Discussion Board #3- Cash
Flow
Devon Hudson
Liberty University
BUSI-530: Managerial Finance
November 26, 2020
Discussion Board #3- Cash Flow
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Discussion Board #3- Cash
Flow
Cash Flow Strategy
For many companies, the measure of success initially begins with maximizing revenues
and creating positive cash flows for the company. Over time as the company continues to
become successful, they may offer shares to potential investors to raise capital for projects or
borrow a loan from commercial banks (Brealey et al., 2020, p. 43). Being the CFO of a
struggling company and facing the possibility that the company could go under if specific
strategies are not formulated may seem daunting but can be overcome. In two years, a new
product will be finalized and hopefully will provide enough cash flow for the future, but in the
meantime, the company only has enough cash to last six months.
Corporate Loan
Therefore, to overcome these financial struggles, the CFO must implement a plan. In this
case, obtaining a corporate loan should be pursued, as the CFO assessing the current finances is a
great starting point before attempting to achieve a loan (Morgan, 2019). The main objective is to
discover whether any account receivables may help cash flow or any liquid assets that may help
cash flow (Chen, 2020). Since there are minimal cash flows, having liquid assets will make the
company more appealing to investors. The more capable the company is to pay off debts, the less
risky an investment the company is to investors (Chen, 2020).
More directly obtaining a long-term business will be more beneficial for the company.
Generally, these loans consist of low-interest rates and can be paid over several years (Johnson et
al., 2020). Another benefit to having the loan paid over several years is it can provide financial
space. If the project is not completed in two years as predicted, depending on the terms, there
may still be time left over to pay off the loan once the project is completed.
Capital Budgeting
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Discussion Board #3- Cash 3 Flow
Ultimately having an extensive investment that will positively change the company should
be analyzed and reviewed thoroughly (Brealey et al., 2020, p. 307). Essentially having a product
two years away from being offered publicly is a high risk for the company. Therefore, using the
capital budgeting process and ensuring its strengths are implemented will be helpful.
Establishing these plans will help confirm that the project will retain a positive net present value
and be successful.
Keeping the initial forecast consistent and accounting for factors such as inflation or the
price of materials for the product development should not be overlooked and will also help
provide a proposal for a loan (Brealey et al., 2020, p. 308). Another factor that should not be
ignored is the forecast bias. Due to the fact this project is proposed as one that will save the
company and provide high margins. The CFO should plan for all contingencies using a
sensitivity analysis. This analysis will help provide a consistent number of the project's cost and
how much cash flow the company should receive (Brealey et al., 2020, p. 309).
Conclusion
There are multiple ways to propose the funds needed to preserve the cash flows until the
product is ready for the market. Suppose the company was to offer shares publicly by
announcing the new product. Having a public announcement may give competitors who may
have better resources to take the product idea and bring it to market first. Therefore, maintaining
this investment strategy in-house and providing the details on the project once it is closer to
market may help the project become more successful.
Discussion Board #3- Cash
Flow
References
Chen, J. (2020). Liquid asset. Investopedia.
https://www.investopedia.com/terms/l/liquidasset.asp. Brealey, R., Myers, S., & Marcus, A. (2020).
Fundamentals of Corporate Finance. McGraw Hill
Education (10th ed.). McGraw-Hill Education. https://newconnect.mheducation.com/.
Johnson, S., Peterson, E., & Fenandes, P. (2020). 8 Issues keeping you from securing a business
loan. Business News Daily. https://www.businessnewsdaily.com/6242-small-business-loan-
mistakes-to-avoid.html.
Morgan, R. (2019). What is a corporate financial strategy? Bizfluent. https://bizfluent.com/info-
8023030-corporate-financial-strategy.html.
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