For Dr.Keloki
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caverk_m3_m2.docx1
Running head: Genesis Energy Cash Position Analysis
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Genesis Energy Cash Position Analysis
Genesis Energy Cash Position Analysis
Argosy University Online
Module 3 Assignment 3
Katrina Caver
Organizations are known to create and implement expansion plans that that managers discuss. For a plan, the company needs to examine how substantial the company’s funds are and determine the need for the expansion plan. At the moment, Genesis is in good standing so external financing is not necessary. As far as an expansion plan, it is essential for the company to know where funds are needed. One factor the company should consider is the source of finance, which includes debt, equity, and mix of the two. It would be a good idea to finance for long-term and short-term planning, which is evaluated. Cash flows should be reviewed for the initial years. By the company preparing monthly a quarterly reports, it helps managers understand cash flows.
Investopedia (2015) states, “Cash budget is an estimation of the cash inflows and outflows for a business or individual for a specific period of time.” Companies utilizes this tool as a way of assessing whether the it has sufficient funds to operate the business and gives managers the ability to control excess cash or cash shortage that might occur in the future. When managers have the ability to forecast, they usually will change the plan, which allows them to change policies and research outside sources for financing. On the other hand, if they have excess cash inflows, managers will be able to pay the debts. As a requirement, businesses maintain the least amount of cash for business operations; the managers are must recognize the safe level, which shall be obtained at the end of the period.
In the following paragraph, upon analyzing the company’s past financial statements, it will explain the cash position. All sales are on credit basis, which follows a different pattern. Ten percent of the monthly sales are recognized before the end o the month. Statements detailed twenty-five percent of sales for the first month, thirty-five of sales for the second month, and thirty-percent of sales for third month. Like all cash receipts, they obtain the amount for rent monthly rent, which shows $15,000/month. Cash outflows include the expenses for material, which estimates around fifty percent of net sales. (Accounting Coach, 2015) Conversion costs are the manufacturing costs needed to convert the direct materials into products and excludes the cost of direct materials and consist of direct labor cost and manufacturing overhead costs. The company decided not to pay dividends for the next two years. The company wants to reduce its debt by using earnings. If the company keeps all earnings and uses them to pay debt or the funds in the growth plan, the value of share is liable to increase. As the least cash balance, its fixed cost is $25,000. The decision of maintaining the least cash balance is up to management, which is determined after analyzing the funds that were needed for the past years.
The cash balance is set at $25,000. Net gain (cash inflow) or net loss (cash outflows) is either added or subtracted from the cash balance. If the balance at the end of the month is less than $25,000, this means that management should to make adjustments to make a loan at the beginning of the month so the company want fall in the hole. Funds that are borrowed should be equivalent or more than the beginning balance. The company face liquidity issues during the current year. It was difficult to meet the liquidity amount for the first 6 months, which cause can cause insufficient funds. As a result of low funds, the company experienced low net cost for each month. This caused the debt to increase tremendously, which resulted in funds for January in the amount of $145,00 that reached an additional $170,000 by July. The company needed a lot of funds for capital investment for the beginning of the expansion plan. For the first year during July, the funds were covered for the month of July for the first year, which proves that no financing was needed. Funds that are needed for the near future will be in good standing and will cover the fix costs and increase the value of the organization. The cash budget fluctuated for the year. For the initial seven moths, performances were poor and for the last five months, the performance was fantastic. As performance has been forecasted for the following year is expecting to be stunning. From an overview, the company seems to have control. This can result in the company being able to generate it own fund without seeking external financing.
Upon creating and implementing a strategic plan, the company must determine whether to short-term or long-term plan. It is best for the company to short-term plan, because the company is undergoing the one-year and positive return is expected after the plan. Financing for short-term planning is easier than long-term planning. As time past, sales, revenues, and costs might decline. However, the company might have to make other plans that can justify positive changes. In this case, the company should obtain long-term funds at nine-percent. There is more than one way to finance by debt or equity. Also, by financing monthly or quarterly, this will help in lowering the payments of interest. Of course, once the company finishes with all payments, the plan will assist with providing cash flows, positive returns, and diminish the issue of fixed interest.
In my opinion, it would benefit the company to invest short-term and long-term funds. Internally, the company seems to be in good standing with funding operations. With the credit policy, the company must ensure that all payments are being collected on time. The company can also consider promotions and discounts as well. With internal funds, the company can make changes including the ones mentioned to generate more funds.
References
Accounting Coach. (2015). What is the difference between prime costs and conversion costs? Retrieved from http://www.accountingcoach.com/blog/what-is-the-difference-between-prime-costs-and-conversion-costs
Albrecht, W.S., Stice, E.K., Stice, J.D., & Swain, M.R. (2011). In Accounting Concepts & Applications. (pp.2-693) Mason, OH: South Western Cengage Learning.
Anthony, R.N. & Govindarajan, V. (2006). In Management Control (pp.1-768). Systems. Boston: McGraw-Hill Education.
Investopedia.2015. Cash budgets. Retrieved from http://www.investopedia.com/terms/c/cashbudget.asp
