STATEMENT OF CASH FLOWS ANALYSES

STATEMENT OF CASH FLOWS ANALYSES

Granting Richie Bloomfield’s request for cash in any management scenario depends on the viability of that request. The appeal though stems from his drive to increase the scope of operations for his company, Urban Roots, from the current scope limited to London’s Highbury Road and Hamilton Road. Injecting the cash in the company could see it expand its operations into a larger geographical scope that covered more informal settlements and impoverished neighbourhoods of London. In analyzing her cash flow statement, Sidrah Khan gets to verify that validity in the determination of whether or not to grant the request. Given the unique positioning of Urban Roots as a social venture, the impact of a financial decision made affect Venture Capital differently. Despite the existence of the latter as a center of funding for social causes and community-based organizations, the risk associated with funding Urban Roots is too high. A financial statement of cash flow from the latter, however, stands to provide clarity on the matter. The statement of cash flow analysis for Urban Roots is executed by looking at the four components of his statement which include;

1. Establishing a sustainable source of cash

Urban Roots, like any other commercial organization (the distinction holds despite its community-based background since the board still focuses on raising money to finance additional ventures), has sustainable sources of cash for their operations. The cash flow sources include cash from operations which entails income and revenue streams from sales of products, goods and services as well as other chargeback costs made to customers. Additionally, the company receives cash from investing sources such as sales of assets and interests from capital investments such as money in banks and investment advisors. Investing cash flows also come from share prices as achieved is stock sales for the company’s shares as traded in the stock market (NGUYEN & NGUYEN, 2020). Finally, business financing completes the company’s last cash flow sources as cash from loans and credit lines also constitute a viable source of cash flows for a legitimate company line.

2. Matching the sources and uses from operations

Urban Roots as an organization is subject to operational and expansion expenditure. The finances for such activities, however, need to originate from its cash sources which, as specified above, are limited to operating sources, investing sources and financing sources. For management efficacy and financial accountability, organizational expenditure is restricted in regards to financial sources, and the logic of financial prudence holds that to each expenditure, an appropriate financing alternative is generated. Operational expenditure form instance, ought to be reliant on income from operational sources. In a nutshell, income revenue purposefully funds operational expenses in an ideal organizational setting. Employee remuneration, statutory deductions and expenses for equipment, logistics and contracting work define the operational expenses for a supply organization like Urban Roots.

Each of these activities and the responding expenses in an ideal situation are funded from outstanding operational income. A successful business, therefore, ought to maintain a healthy balance of cash reserves from operational expenditure even after dealing with the associated costs as outlined above. Other expense types such as finances for expansion in scope and diversity are subject to additional financing avenues. It is understandable if an organization sees alternatives like asset finances and credit lines for purposes of funding growth opportunity. Such financing sources are also intended for cushioning companies against difficult times. To avoid unnecessary loss statements, companies could opt to delve into their credit lines to keep operational expenses manageable. Disposition of assets, however, is a no-go under any circumstances to fund operational expenditure.

For Urban Roots, the unique sources of operational income include revenues from their crops and harvest dinners. While most of their grown crop ends up in the service of vulnerable communities within the city of London, their two years of operations indicate that even with only a third of their crop sold at market prices to various target markets, the company still realizes operational profits. In the two years of analysis, 2017 and 2018, the profit ratios realized by the organization is enormous, equaling an 82% return on equity for the second year and 53% for the first one. Operational expenses, on the other hand, includes the purchase of supplies such as seeds and farm equipment like tractors and harvesters. Other expenses ae tied up on volunteer logistics, legal fees and advertising as well as insurance.

3. Establishing other sources and uses and matching them

In addition to the hugely beneficial harvest dinners and returns from cop produce, Urban Roots also gain substantial amounts from personal donations and corporate sponsorships with communal goodwill being a primary factor in driving up donations. The importance of donations to the company is massive as indicated by the 2018 April to October funding crisis during which, goodwill from the local community created a massive boost in their efforts to cover their overhead costs to the tune of $ 100,000 for the period indicated therein. Save for refreshments and minimal event planning overhead; the company used minimal resources in obtaining the finances from fundraisers and ad other awareness events planned for the period. Consequently, one could say that its cash flow in regards to other sources is positive, and has no indications of a downturn in financial fortunes (Knežević et al., 2016).

4. Establishing the impact of the three prompts on the final decision.

In the Urban Root’s current situation, the company looks to be in a place of financial stability. All of its operational payments and expenditure are fast-tracked with minimal delayed payments, mainly due to bureaucratic barriers and impediments. The income revenue from sales and services offered adequately covers the costs therein. Expansion expenditure, on the other hand, requires a little help if the company were to maintain its current profit margins. In extensively using returns from operational revenue to finance the impending expansion policies, the shareholders have to take enormous profit cuts, and even then, it has to take a ridiculously long time to raise the necessary capital. Consequently, their choice to source for alternative funding is hardly a pointer to financial difficulties. From the information vailed therein, Bloomsdale Suppliers is an up and coming organization with the tremendous financial ability and as such, qualifies for a financial boost, which is why any self-respecting financier would grant the additional individual finances as would I.

RATIO ANALYSES

The expense to revenue ration associated with the company’s finances over the 2018 reports is alarming despite a substantial reduction of the same for the 2017 period. The total operating costs account for 42.5% of the organization’s revenue, implying that it has 57.5% at its disposal as the net income. That figure implies that Urban roots spend more than half of its total income on operations. Given the company’s reliance on donations to a large extent, its sustainability faces some level of threat. The viability of donor-funding is unpredictable at best. Consequently, it is imperative for Urban Roots to radically reduce its expenditure ratio in comparison to its gross revenue. While most expenses are relatively low, averaging less than 3%, the costs associated with harvesting dinner remains the highest one, requiring aggressive intervention for a positive reduction in related spending.

PROJECTIONS ANALYSES

The strong market performance of the company in its past two years, as indicated in the documented financials. One could, therefore, be encouraged to project massive returns for the company over the next financial year as indicated in the projections of Richie Bloomfield which stands at a minimum of 25% growth and a maximum of 107%. However, the 2019 year is subject to extenuating circumstances which spell financial uncertainty for Britons. Inevitably, the financial uncertainty is reflected in the ability to donate to causes which is not a priority for many an individual. Therefore, expect a minimal increase in the projected income from donors. The projected income from donations could grow by half, almost 50%, which is still a drop in the increase rate as recorded in the last year. Despite the difficult financial conditions, the donations are set to increase marginally because of the increased scope of operations of the company, which guarantees greater awareness of the organization and its objectivities. Apart from donations, operational income is set to rise by something between 18% and 30% if accounting for increased sales in the produce grown by Urban Roots.

PLUG ANALYSES

The plug or ‘slack term’ availed in this transaction is the long-term loan that Richie Bloomfield is seeking from Venture Capital to balance the assets and liabilities with equity in their balance sheet. Currently, the organization has liabilities totaling to a meagre $ 435 against a backdrop asset and equity valued at $ 35,000. A $ 5,000 loan from Venture Capital has the capacity to even out the glaring deficit on the balance sheet, given that the deal comes with an additional $ 25,000 secured as a long-term loan. Its role in defining a long-term financial asset that comes in the form of an asset balances the pro forma balance sheet and realizes logical financial positioning (Vašek, L. (2006).

RISK ASSESSMENT RECOMMENDATION

Anyone in the position of Sidrah Khan clearly sees that under usual circumstances, giving Richie Bloomfield money to expand operations is a smart move with minimal risks. The amount involved for starters, a total of $ 30,000 presents a minimal substantial risk. However, Urban Roots in its own rights boast of a solid financial background, and by all indications, it is destined to grow its fiscal strength even further. However, there are certain areas of concern for which some level of risk exists. One, the British economy faces a certain amount of uncertainty following the actualization of a no-deal Brexit. Secondly, the global corona pandemic is massively redirecting interests, and organic farming is unlikely to be one of the issues of priority. However, the long-term nature of the facility extended gives Urban Roots adequate time to respond to the situational challenges that may arise. From a professional assessment, I’d say the existing levels of risk for the loan is minimal (Sawhney et al., 2020).

Conclusion

As an assessor with Venture Capital, I’d like to recommend the loan for Richie Bloomfield. He has thoroughly demonstrated that the organization he represents deserves oof the facilities that we give. Not only does Urban Roots qualify for classification as a community organization with a social cause to offer, but it also has a financial plan for its operations. The plans therein are supported by substantial financial statements that show a progressive fiscal growth of the organization. Consequently, they guarantee their ability to pay back the loan that Venture Capital would extend to them while making a change to the lives of real Londoners while at it.

As ________________, I will

EXHIBIT 1 – PROJECTED STATEMENTS

	Statement Title
Account Titles	Assumptions	$	$
Crop	· Increased yield stemming from bigger operations and more crop. · The purchasing power of targeted markets remain unaffected even with the prevailing economic challenges.	17,500	+233%
Harvest Dinner	· Higher attendance rates based on wider scope.	25,351	+50%
Personal Donations	· A combination of both corona-related shocks and no-deal Brexit will negatively affect financial outcomes for 2019. · The expansion however, plugs the reduction in donation by increasing quantity.	31, 868	+39.4%
Corporate Sponsorships	· Like with personal donations, a negative economic growth reality will affect sponsorship. · Wider scope increases corporate attraction which balances the implications of a negative economic growth.	27,765	+400.4%
Total Revenue		102,484	+ 106.1%
Operating Expenses
Clean-up and maintenance	· Marginal increase in scope influences a corresponding increase in price.	750	+29.3%
Depreciation	· Barely registers any changes	1500	+2%
Equipment and market retail	· Also influenced by increased scope. However, the pre-existence of operational equipment limits massive increases in expenditure.	2220	+11%
Fuel	· Caution of movement reduces the demand for fuel, whose price has plummeted in the wake of the pandemic.	650	−12.8%
Harvest Dinner	· Expansion increases participants. · Prevailing situation calls for virtual meetings. · Setting up virtual infrastructure for projected guests is expensive.	10,000	+1.2%
Insurance	· Insurance parameters increase with the increased expansion.	2,000	+100%
Legal Fees	· Services for expansion have to be paid for.	900	+100%
Advertising	· Marginal increase since advert avenues remain constant despite increase in organizational coverage.	1,000	+21%
Seeds and seedlings	· Prices of seedlings and supplies remain constant. · Increased scope results in requirement for more seeds.	3,500	+20%
Supplies and small tools	· The supplies and small tools are actually adequate a shift in expenditure prices.	2,000	+48.7%
General and Administrative	· Administrators are predominantly volunteers who won’t require much payment.	840	+32.3%

EXHIBIT 2 – PLUG ADJUSTMENTS

EXHIBIT 3 – RISK ASSESSMENT

Capacity to Repay
	Calculation	Projected	Calculation	Projected	Historical	Historical
Current Ratio	Curent assets/Current liabilities	51.34		11.23	22,334/435	1404/125
Acid Test	(Current Assets-Invent)/Current liabilities	47.64		4.87	(22,334-1,609)/435	(1,404-806)/125
Interest Coverage	EBITDA/Interest expesne	152.42		284.92	77,124/ 506	64108/225
Net worth to Total assets	Equity/Assets	1.12		1.91	29,442/26,114	16,221/8,455
Return on average equity	Earnings/Average equity	1.24		0.68	29,442/23,661	16,221/23,661
Vertical analysis	Statement of earning/Equity	2.51		2.38	77,124/29,442	38,664/16,221
Age of receivables	AR / (SALES/365)	1.12.		0.46	325/(104284/364)	100(62550/365)
Age of payables	AP/(PURCHASES/365)	1.12		0.92	185/(56500/365)	80/(31500/365)
Age of Inventory	INV/( COGS/365)	0.62		0.30	65/(38000/365)	15(18115/365)

References

Knežević, S., Mitrović, A., & Ilić, Z. (2016). Different perspectives on the cash flow statement. Hotel and Tourism Management, 4(2), 48-54.

NGUYEN, D. D., & NGUYEN, A. H. (2020). The impact of cash flow statement on lending decision of commercial banks: evidence from Vietnam. The Journal of Asian Finance, Economics, and Business, 7(6), 85-93.

Sawhney, R., Mathur, P., Mangal, A., Khanna, P., Shah, R. R., & Zimmermann, R. (2020, October). Multimodal multi-task financial risk forecasting. In Proceedings of the 28th ACM International Conference on Multimedia (pp. 456-465).

Vašek, L. (2006). Cash Flow Statement-International Financial Reporting Standards and their Comparison with Czech Accounting Standards. Český finanční a účetní časopis, 2006(2), 39-58.