2.6 Cash — The lifeblood of organisations (2)

This is a case study about Weatherfield Community Services, a non-profit organisation that provides meals and home-help services for the elderly in their own homes. They got a new accountant and all really seemed fine. Then the company financials suddenly deteriorated. There are some things that one should be looking at when looking at the financials of a company.

1\. Look at the rate of expansion in different areas

2\. Calculate ROCE = surplus / average of opening and closing accumulated fund balanced

3\. Look at cash-flow and look at potential problems in management of long and short-term dept/overdrafts.

4\. Look for out of the ordinary expense increases in relation to income/orders

5\. Calculated use of fixed assets via turnover ratios = total annual incoming resources / Annual average fixed assets

6\. Look at working capital

7\. Look at debtors/creditors situation

Some interesting things that came up in this case study:

\- when expanding, don’t use an overdraft but get long-term loans for long-term investments

\- even though you are profitable, you might be a take over target with a bad financial status

Questions you always need to ask: How did this happen? How will it not happen again?