Question from Teacher: What are your further ideas regarding plans and strategies companies should consider for managing cash flow? Especially during uncertain times?

Allan’s Post:

The main reason why management needs to control cash and have enough cash at hand is to pay its suppliers, employees, and creditors. Any amount classified as cash means that amount is readily available to pay debts. (Porter & Norton, 2018). The control of cash allows management to function smoothly in every business. One way to control outflow of cash is to assign the responsibility to only a handful of individuals for disbursement, whereas all transactions need to be documented using computerized documents such as Purchase order, Sales receipts and eventually payment through a check.

Cashflow statements is one tool that management uses to calculate and maintain cash at hand to pay it obligations. Excess cash can be invested in various securities which the company needs to monitor on an ongoing basis.

According to Macy’s statement of cash flows, they reported cash of $1.715 Billion at the end of the period. Most of the increase came from operating activities as it shows an increase of almost 400% but since they repaid $2.399 Billion debt that impacted overall cash flows to decrease by $39M from prior year. The company also paid $90M in cash dividends and it seems like Macy’s is doing well with liquid assets and has enough to pay off its debt obligations.

From a work life situation, the current measures we have put in place are on travel spends where anything over $1000 per employee needs to be approved by three different levels of upper-level management that will scrutinize every penny for this spend.

Matthew’s Post:

Cash managers have an extremely important job in handling the amount of cash that is on hand and making sure that there isn't an over abundance of cash on hand at any given time. There are important reasons to make sure that there is enough cash on hand to pay any creditors on time, taxing agencies, suppliers, employers, etc. (Porter, Norton 2018). There are two tools that can be used to help to manage cash flows. The first tool is the bank reconciliation. This is a form that is used by an accountant to resolve or reconcile differences in bank statements with the balance show for a particular account (Porter, Norton 2018). The other tool that can be used is the establishment of a petty cash fund. Petty cash is money kept on hand for small purchases in place of writing a check (Porter, Norton 2018).

When looking at the annual report for Lockheed Martin in 2021, it shows total cash and cash equivalents at year end of $3.604 billion. They opened the year with $3.160 billion on hand and their net cash provided by operating activities for 2021 was $9.221 billion. Expenses such as net cash used for investing activities for 2021 was $1.161 billion and $7.616 billion for net cash used for financing activities. A good rule of thumb for businesses is to have enough on hand cash that can cover three to six months of operating costs (Khartit 2022). If you take look at the cash funds used for expenses, keeping around $3.6 billion on hand falls in that range of three to six months worth of expenses.