Decision making to improve financial performance - 5.4

Question 1

What are some methods to improve cash flow?

Answer 1

• Optimize receivables by sending invoices as soon as goods/services are delivered with clear payment terms
• Manage payables by negotiating payment terms - extend payment terms
• Monitor inventory by reducing excess - identify slow-moving inventory and consider discounting it

Question 2

Why is it difficult to improve cash flow?

Answer 2

• Customer payment delays can create cash flow gaps
• High operating profits - high fixed/variable costs
• Poor inventory management leading to excess stock

Question 3

Why is it difficult to improve profit?

Answer 3

• Rising costs such as materials and labour increasing making it harder to maintain or improve profit margins
• Competitive markets can force businesses to set lower prices
• Changes in customer preferences or economic conditions can lead to decreased demand affecting sales and profits.