Cash Flow Case Study

Cash flow entails the amount of money that flows in and out of the company or business. Companies usually measure their cash flow after a certain period that include monthly, quarterly or annually (O’Berry, 2013). Most companies find it hard to track and manage their cash flows. Therefore, poor cash flow causes an insolvent business structure and would result in business failures. It is important if financial institutions provide companies with strategic tools and advice to remain cash-healthy and forecast their credit needs. Cash flow provides the company or business with the necessary fuel to move forward. For the case of Hal Carrier, he has realized that the company keeps on getting continuous cash flow problem. Hal could not understand why their checks bounce whenever they write them to suppliers. However, the causes of Hal’s cash flow problems might include the following.

First, Hal Carrier of Bulltuff Stock Trailer, Inc., has to pay the company’s bills immediately. However, Hal has to wait for three months to receive payments for the goods sold. The lack of correct payment terms cost the company to have cash flow problem. The period in which the company pays its bills and receive payments for the sales is long enough to build cash flow problem. For example, the company’s sales on the account are 80% of all sales. However, their terms of payment with the dealers include waiting for up to three months to receive the sales payments. Similarly, the company will consider payment to be late if the dealer does not pay the amount by the tenth date of the due month. The company pays its bills immediately before receiving payments for the sales hence building cash flow problem. For example, the workers in the company are paid each Friday for all work done in the previous week. Moreover, withholding and employment taxes are also paid each Friday.

Second, the business has grown too quickly causing cash flow problems. According to the company’s cash flow forecast, it was originally projected the sales for the year to be $ 2,450,000. But since the company is growing at a high rate, the sales are now estimated to be $5,000,000. Moreover, it is approximated that the business has grown over the last four months by 12% per month. The company is required to make added cash payment for labor, materials and sales in the month; however, it far exceeds the cash payment (30%) received from the added sales. It is vividly portrayed that the company is facing growth trap. Due to the high growth rate, the company consumes cash hence experiencing cash flow pressure. When the company pay little attention to Cash Conversion Cycle, it starves the business of what it need to prosper (Wahlen, Bradshaw, Baginski, & Stickney, 2010).

In a situation when the company faces problems with the cash flow, the analysts must come up with a developed plan to address the problem. First, if we assume that the sales for November and December of the preceding year were constant, and they also equal to the sales for the month of January, it is possible to compute an estimated cash receipts and cash payments as shown below. Similarly, we are to assume that the current growth of the business has caught Hall Carrier by surprise. On a further note, after the month of April, a constant sales growth of about 8.8% is required to be employed by the company to achieve the $5 million annual sales. Second, the financial statement below shows that Hal Carrier’s problem starts in the month of February when the amount of cash collected is approximate $34,000 less the amount disbursed. As time goes, the problem eases and by June, the company experiences a positive cash flow. Ultimately, since the company experiences crisis, Hal need some additional cash to cover the projected shortage. It will be ideal if Hal Carrier borrows the money from a financial institution to pay for the shortage. Similarly, it is advisable that Hal should contribute from his personal savings.



Jan Feb Mar Apr May Jun
Gross Sales to date 208,000 261,000 293,000 328,000 356,864 388,268
Cash Sales 20,800 26,100 29,300 32,800 35,686 38,827
Credit card sales net 20,280 25,448 28,568 31,980 34,794 37,856
Credit sales 166,400 208,800 234,400 262,400 285,491 310,614
Net sales 207,480 260,348 292,268 327,180 355,972 387,297
Cash Collected Jan Feb Mar Apr May Jun
Cash  & credit card sales 41,080 51,548 57,868 64,780 70,481 76,683
November 55,467
December 55,467 55,467
January 55,467 55,467 55,467
February 69,600 69,600 69,600
March 78,134 78,134 78,134
April 87,467 87,467 87,467
May 95,164 95,164
Jun 103,539
Total cash collected 207,481 232,082 261,069 299,981 331,246 362,853
Cash Paid Jan Feb Mar April May Jun
Materials (60% of 50% of sales 62,400 125,280 140,640 157,440 171,295 186,369
Labor (15% of 50% of sales 15,600 31,320 35,160 39,360 42,824 46,592
Sales costs 20,800 26,100 29,300 32,800 35,686 38,827
Fixed costs (1 million/12months) 83,333 83,333 83,333 83,333 83,333 83,333
Total cash collected 182,133 266,033 288,433 312,933 333,138 355,121
Cash Over (short) 25,348 -33,952 -27,365 -12,952 -1,892 7,732
Total over (short) 25,348 -8,604 -35,968 -48,920 -50,812 -43,080




O’Berry, D. (2013). Small business cash flow: Strategies for making your business a financial success. Hoboken, N.J: Wiley.

Wahlen, J. M., Bradshaw, M., Baginski, S. P., & Stickney, C. P. (2010). Financial reporting, financial statement analysis, and valuation. Mason, Ohio: South-Western.

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