Dissertation on Cash Flows
Dissertation on Cash Flows
This chapter presents the findings and main points which come the from ratio and trend analysis of secondary data relevant to cash flows and acceleration of cash flows through various means. The importance of accelerating cash flows and various methods applied by companies for this purpose are explained with reference to previous researches and studies.
6.1 Secondary Research
The secondary research as described in the methodology chapter of this report is based on the literature review which includes books, articles, websites and annual reports of the two companies. The internal data in the secondary sources was obtained from the annual reports while external data was obtained from books, journal articles, and websites. The annual reports of both Marks and Spencer and Debenhams provided comprehensive data related to the cash flows, management of cash flows and the elements affecting the speed of cash flows. As the case is with most retailing stores the annual report of Marks and Spencer also suggests that the company has extensive cash outflows in capital expenditures in the year 2005 and 2006. M&S has huge operating cash inflows in the last four years from 2005 to 2008 but net cash flows showed a trend from negative to positive. From 2007 onwards, the net cash flow figures showed a positive trend which is a very hopeful situation and it is expected that it will continue in the coming years.
The cash inflows of the company are highly dependent on the revenues generated through sales to local and international customers. The company’s cash cycle is dependent on trade debtors, inventories and trade creditors similar to the cash cycles of other companies. The annual report indicates that the company used to pay its creditors for general merchandise is between 16 and 23 days while for food payments it is between 18 and 25 days. This indicates that the company can, in fact, increase the payment period for creditors after negotiations to delay payments to suppliers and creditors in order to speed up cash flows as the Debenhams did. However, the average inventory turnover ratio is 12.8 times and the receivable turnover ratio is 36times which are pretty good figures. The positive thing is that company has managed to improve these ratios in the year 2008 except receivable which is lower than last year because of the overall credit crunch.
According to the annual report, the company increases its sales through various channels including stores and outlets in various regions and a strong web presence. The increased level of sales increases the cash inflow of the company and as the company accepts all major credit cards and also issues Marks and Spencer charge cards to facilitate cash inflows from customers. The company does not have a policy of selling financial instruments for trade purposes but if the need arises for the company and there is a shortfall in cash the company will sell off financial instruments to cater for this shortfall of cash. The annual report states that a financing option is available to the company in the form of a syndicated bank revolving credit facility of £1.2 billion which will expire in 2013. The company also avails financing options available from issuing notes to various parties (Marks and Spencer 2008).