Cash Flow Statements - Trendy Touristic Ltd Case Study - Finance Assignment Help

Assignment Task :

All workings must be clearly shown

In the financial year 2020, Trendy Touristic Ltd. approached their local bank for a ‘line of credit’ i.e. a short term loan facility that helps an organization manage its negative working capital situation, or an overdraft facility spread over a given period of time.

They were asked to provide a projected cash flow statement (cash budget) for the 1st six months of 2021. As their financial adviser, they have furnished you with the following data in order to assist them.

In addition based on the past experience:

• Sales are made of 40% cash and the balance collected the following month.

• Purchases average 70% of the monthly sales. They are paid for 60% cash and the balance in 30days

• Payroll is normally 20% of the following months sales

• Overheads average 10% of the monthly sales

• Other operating expenses average 15% of the monthly sales

• A new equipment costing Ksh. 24000/= will be purchased for cash in April. Annual depreciation on this equipment will be 25% of the cost

• Tax payment of Ksh. 40000/= is due in January and March.

• The beginning cash balance for January 2021 is expected to be Ksh. 50000/= although a minimum cash balance of Ksh. 25000/= should be maintained at all times thereafter as per the policy

Required:

1. Prepare Trendy’s projected monthly cash flow statement for the first six months, commencing January 2021

2. Determine the maximum line of credit the company could negotiate from the bank.

3. What are the benefits of preparing statements of cash flow to managers, investors and creditors

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