Looking at the financial reports that were presented to me by Ann Stewart, the president
and primary owner of Cape Chemical, it is clear to see why the company has had trouble
creating more cash on hand while the sales have skyrocketed.
At the same time Cape Chemical is being profitable, they are experiencing some major
cash flow problems. Like many companies, Cape Chemical, can report a profit but not
produce a positive cash flow because both revenues and expenses aren’t clearly cash
inflows and outflows. They have obviously been able to have positive sales increases over
the last few years with a growth factor well over 50%. However, obtaining assets to help
support this sales growth is the major foundation of Cape Chemical’s ongoing cash flow
problem.
I have made and attached a cash flow statement labeled accordingly with this report. These
cash flow reports should be a priority for the company in the future because it is clear to
see what cash flow problems are being incurred and to find the cause. This cash flow
statement shows what and how cash has been used during the period of 2006 and 2007.
The cash for Cape Chemical has been used to finance the large increases in accounts
receivable, inventory, and additional fixed assets. This increase in accounts receivable is
mainly due to Stewarts’ “soft approach” she takes with collecting outstanding fees. The
inventory increases are in excess of what is needed and could be cut back in order to keep
more cash on hand for the cash flow issues.
