Jds Trucking Business Financial Analysis

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As we discussed in the first part, accounting statements created on accrual basis can be extremely deceptive. Hence, the companies need to be alert about the real cash position of the company. Accrual basis means that the company may sell a few things on credit basis and may expect to receive cash in the future. However, the income statement does not differentiate between the cash received and the cash that the company expects to receive in the future.

Cash flow analysis is a process which helps us to identify the immediate ability of the business to use its cash coffers to pay for its planned or unplanned expenses. While income statement and balance sheet are indicative, cash flow statement is prepared on the basis of some real hard cash. This reporting tool should be used in conjugation with other tools like balance sheet and income statement to analyze the profitability and potential of the company. Cash flow analysis helps in assessing the movement of the cash to and from the business. This is important in order to plan for future expenses and to face any contingencies associated with the business. (Brachmann, (n.d))

If the cash flow analysis is not conducted, the company may perceive its financial position wrongly and may commit to those expenses for which it cannot pay in the short or long term. Various financial decisions of the business depend on its ability to track the internal changes to the organization. Without analyzing the cash flow statement, the company will miss out a big part of the trend change. The financers and investors also need to look at the cash flow statement before they decide to invest in the company. The cash flow analysis gives them the precise about the risk factor associated with their investments. Many of these investors weigh cash flow statement more than the income statement which is created on accrual basis. Accrual basis can inflate the accounts even in those situations when we may not be sure whether the receivables will come or not. Hence, the other financial reporting tools may increase the risk of the internal as well as external stakeholders. If there is no cash flow analysis, many external stakeholders will find it difficult to have any view about the company. To sum it up, we can say that cash flow analysis adds more clarity to the financial reporting process and helps in the decision making process for everyone who is associated with the business.

The three components used for creating the cash flow statement are: operational cash flow, investing activities, and financing activities. These components are further divided into business activities which fit for each category. The activities mentioned in the cash flow statement may differ from business to business depending upon the business model and needs. For our online retailing business, some of the activities may not exist. Hence, the cash flow statement may miss out a few rows.

The cash flow analysis for our business shows that the business will turn positive on cash flow right in the first year of operations. It starts with $250,000 at the start of the first financial year of the business which came through the initial investment. When you look at the monthly balance of the cash flow you can see that JDS Trucking did have their hits and we did go into the red but when you are starting a company you will go in the red a have all of these factors you have to look into. You have fuel and trucks and other aspects but by the time we hit the end of the month JDS Trucking was out of the red as you can see we have a grand total of $523,750 as our closing cash balance for December. This trust will be a significant propeller for the company as it looks forward to expand its business, raise funds through private equity or any other route, or even tries to convince more brands or vendors to join hands with it. As they say, money pulls more money; this process is expected to give strength to the foundation of the business. Going forward, we may see cash flow to get further stabilize and grow slowly and steadily.

We have studied the importance of using the cash flow analysis and how things can go wrong if it is not used by the company as well as by the external stakeholders. After discussing both the sides of the issue, we realize that it is extremely important to use cash flow analysis in association with other tools of financial reporting to have a clear and realistic picture of the financial state of business. We have seen the important activities to be used for cash flow analysis. Some of the activities found in the standard cash flow statement were missing in the cash flow for the business as the company does not do these activities. In the end, we analyzed the projected cash flow for the company for the first three years. These projections indicate that the business will get steady growth of cash flow all these years. These are good indications for a start-up business.

References

Brachmann, S. (n.d.). Benefits from Cash Flow Statements. Retrieved December 25, 2015, from eHow: http://www.ehow.com/info_8485595_benefits-cash-flow-statements.html

Farris, P. W., Bendle, N. T., Pfeifer, P. E., & Reibstein, D. J. (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Pearson Education.

Stowell, D. (2010). An Introduction to Investment Banks, Hedge Funds, and Private Equity: Academic Press. Academic Press.

Harrison, A. (2013). Business Environment in a Global Context. Oxford University Press.

Start-Up Capitalization

May 7, 2016

Amounts

% of Total

OWNERS' INVESTMENTS

James Smith

$62,500

12.0%

Bob Martin

$62,500

12.0%

Mike Bauer

$62,500

12.0%

Jennifer Crase

$62,500

12.0%

Other

Other

BANK LOANS

Bank Name

$0

0.0%