Description of ECY Cash Flows
The cash flow of the company has problems, which are indicated by the increase in accrued expenses. For example, the value of expenses not yet paid for increased from $417300 in 2016 to $6,123,200 in 2017. An efficient flow of cash should be characterized by a reduction in the value of accrued expenses (Mashkour, 2019). Moreover, the accounts payable also increased from $44,482,200 in 2016 to $44,461,550 in 2017. Under cirthe cumstances of efficient cash flow, the value of the accounts payable should decrease significantly, to indicate that the firm is spending less than it earns. The trend of long-term debts of ECY also indicates that the cash flows of the company have problems. The value of arrears that are to be paid in the long term increased from $151,860,000 in 2016 to $169,260,000. Under conditions of efficient operation of a company, the amount that the firm owes its lenders should be decreasing significantly.
The financial value of the preferred stock remained constant throughout the 2016-2017 commercial period. This indicates that no additional investments were made on the preferred stocks. Under normal operations, the value of the preferred stock should increase to indicate that the firm is improving on the value of the stock (Lee & Kim, 2019). The cash position of ECY also shows that the company has issues with its cash flows. The value of cash and equivalents increased by a small margin, from $10644,500 in 2016 to $11,119,700. The incremental value is less than 10% of the initial cash, and this indicates that the company is struggling to raise cash. Accounts receivables decreased from $18,924,800 in 2016 to $18,681,500, indicating that the company’s sources of receivable cash do not perform well. Generally, a decrease in the accounts receivable shows that the financial assets do not yield sufficient profit. Moreover, the value of inventories increased from $1,097,700 to $1,172,200. When the cash flow of a company is operating sustainably, the value of inventories should increase proportionally with the value of sales or cash, assuming that the price of goods is constant. However, an increase in the volume of inventories with a small increase in sales or cash indicates the poor generation of revenue.
Larissa’s Expansion Plans
The plan to expand the firm to a level of a corporation is appropriate since the move will generate extra profit (Noor & Mosa, 2015). Since the company experiences a general increase in the value of shares, the expansion can enable it to accommodate additional shareholders. For example, the value of common stock increased from $29,700,000 n 2016 to $37,583,700 in 2017. Therefore, the firm can sell its shares to additional investors. Moreover, the purchase of shares by new investors can improve the cash position of the firm, hence an enhanced ability to pay off the existing debts. An increase in the volume of shares presents the corporation with an opportunity to repurchase some of its stock, as a strategy for improving the financial position. The expansion can also improve the corporate image of the firm, hence expanding its scope of operations within competitive markets. The increased value of assets of the company also justifies its ability to operate on an enhanced scale. The assets can have an improvement of value if additional investors purchase shares of the firm, and adopt strategic measures for the improvement of organizational performance.
References
- Lee, J., & Kim, E. (2019). Foreign monitoring and predictability of future cash flow. Seoul: College of Business, Sangmyung University.
- Mashkour, S. (2019). Cash flow analysis. Samawah: Al Muthanna University.
- Noor, M., & Mosa, S. (2015). The role of cash flow in explaining the change in company liquidity. Nablus: An-Najah National University.