Total Cash Available	$ 5,850	$ 6,870	$ 8,436	$ 20,697
Less Cash Disbursements
For Inventory	$ 47,850	$ 58,500	$ 53,550	$ 159,900
For Equipment	$ 1,500	$ -	$ -	$ 1,500
For Expenses	$ 13,300	$ 16,360	$ 19,600	$ 49,260
Total Cash Disbursements	$ 62,650	$ 74,860	$ 73,150	$ 210,660
Excess of Cash	$ (56,800)	$ (67,990)	$ (64,714)	$ (189,963)
Financing	$ 120	$ 157	$ 148	$ 258
Repayments			$ (11,000)	$ (11,000)
Interest			$ (330)	$ (330)
Borrowings	$ 3,000	$ 8,000		$ 11,000
Total Financing	$ 3,000	$ 8,000	$ -	$ 11,000
Ending Cash Balance	$ (53,800)	$ (59,990)	$ (64,714)	$ (178,963)