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Justify recommendations on ways in which problems with cash ow, working capital, costs and budgets and breakeven may be addressed.

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Introduction

Transfer-Encoding: chunked I am the assistant financial manager of PWC and I have been asked by my manager to write a report for one of our profitable clients Nike. I will evaluate and justify recommendations on ways in which problems with cash flow, working capital, costs, budgets and break-even may be addressed for them. The first thing they need to consider is cash flow. Cash flow is the movement of cash going in and out Nike over a period of time. Nike may encounter a problem with having low profits or losses which can effect cash flow. I recommend that Nike increase their selling price of their products. If their prices increase their sales revenue will increase leading to an increase in profits. However, Nike must be aware, if they increase their prices to high, it could lead to a lower demand in their products, which will lead them back into losses. Furthermore, I suggest that Nike reduce their costs. They can do this by finding cheaper supplies or making some staff redundant. If Nike can reduce their costs it will mean that not as much money needs to be paid out which will improve cash flow. ...read more.

Middle

This will help with cash flow problems as they can get rid of stock that may be hard to get rid of initially. Working capital can become a problem if it becomes insufficient. Working capital is the cash available to a business that allow them to operate on a day-to-day basis. Insufficient working capital means that Nike will be unable to take advantage of new opportunities or adapt to changes. It also means that trade and cash discounts are lost and Nike will be unable to offer a credit line. As well it means financial reputation is lost due to not paying and creditors may apply for court action. If Nike face these problems, I suggest to employ a good collection system. This could include adopting a cash only policy so that Nike always gain their cash for their products. Or they could also hire a solicitor to threaten court action to gain cash from debtors who haven?t paid. Furthermore, I also recommend Nike to offer quick payment incentives. By having incentives, such as a discount for paying early will encourage customers to pay earlier and will help with working capital. Moreover, Nike can reduce their fixed costs to help with insufficient working capital. Nike can do this by finding cheaper suppliers. ...read more.

Conclusion

Break-even is another factor to consider. Break-even occurs when the total costs are equal to the total revenue. The break even model isn?t always accurate, this is because break-even is based on a number of assumptions. For instance, costs will remain the same. However, this isn?t true as raw material pricing is always increasing. Therefore, I suggest Nike to find cheaper suppliers or increase their selling price of their products to maintain the same break-even point. Moreover, break-even assumes all the output can be sold in which could cause problems if Nike do not sell on their products. Hence I suggest Nike to use previous data to determine output sales so they don?t have too much stock and can ensure they sell it all. This means that their break-even point will be correct and useful. Furthermore, each product has a breakeven point which means it is very time consuming therefore, once again I suggest hiring a team which will make the process faster. Lastly, it may be inaccurate. Therefore employing a team of qualified staff including cost accountants will ensure data is accurate; this will make Nike work more efficiency. In conclusion, if Nike take the solutions I have suggested when they face problems, they will be able to run their company successfully and efficiently. ...read more.

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