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Improve Your Cash flow: Cash flow analysis

by Robert McCallion and Alan Warner

Companies go bust because cash flow is not planned and managed effectively but this is frequently because there is no ANALYSIS of the factors that can drive an adverse cash flow position. This is particularly so when – as often happens – a company goes bust despite the fact that it is trading at a profit.
Analysis is important and relatively easy because there are only a few possible reasons why a profitable company can go bust. These reasons are:
Offering credit terms that are too generous and are in excess of what is taken from suppliers.
Failure to collect cash from customers in accordance with credit terms.
Keeping stocks that are in excess of plans and reasonable requirements.
Spending money on capital expenditure that cannot be afforded.
A good accountant can take a set of books and produce a statement that itemises a cash flow between these factors. A good financial analyst can look at a set of published accounts and find out which of the above factors are causing the problem. Companies go bust because nobody thinks to look behind the numbers and take action to correct the problems.


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Improve Your Cash Flow: Teach Yourself

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