This case study deals with the point of view of Richard Sacramento, the Vice President for finance of First Farm Corporation. Statement of the Problem: Why does First Farm Corporation have deficit operating cash flow despite of increase of in sales, 89% in net income and improvement in liquidity? Objectives: To give Mr.. Sacramento an explanation and recommendation. Areas of Consideration: Internal Environment Strengths 0 The company has different product lines like fresh and frozen chickens, processed eat, animals’ health products feeds.
They also have aquaculture feeds and entered the fast food business that was successfully launched. 0 The company has sufficient operation capacities In poultry dressing, hatching and food milling and large number of working that could accommodate the large number of clients/customer. [l Recognized as the leading poultry integrator In the country [l They perform well every year, their sales increase up to 44% and net income increase up to 89% every other year. C] Vermin Francisco, a good accountant that provides reliable information. Weakness 0 Mr..
Richard Sacramento, UP for Finance, who seems to have no knowledge of analyzing the financial reports External environment Opportunities 0 As the leading poultry Integrator, the people admire their products. 0 Having large number of facilities and equipment, they could accommodate large number of customers. CLC The plan of having different branches could add number of buyers and It will be more accessible. Threats CLC Investing to different facilities without any assurance that there will be higher volumes. C] Marigold Foods, Inc. Their number one competitor declared lower price, that could attract customers.
And FCC continues to operate in an environment of increasing costs of products. 0 The costs of coin, soybean meals and fishmeal have been rising, that could lessen the number of buyers. Alternative Courses of Action: CA#I- Let the accountant do a financial analysis and find out what is the cause of having a deficit operating cash flows. CA#2- Hire another financial analyst or an auditor. Analysis: The Statement of Cash Flows (see Exhibit 4) shows that the company is growing vapidly but has shortfalls In cash flow from operation and the purchase of fixed assets are financed by new Investments.
We also recommend the company to form a core group in selling department that would focus on formulation of effective strategies to increase their sales so that ending inventory would be lessen. They would also make plan of actions that would encourage debtors to pay for their accounts. The company should also manufacture products according to the demand of customer so that they won’t incur high cost that will only be inventoried. They should also review the prices of their products and to adjust with their imitators.
Plan of Actions: 0 Submit the financial analysis and make a report that Mr.. Sacramento could easily understand. 0 If Mr.. Sacramento is not satisfied, hired another financial analyst to avoid erroneous reports. 0 Make a suggestion to have a group that will focus on the performance in the selling department. And make a strategy to make the debtors pay their liabilities. 0 Make a careful study before implementing any plans. 0 The company should study how to make their prices lower, not only for the benefits of the buyers but also for the benefits of the company.