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Finance & Accounting
Pages 5 (1255 words)
Name: Institution: Professor: Date: Cape Chemicals: Cash and profits Introduction The case is about Cape Chemicals which has been profitable but experienced problems in cash flow. It therefore raises questions on how a company can report a better performance in terms of profitability while experiencing cash flow problems at the same time…
There are various as to why a firm can be profitable and experience cash flow problems at the same time. This case study will discuss the reasons as to why the firm is experiencing cash problems and provide recommendations on how it can improve its cash flow. Cash flow is the ability of a company to meet its financial obligations. A negative cash flow prevents a company from meeting its debt payments like in the case of Cape Chemicals. It is important for Cape Chemicals to analyze the reasons leading to the negative cash flow while still reporting an increase in the profits. By doing this, it will be able to lower its debt ratio to enable it acquire long term borrowing. The analysis will also be aimed at acquiring a positive cash flow and positive profits. Reasons for the negative cash flows at Cape Chemicals The profit for the company has increased significantly over the last three years due to the increase in the revenue obtained from the increase in sales of chemicals. The new product lines have led to increased production and hence increased sales and revenues. However, despite of the increase in profit, the company has negative cash flow due to increase dependence of loans for its capital expenditure. ...
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