Cash Flow Decisions: Franchise, Sell Off

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Franchise Decision
Sell Off Decisions
Dividend payout
Goodwill Amortization
Increased Borrowing
Strategic Planning
Discontinued Operations
Remarks
References

The financial analysis of Borders Group Inc. previously carried out has highlight important insights in the company’s business and its financial performance was evaluated for a period starting from 2005 to 2009. There are some crucial decisions which company has undertaken having direct impact on the cash flows of the company. In this paper six business decisions have been identified that will be assessed for their relationship with company’s cash flows.

Franchise Decision

Borders Group still considers its overseas franchisee opportunities to be of high value. This is based on the company’s evaluation of its brand name which it considers to hold higher value in overseas markets such as Australia (Borders Group Inc., 2009).. The company has made a decision to continue its international growth by allowing franchise opportunities for investors in other markets. By selling franchise the company could generate positive cash flow which would result in higher ‘Other income’ and thus would help the company to support its negative income generating business.

Sell Off Decisions

Company’s decision to sell off its low performing businesses could also have impact on its cash flow. These business units have been underperforming with slow sales and company’s investment had been stuck in these business units. By selling off these units specially its paper chase business for $65 million and a chain of 42 book stores in Ireland would ease off some of its cash problems. The sale proceeds from selling these units could also add positive cash flow for the company which could be used to support its ailing business. This decision would have impact on its net cash flow from investment activities (Borders Group Inc., 2009).

Dividend payout

Dividends are considered as outflows and are shown as deductions from financing activities. However, they are based on the previous year financial figures. Upon examining the financial reports of the company it could be observed that the company did not pay any dividends in 2009 as the company made loss in the previous year (Borders Group Inc., 2009). This will not be appreciated by shareholders who may consider selling off their investment in the company and this could further dampen company’s financial position. Shareholders should not expect dividends next year as well because of negative income position in the year 2009 despite of company’s projections of overall improvements.

Goodwill Amortization

The company’s accounts indicate goodwill $0.2 million in 2009 which has declined from $40.5 million in the year 2008 (Borders Group Inc., 2009). The company has made a decision not to amortize goodwill which implies that there is no deduction of amortized amount against the income earned. Goodwill as identified by the company is the amount received in excess of the value of its franchise which is available for sale to investors abroad. This is likely to have impact on the cash flow as the company does not amortize its goodwill which will result in higher cash flow.

Increased Borrowing

In order to fund its cash flow problem the company has made a decision to increase its long term borrowing which is reflected in the year 2006/07 where the current portion of long term debt has showed an increase of 142% (Borders Group Inc., 2007). The company’s account continuing to show high figures for borrowed funds. This will have positive impact on the cash flow however payments of interest on the borrowed amount will show as negative flow under financing activities in the cash flow statement.

Strategic Planning

The company has decided to develop a plan to improve the strategic positioning of its stores. The company has recently faced with immense competition in form of new entrants and the company is facing difficulty to hold its strong position in the market. Therefore, in order to stand out amongst leading names the company has carried out short term investment of $108 million to give its stores new look and added values in shape of Coffee Café and paper chase shop (Thomas Reuters, 2009). This investment will be a cash flow arising from investment activities of the company in the cash flow statement.

Discontinued Operations

Finally, the company accounts indicate that the company has decided to shut down some of its continuing operations. This would prevent recurring losses from these operations. Thus, it will improve company’s income. The company did not make any profit on the sale of these assets however some positive cash flow will arise that will be reflected under investment activities as sale proceeds.

Remarks

The company cash flow position is affected by the above business decisions which the company has undertaken during the course of its business. However, from examining the company’s strategic planning and its weakening financial position the company is seemingly is destined to have cash flow problems in the future periods as well.

Cash Flow Decisions: Franchise, Sell Off

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)