FEASIBILITY MANAGEMENT

Feasibility Management

Feasibility Management

Q 1 A profitable business may well fail if the cash cycle is poorly managed. How can businesses efficiently manage their cash cycle? Illustrate your answer with appropriate numerical examples.

Ans. All important business decisions should be guided by financial information contained in the various financial statements and reports. For example a solar electrification project in Rhode Island involves 1700 households and an estimated US$ 8.6 million investment. Even for small businesses that have access to some level of funding through personal financing, friends and family, or costly venture capital dollars, managing the cash cycle is a huge challenge. The cash cycle, which is the length of time between the purchase of raw materials and the collection of accounts receivable generated in the sale of the final product, can leave small companies too illiquid to operate. Should the business use manual labor or automation? Should old equipment or fixtures be updated or modernised? Should new employees be hired or should some be laid off? Can the company afford to pay a dividend to shareholders? These decisions require information on profitability from the income statement and availability of cash from the cash flow statement. Timing of decisions will be guided by how liquid the firm's assets are, as indicated in the balance sheet. Liquidity ratios can guide a banker to determine if a short-term loan should be approved. Debt utilization ratios may influence an investor to invest or not to invest in a long-term bond being offered. These are all types of business decisions that may be affected by financial statements and reports.

Q2 Critically evaluate the role of Management Accountants in a modern business. Illustrate your answer with appropriate numerical examples.

Ans. Management accountants have an obligation towards their company, the general public as well as towards themselves to serve in the ...