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Article 1

Title: Singapore firms need to improve on cash management

Author: Stephanie Luo

Date: Dec 15, 2017, 5:00 AM SGT

Caption on the importance of this article: This article reports on the status of current businesses sustainability which overall also affect the economy in Singapore.

Topic: Cash Flow management

In Financial Management, the working capital is derived by taking the formula of current assets minus current liabilities, which would be ideal for a business to have a positive working capital. The working capital tells the measurement of the company’s operational efficiency and its short-term financial health. A positive working capital would implies that the company has more liquid cash on hand to conduct its subsequent periods of operation.

This article discusses the situation of billions of dollars in working capital being tied up due to the poor capital performance by Singapore business. According to the article, sectors that struggle with managing their working capital adequately include energy and chemicals. As a result, these sectors have suffered a major revenue loss of 25% year on year while struggling to manage receivables and inventory. To counterbalance their cash constraints, firms within energy and chemical sectors attempt to extend payment period from their creditors.

The attempt of increasing the number of time to pay creditors have been effective in increasing the sector’s overall performance. This positively impacts their net capital days and meant that the improved performance was due to these firms now having more time to gather cash from sales and a rise in inventory.

However, this method of delaying payment is not a sustainable practice in the long run. If companies decide to continue delaying the payment, it can eventually backfire on them. As extending payment period does not erase the fact that liabilities are still present. Furthermore, creditors may also charge them interests on their debt, making the payment amount even higher.

Relating the learnings from this article to this module when we did a financial statement of the balance sheet for the semester 2.2 business project. During the project, our team proposed to do pre-orders instead of selling instocks, and this idea has enabled us to maintain a healthy working capital. Firstly, our workshops which had little to none inventory attached to us. Little inventories meant that we do not owe much to our creditors and do not require too much inventory space for storage). Whatever stock we buy, are actually pre-orders that we collected before-hand.

Secondly, to ensure that we gain revenue, we provide early-bird incentives and also expanded the range of services. Lastly, sponsorship for the event venue and even received funding for our operations to reduce our current liabilities.

Article 2

Title: Managing cash flows together

Author: KOH JIA RONG

Date: JAN 8, 2020 05:50 AM

Caption on the importance of this article: It is important for analyzing the liquidity and long term solvency of a company. This article also stated ways SMEs could obtain funds such as fintech firms, OCBC and others.

Topic: Cash Flow Management (working capital) & raising capital (bank loan) (subsidies/grants), Break-even analyze

In my opinion, funding is one of the most important aspects of the business as this would affect the cash flow statement (cash budget) as it shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis of operating, investing, and financing activities.

It is better for a business to have more current assets than liabilities, and having a healthy cash flow due to the fact that this can provide financial cushion for businesses to speculate and experiment with their decisions. Fortunately, with today’s modern technology provides efficiency in conducting business operations, businesses can better manage their cash flow. Especially with technology features like invoice reminders and online payment options working to facilitate prompt and efficient payment between businesses and their creditors.

From what was taught in class, having more capital at your ending cash balance each month would automatically leave you with more capital to use in the next month after deducting the beginning cash balance. Hence, reduced borrowing could result in lower capital for next period’s operations.

Therefore, the payback period method is used for my project. The reason is that it suits our business model by analyzing the cash flows by the length of time that it takes for a project to regain its initial cost out of the cash receipts that it generates. Since our business model is hosting services of workshops and talks, this method is an ideal screening tool for us to evaluate the gains of doing the project. The calculation process is quicker and simpler than any other appraisal techniques. Most importantly, it is a very easily grasped concept for us.

Disadvantages to this method include not taking into account the time value of money, keeping the cash flow accounting method simple would reduce the trouble for a new start-up and would consider using the net present value (NPV) method as the year goes by. At the minimum, businesses require healthy cash flow to maintain a sufficient level of working capital for operating expenses, Beyond surviving month to month. The articles above addressed different grants that Singapore bank’s provide to help SMEs to sustain their cash flow including the financial risk one would obtain upon actions of improper financial action the two types of loans taught were either secured loan or unsecured loan.

Article 3

Title: YouTube is a $15 billion-a-year business, Google reveals for the first time.

Author: Nick Statt

Date: Feb 3, 2020, 4:24pm EST

Caption on the importance of this article: It talks about Google’s profits origins for its subsidiaries (Google brought over youtube, youtube earning more), It also talks about the benefits of investment acquisition that help it main company’s revenue.

Topic: Week 6: Raising Capital & Investment decision

To raise capital, some smaller companies would choose to sell a percentage of their shares through these various channels: angel investors, equity financing, venture capitalists, entrepreneur’s sources or even government and banks loans. Some of these methods would result in the business owner losing partial or complete autonomy over their business or the need to pay a high interest rate or even paying a high division to their investor. The risk also affects both the business owner and the investor since the pressure of getting an investor is when the investor demands to get his or her money back. Entrepreneurs must match the characteristics of their company to the needs and wants of investors as part of the investor criteria. Which could be challenging for certain businesses as expectations of investors may not be easy to fulfil.

After learning the basics of investment decisions, the articles above have demonstrated new perspectives beyond lecture content. I became interested and did some research on new terms such as acquisition, takeover, and merger. These business activities are often done on a large scale, between one major company to another. And it is different than seeking funding or small investment between one person and a company to investment between company and another company.

However, I have decided to focus more on “acquisition” as shown from the articles I have chosen. Acquisition is when one company purchases most or all of another company's shares to achieve control of that company in the same situation as when Google bought all of Youtube’s share. When Google brought over Youtube as an acquisition in the year 2006, Google’s CEO had not disclosed any financial report on how Youtube had been doing in terms of its financial profitability since. Despite so, many speculators have since been trying to make sense of Youtube’s revenue stream and their financial performance.

More recently in the article, Google stood up and addressed that its business doesn't only rely on its program which it's fast-growing and it separate businesses like YouTube and its cloud computing division to select up the slack to appease investors. The decision made by Google in acquiring Youtube had helped them contribute to its revenue however, there is also some stock decrease in price as the market stock changes.

Caption on the importance of this article: It talks about google brought over Fitbit company.

Author and date of publishing: Brian Heater/ 9:06 pm on 08 November 1, 2019

Article 4

Title: How to Start a Multimillion-Dollar Amazon Business With Less Than $2,000

Author: Matt Clark

Date: October 3, 2019

Caption on the importance of this article: It is important as it talks about the start-up costs and step for an e-commerce business.

Topic: Start-Up, Pricing Strategy, Understanding Forecasting, Inventory Management

Starting a business, you would need to estimate the start-up costs required for your business concept. The next step after securing funding is to decide on how would you spend on the necessary items for your business. Unfortunately, it is impossible to make accurate forecasts of costs as there are many unexpected changes that could arise in the midst.

After the business is up and running, the major question will be how to earn more profits. Profits that can be earned are affected by the amount of sales you get and the costs to your goods. Some key issues that need to be taken into the above consideration include: predicting unit sales per month, the stocks sold, selling platform and channel, needs and wants of consumers and monthly operational adjustments.

In class, it was taught that for new start-up businesses, sales are unlikely to be at 100% level for the first 3-6 months of operations. It takes time to get people to know your business and build up the customer base. Constant strategy and marketing adjustments are therefore needed for the first few months of operations.

Since revenue may not come readily during the first few months, businesses could choose to work on reducing unnecessary expenses instead. Expenses like rental fees and long-term lease commitments can be reduced and possibly eliminated if the business choose to go offline. When businesses go online, they can reduce costs of stocking up excessive inventory, warehouse rental fees and certain logistics fees.

To manage business online, require a stable efficient inventory system. The inventory system needs to be established, classification on the type of inventories which all ties up to the management of inventory. Secondly, the amount to order is important to maximize the customers satisfaction level by avoiding understocking since re-ordering again would add up more expenses cost to shipping and it would reduce the level of efficiency.

Doing online business also helps inventory management to save storage cost, furthermore, it also appeals to a larger demographic of customer based. When ordering goods from a supplier online (ordering cost), there are few procedures to take notes like the handling of cost, shipping and the order processes. The article above-mentioned way to help online businesses to minimize the sum of carrying costs & shortage costs, to be more specific for finance manager their goal is to keep inventory levels low to ensure that funds are wisely invested.

Article 5

Title: Breakeven On The Horizon For Veeco Instruments Inc. (NASDAQ: VECO)

Author: Simply Wall St

Date: December 5, 2019

Caption on the importance of this article: It showed how “Veco '' uses break-even point to assume profitability in the future.

Topic: Break-Even Analysis

Business owners and investors are highly concerned about whether a company is making profits or losses. For some businesses, they utilised the “break-even point” of a business which meant when the level of sales at which total revenue equals total costs showing neither making a profit or loss. Since all businesses are working towards increasing profits, they would need to know how much their businesses need to grow in order to reach the breakeven point to generate profit. Break-even point is often used by new start-up businesses as a reference to set sales goals that will generate income, taking into consideration of the relationship of revenue, fixed cost, the variable cost, volume and profit.

However, for a company that has several products or services, it is suggested to use cost-volume-profit (CVP) analysis as used to calculate its sales volume necessary to achieve the desired target profit. Assumptions often made while using cost-volume-profit (CVP) analysis for better calculation unless if the businesses plan to offer discount price to the customer and would like to measure a large range of activities it is not recommended to use CVP.

Looking at the example of the company “Veco”, whose primary job is to make electronic devices worldwide. The US$642m market-cap posted a loss in its latest year of -US$407.1m and a modern trailing-twelve-month loss of -US$190.5m shrinking the gap between loss and breakeven. The industry analysts have a common consensus which is that break-even point is near. This showed that Veco had been making a loss, and using backwards working methods to calculate break-even, contribution margin (CM) ratio and even cost-volume-profit (CVP). It is calculated from the analyst estimates, it seems that they expect the corporation to grow 87% year-on-year, on average, which is quite optimistic! If this rate seems to be too aggressive, VECO may become profitable much later than analysts predict.

VECO currently contains a relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in VECO’s case is 74%. The next level of debt requires more stringent capital management which increases the danger of investing within the loss-making company.

This article is a good example of a break-even point and I felt more confident in doing it financial statement.

References

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