It will look at possible risks factors associated when adding something new to a production line. The paper will talk about cash flow and how that might affect business. It will even talk about potential depreciation that could change over time. A recommendation will be giving to the CEO that will help him arrive at a sound decision for the ABC Company.
The overall risk profile of ABC Company based on current economic and industry issues that it may face are described as followed. First, the economic condition can affect the overall production condition of ABC Company. Then there could be a rise in the price of raw materials and factors of production could be affected by the expansion of new products. The product that would be developed would be new and other companies might take the benefit from the result experience. Then there would be a learning curve for development of the new product. There is also a risk of loss of key ...view middle of the document...
The condition of the company such as employee condition, quality and efficiency of workers, and internal economic policy of the company all these can create risk to the company as well as to the new project viability of the company. The overall economic condition of the United States is not well either.
Although it was the largest manufacturer in the world but at present it is in fifth place. Currently importing is much higher in this country than export. The country is selling asset as well as taking debts to maintain current living standard. The international competitors are planning to make the country completely dependent on foreign productions. As a result the United States firms are going to lose domestic self-sufficiency, national security, and leverage over time. This overall condition can be a risky thing for the ABC Company.
The calculation of ABC Company’s cash flow statement involves cash receipts and cash payments in three categories; operating, investing, and financing activities. This calculation tells that the ABC Company enjoyed a cash flow provided from operations of about $3,500 in year 20X2. The statement also shows that ABC Company used more cash in investing activities than was provided from different sources. The net cash flows from ABC company’s business were positive ($3,000). For ABC Company cash generated from operations is the primary source of cash flow. The company used the cash flow from operating and investing activities to make payment of dividends (see table).
To improve the cash flow further, ABC Company could invest more in other firms’ securities like common stocks or debts to earn more cash proceeds in return. More common stocks may also be issued to collect funds to invest on more profitable sectors or to involve more production activities by expanding its manufacturing activities. However, full financing of this project cannot be done with the current level of cash flows generated from the company as the new project will need additional financing for raw materials to manufacture with more time. So more funds will be needed in the new project to be invested in and more labor force to produce effectively to supply in time delivery will also be needed.