• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The Cash Flow Problems of Saab.

Extracts from this document...

Introduction

?Cash flow is the flow of money into and out of a business in a given time period.? (Marcouse, 2011) In other words, it represents how a business is running in terms of cash inflows and cash outflows. Saab is a Swedish aerospace and defence company, established in 1937. Originally manufacturing aeroplanes, the company sought ways in which to diversify its business and in the late 1940s began manufacturing cars. For this kind of car manufacture, an efficient cash flow management is extremely important, because car manufacturing business requires huge samounts of money to buy raw materials for production and profit margin for this industry is quite low. However, Saab failed to manage its cash flow for many years. Particularly in the past few years, a lot of financial problems derived from cash flow problems, such as less investment, lower trade credit and the loss of sales. In December 2011, Saab declared bankruptcy due to the lack of funding. In the following paragraphs, causes of cash flow problem and some solutions for solving it will be discussed. Finally, a conclusion will be draw to summarize the importance of managing cash flow. Causes of cash flows problems can be discussed in several aspects. According to SaabsUnited.com, the company totally owed $ 1.39 billion (SaabsUnited, 2012), which brings heavy pressure to Saab?s cash flow management, because Saab has ...read more.

Middle

Also, selling a huge number of assets might influence the company?s normal operation which is a risk. Besides less investment, high expenditure is another cause of Saab?s cash flow problem. Saab?s annual report shows that its capitalized development expenditure was ?152.2 million in 2011, which was approximately two times much than that in 2010. Also, its costs of plant and machinery increased from ?148 million to ?168 million between 2010 and 2011. To analyze, Saab would suffer from increasing cash outflows since the company?s business is suffering from under-revenue, therefore high cash outflows would worsen its cash flow problems. Specifically, spending a lot of money on fixed assets would reduce the total amount of liquidity. Since liquidity reduced, Saab?s ability to pay debts and purchase raw materials will be weakened which might result its business failure. In order to reduce costs, Saab can lease equipment rather than buy it because the cost of leasing equipment is cheaper than buying it, this will help the company to reserve capital in the short term. Nevertheless, leasing will increase a lot of expenses if Saab leases the equipment for a long time. Therefore, leasing would increase cash outflows in the long term. Postponing expenditure could also be helpful to Saab in the short term. ...read more.

Conclusion

Saab?s low productivity and lacking of technology determined its small economies of scale which would increase its costs of production. Saab can increase its economies of scale by improving its productivity and developing its technology. Huge economies of scale would help save Saab to decrease costs and increase production and sales revenue in the long term. But it will cost a lot of money in the short term. Both these two causes discussed above can further influence Saab?s cash flow problems and result Saab?s business failure. To conclude, cash flow problem is the most common reason for Saab?s business failure, because it directly damages the company?s normal operation in terms of decreasing amount of cash. Thereby, it is important for Saab to solve its cash flow problems. Otherwise, Saab will probably go to bankrupt due to severe cash flow problems. However, there are other causes of Saab?s business failure, although these causes seems are not related to cash flow problems, but they might result in some problems such as losses of sales and increases in costs which indirectly influence Saab?s cash flow. Thereby, this fact illustrates that cash flow problem is the most common reason for a business failure. In a word, if a company wants to avoid business failure, it needs to pay more attention to manage its cash flow. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Case Studies and Analysis section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Case Studies and Analysis essays

  1. NHS change management

    5.2 Cultural Change People are the must important part of the organization culture. But what is organizational culture? Robbins (2003) is relating the culture to the people as: "A system shared mining held by members that distinguishes the organization from the other organization".

  2. Unit 9: Marketing Strategy

    I have come to this judgment through researching average distances to work in our local area; in rural England, such as Lincolnshire, the average distance to work is 13.70 km, compared to 9.90 km in urban England.

  1. PEST is a planning tool which is used by a business to evaluate and ...

    This means that Greenpeace will use the media to tell Ginsters customers about the impact that people buying Ginsters pasties has on the environment. Greenpeace would do this by using the media or protest. This would mean that Ginsters customers or people who do not buy Ginsters will be less

  2. Comparison of the Honda & General Motors in terms of internationalisation theory

    - has many trademarks under its operation such as Buick, Cadillac, Chevrolet, Gmc, Golden, Oldsmobile, Pontiac, Saturn, Opel Vauxhall and Saab, GM is the world largest automobile producer. General Motors Corporation (GM) is the world's largest automaker employing over 325,000 people in 32 countries.

  1. The main purpose of this research is to know and analyze whether the Olympic ...

    The Los Angles Olympics are the first games who are private in making profits of $215 million. Since 1986 this is the only game which did not utilized public money. The 1984 games were sold out to many corporate donors.

  2. NETFLIX CUSTOMERS SATISFACTION

    ?ll, ?fter the event ?nd it does not re?lly me?sure satisfaction only dissatisfaction. Some import?nt f?ctors th?t help us underst?nd ?nd determine how s?tisfied or diss?tisfied consumers ?re include: the disconfirm?tion theory, ?ttribution theory, ?nd equity theory. The disconfirm?tion theory suggests th?t satisfaction is determined by the intensity ?nd direction of the g?p between expect?tion ?nd perceived perform?nce.

  1. The Theory of Scientific Management.

    It takes the workers time to fit in with the new environment of people that are moving in and out of their working conditions which means they are unsettled so they are unable to socialise. Overall, I would see this type of business being motivated by money and not by socialisation needs.

  2. Justify recommendations on ways in which problems with cash ow, working capital, costs and ...

    happens when a business spends too much on fixed assets such as machinery and premises; these assets are very expensive. Therefore, I suggest that Nike lease fixed assets. This would be a cheaper alternative and if it breaks down the leasing company is responsible.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work