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Cash Flow Analysis

According to the cash flow analysis, the company is overburdened with large amount of fixed assets at their possession. The assets bring significant maintenance and depreciation costs. While the financial condition was not displaying encouraging prospects to debtors, the company would have no support from short and long-term debtors, thus, the large amount of fixed asset will continue to take away their profit and credibility. In that direction, the company will have no chance to gather enough capital to design programs that will enhance sales performance. Below is the summary of cash flow analysis of Holyrood Golf.

From the case of Holyrood Golf, we believe that owning the entire courses and buildings is necessary to keep members safe from liability. However, cash flow and profitability ratios indicated that the assets have become a heavy burden that drains the company from available profit and retained earnings. Depreciation and maintenance cost will keep the company from any effort of restructuring its finance. Thus, it is only logical that we sell the assets and replace it with leased assets instead. There are several advantages of leasing. First, it transfers the risk of obsolescence to the lessor.

Second, it provides lessee with flexibility to meet the

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timing of cash revenue made by the assets. Third, it will save costs tremendously (Kieso, 2001). Leased assets will reduce cost and increase ROA significantly. Taxes, insurance and maintenance may be assumed by the lessor and the club will still have the right to use the assets. Furthermore, because assets are owned by the lessor, depreciation cost is severely reduced, and sales will be a lot larger -comparatively- which will increases ROA. Cash flow will then be relieved from the previous downhill trends.

According to Weston and Brigham in their book ‘Basics of Financial Management’, the first step of financial forecast is to make sales assumptions based on previous market trend. Sales and expense prediction in the table above is made by calculating average growth of each post on the revenue account. However, some posts, like club calendars, donations and interest received do not indicate a significant correlation to market trends, thus I made an assumption that their amount would be equal to last year’s. Furthermore, prediction on expenses is based on previous trend also.

However, it is important to mark that unlike sales, expenses –like administration and general expenses- correlate more with internal factors instead of external. In predicting expenses I also made the assumption that within the financial year 1996, there is no procurement of additional assets, thus, maintenance and depreciation expense in 1997 are assumed equal to 1996. Recommendation on How to Improve Financial Performance and Corporate Situation Beside the suggestion of how to restore corporate cash flow and increase financial performance within the financial ratios, there are also several issues that required attention.

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