Financial position Essay

1. One of the apparent reasons for the failure to pay off the debts by the due debt is the continuous decline of the sales over the period of time due to overall sick performance of the industry. However, on the other hand, it is also imperative to understand that the firm has not been able to accurately forecast its cash flows as accurately as possible because there were not only frequent requests for revision of the funds required but also company was undertaking modernization in times where sales were declining. Supporting the long term as well as short term repayment of bank loans largely depend upon the ability of a company to generate sales and cash flows and in this case it has completely failed to achieve its targeted sales figures which basically force the firm to default on its payments on the due date. Apart from some seasonal and industry wide factors, company has also not been able to accurately forecast its financing needs. Though the sales declined but the forecasts based on which the debt was obtained did not included any externalities which could have basically hampered the ability of the firm to repay its debts on time. It is also important to understand that one of the main reasons behind the failure to pay off the debts on time is the inability of the management of the firm to ill plan at the wrong time as due to the seasonal nature of the business, they were expecting consistent and historical results however it did not turned up to be right. 2. Mr. Fischer was probably not been able to forecast the correct repayment of the loans as he based his forecasts on the historical trends and the company’s seasonal needs for the external financing. It was because of this reason that he forecasted zero banks loan payable during the period from Dec 1995 to May 1996. This assumption was correct if we observe it from the historical perspectives however as it lacked the inclusion of risk based assessment of what may go wrong i. e. as in this case, the company’s sales were consistently forecasted however they declined against the expectations. Such decline in sales therefore has put pressures on the cash flow position of the firm which basically forced the firm to not been able to pay its debts on time. It is also important to note that overhead forecasted at constant rates however they have shown greater volatility in actual that basically decreased the profitability of the firm as well as straining the cash flows of the firm as more funds were being diverted in paying off higher overhead and other expenses. Further, the assumption of producing at an even rate was also flawed specially considering the fact that the business has the seasonal demand patterns therefore assuming such production patterns may be gross mismanagement of the firm’s resources. 3. Overall, the firm’s financial position has not worsened as it is because some external factors which seem to be of short term nature and company can easily overcome once the seasonal impacts on the business decline. Further, firm’s working capital management seems to have worsened which may be the actual cause of concern as there is not only an increase in inventory but in receivables also.