The Future Financial Health of Look Ahead - Essay Example

The monthly cash flow statements for Look Ahead are given in the table below. Cash Flow is one of the most important aspects of every business. A cash flow statement shows the total of the actual cash inflows and outflows of a business. A cash flow can be prepared for any time period. It helps the company get a clear view of the liquidity at any given point in time (Gillespie et al, 1997). The statements for Look Ahead provide valuable insight into the liquidity position of the company. The cash flow statements indicate that the liquidity position of Look Ahead will be very weak based on the estimates.

Hence it is essential to opt for other sources of funds for maintaining a strong liquidity position (Berry and Jarvis, 1996). The overdraft calculations in the statement indicate the amount required by Look Ahead to prevent negative bank balance. From the table, it is evident that Look Ahead must have a Bank Overdraft option for at least £ 270,000. The Profit and Loss Statement for Look Ahead is presented below. Profit and Loss Account is a financial statement which shows the companies profits and losses for a given period.

A profit and loss account helps the company analyze how the profit or loss arose i.e. the main cause/s for the profit or loss, so as to make informed decisions for the future (Arnold et al, 1985). Based on the estimates, Look Ahead forecasts a profit of £ 80,000. Profit and Loss statement includes all the expenses and the income recorded during the period, irrespective of whether the payment was received (Britton and Watterston, 1996). The projected balance sheet of Look Ahead in December 2007 is presented below.

It is evident that Look Ahead needs to give due consideration to its cash inflows and other sources of funding, as the ending bank balance is negative. Also, the balance sheet indicates a total of £ 240,000 as debt.