PayLater ple is a weekly payment store offering customers a range of products from electrical goods...

  

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PayLater ple is a weekly payment store offering customers a range of products from electrical goods to furniture, currently only operating in the North West. Customers could take the products home with them that day and pay a small amount of the price every week, provided they met the conditions of the credit check, which most did. Customers would have to pay a considerable rate of interest for the privilege of paying this way. Demand was strongly correlated with the economic climate and the store performed particularly well in deprived areas. low income CEO Mike Dransfield said the firm's main objective needed to be to increase profitability. His finance director, Alex Smith disagreed. He maintained it was cash flow that would be their greatest problem and he worried the bank would reduce their £70,000 overdraft limit if any payments were missed. Alex also pointed out the huge amounts the business would have in the form of receivables. Mike rolled his eyes and said "that's just the business model!" Below is a cash flow forecast for the first 4 month of trading. -predictable (£000s) Inflows Sales in cash Receivables Total cash inflow Outflows Raw materials Wages April 2 85 87 60 51 May 3 80 83 58 50 June 2 79 81 60 47 July 1 79 80 59 47 Other outflows Total cash outflow Net cash flow Inflows Opening Balance -cutflows. - Closing Balance op bal + NCF 9 120 (33) 70 37 10 118 (35) 7³7 2 11 118 (37) 2 (35) 12 118 (38) (35) (73) Exam-style questions Assess why Alex is right to think cash flow should be PayLater's biggest concern. (10 marks) 2. Evaluate whether the cash flow forecast can guarantee the survival of PayLater? (20 marks) PayLater ple is a weekly payment store offering customers a range of products from electrical goods to furniture, currently only operating in the North West. Customers could take the products home with them that day and pay a small amount of the price every week, provided they met the conditions of the credit check, which most did. Customers would have to pay a considerable rate of interest for the privilege of paying this way. Demand was strongly correlated with the economic climate and the store performed particularly well in deprived areas. low income CEO Mike Dransfield said the firm's main objective needed to be to increase profitability. His finance director, Alex Smith disagreed. He maintained it was cash flow that would be their greatest problem and he worried the bank would reduce their £70,000 overdraft limit if any payments were missed. Alex also pointed out the huge amounts the business would have in the form of receivables. Mike rolled his eyes and said "that's just the business model!" Below is a cash flow forecast for the first 4 month of trading. -predictable (£000s) Inflows Sales in cash Receivables Total cash inflow Outflows Raw materials Wages April 2 85 87 60 51 May 3 80 83 58 50 June 2 79 81 60 47 July 1 79 80 59 47 Other outflows Total cash outflow Net cash flow Inflows Opening Balance -cutflows. - Closing Balance op bal + NCF 9 120 (33) 70 37 10 118 (35) 7³7 2 11 118 (37) 2 (35) 12 118 (38) (35) (73) Exam-style questions Assess why Alex is right to think cash flow should be PayLater's biggest concern. (10 marks) 2. Evaluate whether the cash flow forecast can guarantee the survival of PayLater? (20 marks)

Answer rating: 100% (QA)

1 Assess why Alex is right to think cash flow should be PayLaters biggest concern 10 marks Alexs concern about cash flow ... View the full answer