Test Electrics Financial Management

Test Electrics Financial Management



Test Electrics Financial Management

Task 1:

Part 1: Cash Flow Forecast for Test Electrics Plc

Cash flow forecasting--projecting cash flows in the short term (up to one year)--is an important financial management tool. If it is not done effectively and regularly, companies can lose substantial amounts of cash, as well as opportunity costs. If it's so important, why can't forecast be done well? Good question. First, every situation is different: Companies of similar size like Test Electrics Plc can have substantially different cash flows in terms of transaction size, the frequencies or timing and the method or location where the cash flow occurs. In other words, forecasting cash flows must be tailored to the Test Electrics Plc, a process that can be time-consuming (Stephen A. Ross, Randolph W. Westerfield & Bradford D. Jordan, 2006).

Test Electric's Cash Flow

Cash Flow

PERIOD ENDING

31-Dec-08

31-Dec-07

31-Dec-06

Net Income

4,313,200  

2,395,100  

3,544,200  

Operating Activities, Cash Flows Provided By or Used In

Depreciation

1,207,800  

1,214,100  

1,249,900  

Adjustments To Net Income

150,400  

1,303,300  

(289,400)

Changes In Accounts Receivables

16,100  

(100,200)

(90,800)

Changes In Liabilities

240,700  

93,600  

(70,800)

Changes In Inventories

(11,000)

(29,600)

(1,600)

Changes In Other Operating Activities

-  

-  

-  

Total Cash Flow From Operating Activities

5,917,200  

4,876,300  

4,341,500  

Investing Activities, Cash Flows Provided By or Used In

Capital Expenditures

(2,135,700)

(1,946,600)

(1,741,900)

Investments

229,400  

-  

-  

Other Cashflows from Investing Activities

281,600  

796,500  

468,500  

Total Cash Flows From Investing Activities

(1,624,700)

(1,150,100)

(1,273,400)

Financing Activities, Cash Flows Provided By or Used In

Dividends Paid

(1,823,400)

(1,765,600)

(1,216,500)

Sale Purchase of Stock

(3,371,100)

(2,805,400)

(1,983,700)

Net Borrowings

1,045,700  

572,600  

(2,264,700)

Other Cash Flows from Financing Activities

34,300  

2,100  

272,600  

Total Cash Flows From Financing Activities

(4,114,500)

(3,996,300)

(5,192,300)

Effect Of Exchange Rate Changes

(95,900)

123,300  

-  

Change In Cash and Cash Equivalents

$82,100  

($146,800)

($2,124,200)

Another factor is the corporate climate. Experience shows that Test Electrics Plc with large amounts of excess cash and virtually no short-term debt place less importance on cash forecasting than those with substantial short-term borrowing activities. This makes sense, since Test Electrics Plc that borrow have a finite amount of short-term reserves their short-term credit capacity while those with short-term investments do not really see such limits.

For Test Electrics Plc we used Quantitative methods which come in two main types: time-series methods and explanatory methods. Time-series methods make forecasts based purely on historical patterns in the data. Say you want to forecast site visitors over the next few weeks. Time-series methods only use historical site visit data to make that forecast (Pogue, 2004).

Cash Flow Forecast for Test Electrics Plc

Current Quarter Feb 09

Next Quarter Mar 10

Current Year Feb 09

Next Year Feb 10

Average Estimate

$1.01

$0.95

$3.95

$4.39

Number of Analysts

20

7

22

19

High Estimate

$1.05

$1.00

$4.00

$4.52

Low Estimate

$0.97

$0.91

$3.85

$4.20

Year Ago EPS

$0.87

$0.83

$3.66

$3.95

Growth Rate

16%

14.46%

8.01%

11.08%

Part 2: Proposal for Obtain Sources Of Funds

For anyone keen on enjoying the business opportunity presented by obtaining a franchise from the Test Electrics Plc's group, there are two options available and each has varying financial implications. The first option allows the investor to buy an already existing restaurant. This could be a restaurant run by Test Electrics Plc's or by another operator. Alternatively, a new investor could start a new restaurant. Depending on the option taken, the cost for Test Electrics Plc's franchise can vary considerably (Mustafa M. 2006).

Where an investor acquires an already existing restaurant, Test Electrics Plc's requires that the purchaser makes a down payment equivalent to 25% of the restaurant's ...