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Explain the importance to a selected business of cash ow, working capital, costs and budgets and break-even.

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Introduction

Transfer-Encoding: chunked I am the assistant finance manager of PricewaterhouseCoopers (PwC) and I have been asked to write a report to Nintendo giving advice and guidance on the factors of business survival. These factors consist of cash flow, working capital, costs, budgets and break-even. The first factor Nintendo need to consider is cash flow; Cash flow is the movement of cash going in and out a business over a period of time. Cash flow is important because it will allow Nintendo to identify problems before they occur. They can do this by looking at a cash flow forecast; this is a prediction of how much they are expected to make and pay. From the cash flow forecast Nintendo will be able to see if they will have any deficits. If they do they may need to find a solution. This could be, a loan, trying to reduce costs or trying to sell more of their products. Additionally, cash flow can help Nintendo use extra cash. The forecast will be able to predict when Nintendo will have excess cash and therefore Nintendo can plan in advance what they want to do with it. For example, if they have extra cash they may want to use this to release a new product, this is because they will be in less danger of deficits. ...read more.

Middle

Moreover, working capital can be used to improve their business. They can do this by identifying where they can make improvements for example they can increase the amount of cash coming into their business like obtaining external finances or selling stock so that they are not holding as much. And they can also decrease money going out, for instance selling assets, leasing rather than buying or spreading their costs out. Costs are something else Nintendo need to consider. Costs are an amount that has to be paid or given in order to get something. Costs are important for business survival because Nintendo can calculate their total costs. Nintendo will be able to do this because they will know their fixed and variable costs. Therefore Nintendo will be able to total those costs and will be able to classify how much money they need to have in order to be able to pay for them. Additionally, because Nintendo will be able to know their total costs they will then be able to determine a selling price for their products. This is because they will know how much money they have to pay, therefore they can set a price which allows them to meet those payments but also allows them to make a profit. ...read more.

Conclusion

Nintendo will need to work out their break-even point in order to determine how many products they will need to sell in order to make a profit. However if they cannot reach break-even point then Nintendo may need to cut costs by finding cheaper raw materials or making some staff redundant. Nintendo may also need to raise the prices of their products. However they will need to ask them self?s if customers will be willing to pay a higher price and do research within competitors in order to higher their prices. From break-even analysis Nintendo will be able to see how changing costs and sale prices will affect how much they need to sell. They can see this by using a spreadsheet or chart which highlights clearly the break-even point. If the fixed costs increase Nintendo will need to sell more products to break-even. Whereas if fixed costs decrease they won?t have to sell as much. In addition, if Nintendo increase the selling price they will need to sell less however if they lower the price they will need to sell more to meet break-even. In conclusion, all these things talked about will help Nintendo prepare for business survival. Cash flow, working capital, costs, budgets and break-even are really important factors to consider. If done correctly Nintendo will make large profits and will become one of the largest and most successful businesses in the world. ...read more.

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