Cedar roofing and siding shingles are recognized all over the world for their attractive nature and beauty they add to homes. It is for this reason that they are on high demand from new homeowners and construction companies…
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Ending Income tax payable (10,000) (30,000) Net cash flow from operating activities (164,000) Analysis of ABC Co.’s Cash Flow A company’s operating cash flow indicates the revenue generated from doing business over a specified period less the operating expenses (Howell & Bain, 2008). This is an important process since it helps a company determine whether the business has a healthy financial position between the one given on paper and the one that is applicable in practice. From the results of ABC’s operating cash flow, the company is experiencing a negative cash flow. Although this is normal sometimes, it is still a cause for alarm to the company management. The situation indicates that the company is spending more money than it is receiving. This is a common phenomenon with new companies, however, the situation is dangerous if persistent over the long run (Lerner, 1995). There are several reasons for a negative cash flow but the main causes include poor debt collection, high operating costs, and bad business decisions. In the case of ABC Company, there are three likely reasons for the negative cash flow. These are high costs of goods sold which mostly consists of purchases. The other reason is poor debt collection, the company’s accounts statement indicates that the net accounts receivable were still very high with a small margin having been collected compared to the previous period’s accounts. The third reason is the nature of the company, with a 25% growth in sales it means the company is a fast growing company, which results into significant increase in the company’s working capital. To improve the cash flow situation at ABC, the company needs to reduce its spending and increase its sales (Laughlin, Bebbington, & Gray, 2001)However, the best option in...
Besides facing competition from other companies that deal with cedar in making roofing and siding shingles, ABC also faces competition from products made of iron and clay, which are operating in the same market. However, cedar products have a higher competitive advantage over similar products in the market made of iron or clay. The main disadvantage of cedar roofing and siding products is the attached price, which might lead to potential buyers resolving for cheaper iron products. ABC Company is therefore likely to maintain its growth with minimal deviation either downwards or upwards. These deviations may be because of the harsh economic times forcing many homeowners to prefer cheaper iron products or clay products for their roofing and siding. Environmental conservation movements are also affecting the industry negatively (Sparrow Exteriors, 2013). These conservation policies are in turn making the cost of raw materials for cedar roofing tiles to be more expensive. Indulging into a new project such as building the dollhouse could be a viable solution for the company to meet its target goal of $3 million in the next three years.
Being the company’s controller, my objective is to create a strict budget and assess all the employees towards the project so that I can ensure everything goes according to the set budget limits. The CEO should undertake the new project. After carefully consideration of its profit margin and the costs involved, the project is likely to help the company meet its target.
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