Cash Flow Adequacy Of Food Concepts Plc

The overall financial condition of a company is the essence of its success or survival. Theories and methods that ensure that a company has a healthy overall financial condition are highly discussed topics and are at the core of Financial Management.

A company's financial condition is the logical intersection of (its) profitability and liquidity' (Kalouda, 2009, cited in Bro??ov??, 2011, p. 2). It is defined as a company's ability to meet 'ongoing financial, service, and capital obligations based on the status of resource flow and stock as interpreted from annual financial statements' (Rivenberg et al., 2010, cited in Ritonga, et al., 2012, p. 39).

Maintaining a healthy financial condition is probably the most important task for the management of any company. In the light of the global recession, the two most important objectives of economic entities today are 'to survive' and 'to have a stable financial condition' (Bro??ov??, 2011, p. 2).

The factors determining an entity's financial condition include environmental factors, financial factors and organisational factors (City of Cody, 2013, pp. 1-3). This study focuses on the financial factors affecting the financial condition of a company and these include (sales) growth; profitability; efficiency (working capital, inventory movement); liquidity (Cash Flow Adequacy) and financial leverage (or debt gearing).

Cash flows are the most important indicator of a company's financial condition and cash flow inadequacy is probably the main cause of business failures (Armen, 2013, pp. 398-401). Cash flow in itself is simply defined as cash that comes into a business less the cash that goes out of the business (Matis, et al., 2009, p. 140). Although cash flows depend on three sources ' i.e. operating activities, investing activities and financing activities ' it is the cash from operations (CFO, also referred to as Operating Cash Flow, OCF), that financial managers are usually most concerned with (Matis, et al., 2009, pp. 140-142).

The factors that affect a company's cash flows include but are not limited to the level and constancy of Operating profit generated by the company; Changes in the amount of working capital required for operations; Good and/or bad investments made by the company; Overly aggressive asset growth and expansion; The company's debt burden; The company's trade and payment terms; The size of the company; Foreign exchange rates (especially for company's involved with import or export operations) and other factors.

This study looks at the Cash flow adequacy of Food Concepts Plc (a leading Nigerian food company) in relation to the company's overall financial condition. The company is currently facing significant challenges in generating sufficient cash to meet obligations to third parties, including banks and suppliers.

These occurrences have weakened the company's supply chain, causing inconsistencies in the quality of products and services, frequent occurrences of stock-outs, a poor brand image and a further loss of revenues. If unchecked, the ripple effect of the poor cash flow situation would lead to further losses, a more dire financial position, legal implications and the possibility of eventual liquidation.

The research involved a quantitative design and used secondary data obtained from the financial reports of the company. It also involved brief interviews with three senior management staff within the financial management function in the company.

The findings and conclusions from the study are as follows:
1. Food Concepts Plc is facing a near crisis situation with respect to its financial condition.
2. The weak financial position is primarily as a result of cash flow inadequacy.
3. The key factor affecting the cash flows is the company's debt burden that is causing most of the cash generated from operations to be used up in repaying interest to lenders.
4. The other factors affecting the business's cash flows are operational inefficiencies, such as poor planning and wastages.
5. The company requires cash injection immediately, to stave off the debt burden.
6. The company also needs to improve its operational efficiencies to prevent cash flow leakages in the system.
7. If the cash flow adequacy improves, it would positively affect the financial condition of the business, improving the company's market position, reputation, sales and profits.

INTRODUCTION
Background of Study
Food Concepts Plc ('FC Plc' or 'the company') is a Nigerian food company that owns and manages Quick Service Restaurants (QSRs), bakeries, poultry farms and an upscale dining outfit.

The company was incorporated as a limited liability company in Nigeria in 1999. It commenced operations in 2001 with the primary aim of exploring opportunities in Nigeria's Quick Service Restaurant (QSR) sector, as well as other food-related ventures. At the time of conducting this research, the company owned the second largest fast-food chain in Nigeria and was the single largest producer of bread in the country.

The researcher is a senior management staff of the company. He joined the company in 2010, as a senior project manager. In 2011, upon the successful completion of the project he was hired to manage, he was redeployed to manage the company's Group Business Solutions Division.

Food Concepts Plc has two main brands: Chicken Republic (QSR division) and Butterfield Bakery (Mass Market division). Overtime, these businesses (as well as the other business divisions and subsidiaries of the company) have performed poorly. Sales and profits are dipping. In addition, the company is highly indebted to banks and currently, most of its profits are being used to settle interest payments.

The company is currently facing significant challenges in generating sufficient cash to meet obligations to third parties, including banks and suppliers. On average, suppliers' bills over 45 days past due, with some as much as 180 days past due. Some of these creditors have threatened legal action to enforce payment of their bills.

These occurrences have weakened the business as a whole, especially its supply chain. The company no longer enjoys favourable terms with its suppliers and this has created a situation where stock items are delivered late, are insufficient to meet demand or do not meet quality requirements. These in turn cause inconsistencies in the quality of products and services, frequent occurrences of stock-outs, a poor brand image and a further loss of revenues.

If unchecked, the ripple effect of the poor cash flow situation would lead to further losses, a more dire financial position, legal implications and the possibility of eventual liquidation.

Statement of Problem
Food Concepts Plc is currently experiencing persistent cash flow problems, which are preventing it from consistently making timely payments to its creditors/lenders, leading to other financial problems for the business.

This Action Learning Project (ALP) will identify and analyse cause of the company's cash flow problems and recommend actions to remedy the situation.

Purpose of the study
The purpose of this research is to show that improving the cash flow adequacy of a company can improve its overall financial condition.

Using Food Concepts Plc as a case study, the research would seek to understand the reasons behind the company's cash flow inadequacies. It would then seek to demonstrate that enhancing the adequacy of the company's cash flows would lead to sustained improvements in the company's financial condition.

Research Objectives
The objectives of the research are as follows:
To determine the factors affecting the cash flows of Food Concepts Plc.
To determine the impact of the cash flows on the business's financial condition.
To show how improved cash flows can transform the financial position of Food Concepts Plc.

Research Questions
The questions that the research intends to answer are:
What are the factors affecting the cash flows of Food Concepts Plc?
What is the impact of the company's cash flows on the business's financial condition?
How can improved cash flows transform the financial position of Food Concepts Plc?

Theoretical Framework
The theoretical framework for this study is based on the work carried out by the thought leaders in Finance and Financial Analysis. The framework also includes other literatures on the subject.

At the core, this study focuses on the following theories:

The Univariate Model proposed by Professor William Beaver in 1966. The underlying assumption of Univariate analysis is that a single variable can be used in predicting the financial failure of an organisation. The model achieved a moderate level of predictive accuracy and is widely respected. Although several unilateral ratios may be adopted with this model, Professor Beaver recommended a ratio that measures Cash Flow Adequacy i.e. the cash flow to Total Debt Ratio ' as the basis of this model.

The Multivariate (or Multiple Discriminant Analysis) Model, proposed in 1968 by Professor Edward Altman. The Multiple Discriminant Analysis (MDA) Model considers the use of a combination of ratios to provide insight into the financial health of a company. In this model, analytical ratios are combined into a single discriminant score, referred to as a 'Z score', where a low Z score indicates poor financial health.

Significance of Study
This report would be useful to the management of Food Concepts Plc. It would also be useful to the management teams of other companies that are looking for ways to transform the overall financial condition of their respective businesses, by enhancing the adequacy of their cash flows.

Limitation of Study
The researcher is a staff of the company and holds a senior management position there. The researcher has been involved in discussions and decisions aimed at improving business performance and the overall financial position of the company. There is the likelihood that the researcher's own assumptions and opinions, formed by his experiences in the company, may be the source of some bias to the research carried out.

Scope & Delimitation
The scope of the study covers the financial activities and transactions of the company as officially monitored and recorded by the company at its Head Office in Ilupeju, Lagos, Nigeria. Information used in the research is mostly secondary data (i.e. the company's financial results) along with information obtained from key officers in the company's financial management team.

Information not mentioned above, as well as members of staff not mentioned above or not directly involved in recording or analysing the company's financial activities are not covered in this study.

Research Process
This study used quantitative and qualitative methods. It mainly involved secondary data obtained from the financial results of the company, to which the researcher applied financial analytics to gain insight to answer the research questions.

In addition to the secondary data obtained, brief interviews were conducted with three key staff of the company. These interviews were conducted informally and were aimed at clarifying the data obtained from the company's financial records.

Research Plan
Table 1: Project Plan
Period Goal Activity Details
Timelines Tasks
Week 1 Approve Research Proposal Mon, 17-Feb-2014 Obtain sufficient information to support the research proposal including background information, theoretical framework and statement of the problem.
Thu, 20-Feb-2014 Read study materials
Fill log books
Start gathering relevant materials from EBSCO and the web.
Obtain Financial Data from the company and prepare interview scripts.
Complete and submit research proposal along with questionnaire for approval
Sat, 01-Mar-2014 Subset Meeting
Week 2 Chapters 1 & 2 Mon, 03-Mar-2014 Write chapter one and commence study of materials gathered ahead of chapter two
Test interview tools
Thu, 06-Mar-2014 Start writing chapter two
Sun, 09-Mar-2014 Submit chapters one and two for review
Week 3 Chapter 3 Mon, 10-Mar-2014 Execute research based upon chosen methodology, selected participants
Hold interview meetings
Sat, 15-Mar-2014 Subset meeting
Week 4 Chapters 3 & 4 Mon, 17-Mar-2014 Collate Discussions, Ideas from interviews
Wed, 19-Mar-2014 Analysis and reporting
Sat, 22-Mar-2014 Submit chapters 3 & 4 for review
Week 5 Chapters 5 & 6 Mon, 24-Mar-2014 Infer and propose options, based on the research.
Wed, 26-Mar-2014 Recommend options for the organization
Sat, 29-Mar-2014 Subset meeting, submit chapters 5 & 6 for review
Week 6 First Draft Mon, 31-Mar-2014 Compile entire ALP as a first draft, re-read to ensure coherence and correctness. Submit entire ALP for review
Week 7 Final Draft Thu, 03-Apr-2014 Make corrections as advised
Conclude ALP
Prepare to implement chosen option
Week 8 ALP Tue, 08-Apr-2014 Submit ALP

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Definition of Terms
Business Solutions Division The researcher's department in his company. This unit (by virtue of its role) is also known as the ICT office. It is responsible for recommending, implementing and managing the ICT systems used by the business; as well as developing the appropriate processes that are required to support the use of these systems.
CFO Chief Financial Officer. An executive management staff tasked with the responsibility of managing the overall finance function in the organisation
COO Chief Operating Officer, usually the senior management or executive staff that is tasked with leading the business of a brand.
FC Plc Food Concepts Plc (the researcher's company)
GFM Group Finance Manager. A senior manager that is responsible for Financial Control at group level
ICT Information and Communications Technology. The functions of which are performed by the Business Solutions Office.
MRD Manufacturing, Retail and Distribution - a broad industry classification relating to companies that engage primarily in the three areas mentioned.
Naira The local currency of Nigeria, the country of the researcher and the researcher's company. At the time of this Action Learning Project, one US Dollar was the equivalent of 161.18 Naira and one South African Rand exchanged for 15.58 Naira
OCF Operating Cash Flow (also CFO, Cash flow from Operations), the amount of cash generated by the company's daily activities.
QSR Quick Service Restaurant. The official name for what is commonly referred to as a fast food restaurant.
Set Adviser A resource person that has been nominated by the BSN to oversee, supervise and guide the work of the students / researchers within the Subset
SOP Standard Operational Processes/Procedures
Store The term is used interchangeably with 'shop', 'outlet', 'branch' or 'restaurant' to refer to a specific QSR location.
Subset The researcher's peers i.e. a group of students in the same BSN class as the researcher.

Chapter Layout
Chapter 1: Introduction and Problem Statement
Chapter 2: Literature Review
Chapter 3: Research Methodology
Chapter 4: Data Analysis
Chapter 5: Conclusion and Recommendation
Chapter 6: Implementation Plan
Conclusion
This chapter provided a background to this study. It highlighted the objectives and significance of the study. It also provided a summary of the research plan.

The next chapter would review relevant literature written on the various elements of the research variables of this study. '
Literature Review
Introduction
This chapter looks at the review of literature related to the topic under study. The researcher used the articles provided by the BSN along with materials obtained from the EBSCO Library and other resources to gather information. The research included articles written by eminent scholars and other authors that are well versed in the areas of Financial Management and Financial Analysis.

Using the works of these authors, the key variables of the objectives of this study, as well as the theoretical framework are examined in detail. The main subject of this research is cash flow adequacy, and this concept, along with the other key drivers of the overall financial condition of a company, are well discussed.

Company financial condition
Financial Condition is defined as the ability of an entity (company, government, association or individual), to meet financial obligations as and when due (Hendrick, 2004, cited in Ritonga, et al., 2012, p. 39). An expanded definition, looks at financial condition as the ability to meet 'ongoing financial, service, and capital obligations based on the status of resource flow and stock as interpreted from annual financial statements' (Rivenberg et al., 2010, cited in Ritonga, et al., 2012, p. 39). One can also consider an entity's financial condition to be the 'logical intersection of profitability and liquidity' (Kalouda, 2009, cited in Bro??ov??, 2011, p. 2).

Maintaining a healthy financial condition is probably the most important task for the management of any company. Bro??ov?? (2011, p. 2), noted that in the light of the global recession, the two most important objectives of economic entities today are 'to survive' and 'to have a stable financial condition'.

Bro??ov'??s position is founded on the premise that a company must fulfil its main reason for existence. Of course, a company's raison d'??tre is to create wealth (and value) for its owners (Hawawini & Viallet, 2011, p. 25). Hence, it needs to be financially healthy, so that it can survive and then create value (Gorg & Spaliara, 2012, p. 2). This is why a company's stakeholders regularly seek information about its financial condition (Appah and Oyadonghan 2011, cited in Oyadonghan & Ogoun, 2013, p. 157).

Key Determinants of a Company's financial condition
Several factors influence the financial condition of a company. Factors determining an entity's financial condition include environmental factors, financial factors and organisational factors (City of Cody, 2013, pp. 1-3).

Environmental factors include variables that the company cannot control, such as demand and supply, government and regulatory issues (Exxon Mobil Corporation, 2014, pp. 1-3), while Organisational factors include such dimensions as management efficiency and control (Bashir, et al., 2013, p. 12).

This study however focuses on the financial factors affecting the financial condition of a company and there are several of these. Nevertheless, Joel (2013, p. 88); Pink, et al. (2007, pp. 87-92); Losbichler & Mahmoodi (2012, pp. 26-33) and Modi (2012, pp. 70-79) agree that that the most important financial factors affecting a company's financial condition are sales (and by implication sales/revenue growth); profitability; efficiency (working capital, inventory movement); liquidity (Cash Flow Adequacy) and financial leverage (or debt gearing). They also noted that these factors are the indices by which a company's financial health should be measured. These factors/indices are discussed below:

Profitability
This refers to a firm's 'state or condition of yielding a financial profit' (John T. Niehoff, 2011). It is the ability of a firm to consistently generate sufficient returns to its owners, or 'the level of which (a) company's earnings are bigger than its costs' (Walker, 2001, cited in Omondi & Muturi, 2013, p. 100 and Almajali, et al., 2012). The authors also noted that profitability must be maintained to ensure the survival and success of the business, being that it is the main objective of business set up.

There are several ways in which profitability is measured. Typically these can be broadly classified into ratios that measure return earned by investors ' such as return on assets, return on equity, earnings per share, dividend yield ' and 'margins' i.e. ratios that measure efficiency e.g. Gross Profit Margin, Operating Profit Margin, Net Profit Margin (Atkinson, et al., 2007, pp. 613-617).

Working Capital
Working capital is usually described as the 'life-blood' of a business (Jain & Chaugule, 2014, p. 81; Rani, 2013, p. 52; Sathyamoorthi & Wally-Dima, 2008, p. 11 and Chakraborty, 2008, p. 41). It is often defined as the financing used in supporting day-to-day operations (Rani, 2013, p. 53).

It is usually calculated as the 'Net Current Assets' of a business, i.e. the monetary value of Current Assets less the monetary value Current Liabilities, as measured in the balance sheet (Jain & Chaugule, 2014, p. 81). It can also be derived from the excess of long term funds over long term assets (Hawawini & Viallet, 2011, pp. 83-84).

As can be inferred from the derivations described by Jain & Chaugule (2014) and Hawawini & Viallet (2011) above:
Working capital is affected by the level of long term funds firm has available
And/or by
The amount of spontaneous financing (non-interest bearing credit) it receives from suppliers and other sources,
Vis-??-vis
The amount of inventory and debtors it has to finance for a given period.

Figure 1: Working Capital Cycle

Source: Bokadiya (2007), cited in Darabi & Toomari (2012, p. 10460)

The concept of working capital is best understood when the Working Capital Cycle (also known as the Trading Cycle or Operating Cycle) is considered (Darabi & Toomari, 2012, pp. 10459-10464). This cycle (shown in Figure 1) encapsulates the various aspects of daily operations that involve the conversion of trading assets ' inventory (raw materials, work-in-progress, finished goods) and debtors ' into cash.

The Working Capital Cycle also considers the effect of spontaneous financing, which usually shortens the amount of time required for cash investment into the cycle. That reduction in time, gives rise to a period referred to as the Cash Conversion Cycle (Darabi & Toomari, 2012, p. 10460).

The Cash Conversion Cycle (also known as the 'Cash Cycle') refers to the length of time that a business needs the injection of (working capital) cash to complete operations. This is demonstrated when the working capital cycle is 'flattened' to show the time periods for each of the components, as shown in Figure 2.

Working capital adequacy (i.e. the sufficiency of available working capital) has a heavy impact on the liquidity position of a company (Jain & Chaugule, 2014, p. 81-82). Hence, a strong or weak working capital position implies a strong or weak cash flow/liquidity position respectively.

There are several ways to assess the adequacy of a firm's working capital. One popularly applied measure is 'Working Capital Need' i.e. the amount of working capital that a company needs to generate internally in order to sustain its operations (Sharma & Mahavidhalaya, 2013, pp. 78-79). Another measure is the Working Capital Deficiency, i.e. the amount of cash that a firm is constrained to borrow (as contracted debt, from a bank for instance) in order to stave off short falls from its internally generated working capital (Brewer, et al., 2012, pp. 175-180). Each of these can be measured in monetary value or the number of days (for a given period, usually a year).

Figure 2: The Cash Cycle - Derived from a "Flattened" Working Capital Cycle

Source: Darabi & Toomari (2012, p. 10460)

The working capital position of Food Concepts Plc (for the period under review, 2011-2013) was very weak. The company had an annual average of 231 days in need of working capital and 52 days deficient of working capital.

Liquidity / Cash flow Adequacy
Liquidity refers to the availability of funds (or at least the assurance that funds would be available) to settle all commitments and obligations as and when due (Rani, 2013, p. 53). A strong liquidity position is the result of cash flow Adequacy, and it is probably the most important indicator of a company's financial condition (Armen, 2013, pp. 398-401).

Cash flow in itself is simply defined as cash that comes into a business less the cash that goes out of the business (Matis, et al., 2009, p. 140). Although cash flows depend on three sources activities: operating activities, investing activities and financing activities; it is the cash from operations (CFO, also referred to as Operating Cash Flow, OCF), that financial managers are mostly concerned with (Matis, et al., 2009, pp. 140-142).

The concept of cash flow is further discussed in this paper.

Leverage
Leverage or gearing refers to the use of debt in a business. Mathematically, it is often expressed as the ratio of debt to equity or the ratio of debt to the total assets of a business (Dhameja & Jain, 2014, p. 3 and Cheng, 2014, p. 157). It is a very important indicator of the financial condition of a business and it usually refers to interest bearing (or contractual) debt.

Although the required level of gearing differs from industry to industry, businesses should be careful to avoid being highly geared. This is because the related interest payments to banks (as a result of the high level of gearing) would affect their level of profitability (Cheng, 2014, p. 157). In addition, most experts believe that a high gearing level is the number one reason for top reason why businesses fail (Firestone, 2013).

At the end of its reporting period, Food Concepts Plc's balance sheet showed that the proportion of debt to equity and total assets was similar to, or just slightly higher than those of its peers. However, the company is highly leveraged, due to the level of sales and profits that it generates. This is because its sales and cash flows were inadequate to cover interest payments sufficiently.

Assessment of a Company's financial condition
There are several ways to assess a company's financial condition. These methods involve the use of financial ratios (Armen, 2013, pp. 399-400), often as part of Univariate and Multivariate Discriminant Analyses (Li, 2012, p. 32, Pak, 2010 and Aquino, 2010, pp. 145-148). Univariate Discriminant Analysis and Multivariate Discriminant Analysis are discussed in the theoretical framework of this research.

Another popular method, involves the use of financial ratios to obtain a financial credit risk rating (Taylor, 2013, pp. 1-4; Matthies, 2013, pp. 1-24; Eva & Jaroslav, 2012, pp. 69-84 and Moody's Analytics, Inc. 2009, pp. 1-4). According to these sources, risk ratings are widely used in the banking industry and they assess several areas of a company's performance (including liquidity, working capital, profitability, leverage, management quality and external factors such as the conditions prevalent in the local economy and industry). The components of the popular Du Pont Analysis are incorporated into the ratios used in obtaining a risk rating (Chartered Institute of Management Accountants, 2012 and Matthies, 2013, p. 9).

The key analytical methods described above were applied by the researcher to assess the financial condition of Food Concepts Plc.
Theories Relating to a Company's financial condition
There are several theories and models relating to the analysis and enhancement of a company's financial condition. However, this paper would focus two of the most popular theories/models: the Univariate model and the Multivariate (or Multiple Discriminant Analysis) Model.
Univariate Model
The Univariate Discriminant Analysis Model, popularly referred to as the Univariate Model, was proposed by Professor William Beaver in 1966. The underlying assumption of Univariate analysis is that a single variable can be used in predicting the financial failure of an organisation (Aquino, 2010, pp. 146-147). The model achieved a significant level of predictive accuracy and is widely respected (Pak, 2010).

Using a Univariate Discriminate Analysis, Beaver sought to 'provide an empirical verification of the usefulness (i.e., the predictive ability) of accounting data i.e. financial statements' (Beaver 1966, cited in Aquino, 2010, p. 146 and in Li, 2012, p. 32).

Figure 3: Diagrammatic Illustration of the key concept behind Beaver's Univariate Model: 'The firm as a reservoir'

Source: Quipp (2011)

In conducting his research, Beaver obtained financial statement accounting data from the Moody's Industrial Manual and based his studies on a sample of failed and non-failed firms (of similar size and from similar sectors) that operated between 1954 and 1964 (Aquino, 2010, p. 146).

Aquino (2010) described Beaver's approach as follows:
'The firm is viewed by Beaver as a reservoir of liquid assets, which is supplied by inflows and drained by outflows. The solvency of the firm can be defined in terms of the probability that the reservoir will be exhausted, at which point the firm will be unable to pay its obligation as they mature. The larger the reservoir, the smaller the probability of failure; the larger the net liquid-asset flow from the operations (cash flow), the smaller the probability of failure; the larger the amount of debt held, the greater the probability of failure; the larger the fund expenditures for operations, the greater the probability of failure'.

Although several unilateral ratios may be adopted with this model , Professor Beaver recommended a ratio measuring cash flow Adequacy i.e. the cash flow to Total Debt Ratio ' as the basis of the Univariate model (Pak, 2010).

The other ratios that may be considered as top predictors include
Net Income / Total Assets (returns on assets) and
Total Debt / Total Assets (debt ratio)

All the ratios described above, especially the cash flow to Total Debt Ratio are very much in use by credit and investment analysts today.
The Multivariate (or Multiple Discriminant Analysis) Model
Following Beaver's work, Professor Edward Altman extended the Univariate Discriminant model and proposed the Multivariate (or Multiple Discriminant Analysis) Model, in 1968 (Li, 2012, p. 32).

The Multiple Discriminant Analysis (MDA) Model considers the use of a combination of ratios to provide insight into the financial health of a company (Pak, 2010). Professor Altman combined analytical ratios into a single discriminant score. This score, referred to as the Zeta Model Score (or 'Z score') was proposed as the key indicator of a firm's financial condition (Pak, 2010 and Aquino, 2010, p. 148). A low Z score indicated poor financial health, while a high Z score implied soundness (Pak, 2010 and Aquino, 2010, p. 148).

In developing the MDA Model, Altman started by looking at 22 variables related to the core accounting categories of financial metrics (i.e. liquidity, profitability, leverage, solvency and activity) and proceeded to select five variables as the best predictors of corporate failure (Aquino, 2010, p. 148).

Interestingly, in computing the Z score, Altman did not consider the cash flow to debt ratio, which Beaver held as the most important ratio in the Univariate Model. He cited 'the lack of consistent and precise depreciation and cash flow data' as the reason for its exclusion, but noted its importance where data is available (Aquino, 2010, p. 147).

Li (2012, p. 32), expressed Altman's Z-Score as follows

Z = 1.2X_1 + 1.4X_2 + 3.3X_3 + 0.6X_4 + .999X_5

Where,
X1 = Working Capital/Total Assets;
X2 = Retained Earnings / Total Assets;
X3 = Earnings before Interest and Taxes / Total Assets;
X4 = Market Value of Equity / Total Liabilities; and
X5 = Sales/ Total Assets

Hauschild (2013, p. 6), noted that critics harped on the limitations of the Z-Score. It seemed fine for predicting failure with public, manufacturing firms, but was of limited use to other companies, especially private or non-manufacturing firms (Hauschild, 2013, p. 6). Hauschild (2013), said that Altman proceeded to produce the following variations to his original model:

Z' Score = 0.717X_1 + 0.847X_2 + 3.107X_3 + 0.42X_4 + 0.998X_5
[For private industrial businesses]

Z' Score = 6.56X_1 + 3.26X_2 +6.72X_3 + 1.05X_4
[For private non-manufacturing companies]
The range of predictors using the Z-Score is shown in Table 2 below

Table 2: Z-Score Range of Predictors

Source: Hauschild (2013, p. 7)

There is widespread use of Altman's Z-Score model and very few valid criticisms can be held against it (Hauschild, 2013, pp. 5-7 and Li, 2012, p. 32). Key users of the Z-score include banks, credit and investment analysts, as well as regulatory agencies.
Cash Flows and Cash Flow Adequacy
Cash flow was defined earlier in this paper as the cash that comes into a business less the cash that goes out (Matis, et al., 2009, p. 140). It was also noted that although cash comes in and goes out of a business through three areas (Operating, Investing and Financing Activities), cash flow from operations (CFO or OCF) is what financial analysts and managers always judge a company by (Matis, et al., 2009, pp. 140-142).

A firm's cash flows can be read from its cash flow statement. Cash flow statements may be prepared by the either a 'direct' or 'indirect' method (Matavire & Dzama, 2013, p. 110).

The direct method involves collating and summing up cash inflows and outflows from accounting information, along major classes of gross receipts and expenses, and as the transactions occur (Matavire & Dzama, 2013, pp. 110-112). Using this method, the account is required to manually reconcile net income to the cash generated by operating activities (Averkamp, 2012). As can be imagined, this usually turns out to be cumbersome for businesses that have hundreds of transactions within a given period.

Using the indirect method on the other hand, the cash flow statement would be prepared at the end of the period rather as they occur. The indirect method involves using the company's profits after tax in addition to information from the company's balance sheet over two years. With these, an accountant would automatically make adjustments for items that are unrelated to cash from operating activities and prepare the cash flow statement in comparatively shorter period (Averkamp, 2012 and Matavire & Dzama, 2013, pp. 110-113). Although some critics argue that it is not as accurate as the direct method, most businesses prefer to use the indirect method.

Once a company's cash flows have been derived it is important to test that it is adequate. Cash flow adequacy refers to a company's ability to generate sufficient cash flow from its operations to cover its cash needs (Jett, 2013, p. 19). Cash flow adequacy is very important to a business as it determines not only the firm's ability to cover operational expenses, but its ability to cover debt payments (interest and principal) as well (Ismail, et al., 2007, p. 31).
Assessment of Cash Flow Adequacy
There are several ways to assess the adequacy of a firm's cash flows. However, a simple test of adequacy (known in some circles as the 4-way test) usually tells how adequate the cash flows of an entity is (Ajayi, 2014).

Ajayi (2014), lists the criteria as follows:
(Operating) Cash flow must be positive [meaning that more cash came in from operations than the cash spent]
It must be sufficient to cover mandatory capital expenditure [It must be able to cover costs related to replacing worn out assets]
It must be sufficient to cover returns to providers of financing [it must cover interest and dividends]
It must be sufficient to meet debt obligations as and when due

Armen (2013, pp. 399-400), citing Mills and Yamamura (1998), listed the following as other acceptable ways of measuring the adequacy of cash flows:
Funds flow coverage ratio
Calculated as EBITDA ?? (Interest + Tax-adjusted debt repayment + Tax-adjusted preferred dividends)

Cash interest coverage ratio
Calculated as (Cash flows from operations + Interest paid + Taxes paid) ?? Interest paid

Cash current debt coverage ratio
Calculated as Cash flows from operations less cash dividends and current debt

Cash to capital expenditures ratio
Calculated as Cash from operations and capital expenditures made during the period

Cash flow adequacy ratio i.e. as proposed by Beaver (1966, cited in Aquino, 2010, p. 146).
Cash flow from operations / Total debt

Total free cash ratio

TFC =(('(Net income + Accrued and capitalized interest expense + @+ Depreciation and amortization + Operating lease and rental expense @- Declared dividends - Capital expenditures)))/( ('(Accrued and capitalized interest expense + Operating lease and rental expense @+ Current portion of longterm debt @+ Current portion of capitalized lease obligations)) )

Hong, et al. (2012, pp. 331-335) supported the view expressed by Armen (2013, pp. 399-400) that Free cash flow should also be used as a means of judging cash flow adequacy. Hong et al (2012) considered free cash flow as the cash flow of the business that is unencumbered (i.e. available to settle any future commitments) after all existing commitments have been paid in full.
Key Factors Affecting Cash Flow Adequacy
Doshi (2009, p. 10), noted that a company can improve its cash flow position and by implication, cash flow adequacy by either accelerating cash inflows or decelerating cash outflows. This is in consonance with the analogy proposed by Beaver (1966, cited in Aquino, 2010, p. 146), when he described the firm as a reservoir of liquid assets. Table 3 shows the methods that Doshi (2009, p. 10), listed as ways to accelerate cash inflows and decelerate cash outflows by a business.

Table 3: Methods of Accelerating Cash Inflows and Decelerating Cash Outflows
Methods of Accelerating Cash Inflows Methods of Decelerating Cash Outflows
Prompt Payment by Customers Paying on Last Date
Quick conversion of payment into Cash Payable through Draft
Decentralized Collection Adjusting Payroll Funds
Lock Box System Centralization of Payments
Inter-Bank Transfer
Making use of Float
Source: Adapted from Doshi (2009, p. 10)

There are several other factors that are affect the adequacy of cash flows in a firm. AbdulRazaq, et al. (2012, p. 48); Hud??kov?? & Slepeck?? (2011, p. 118); Armstrong World Industries, Inc. (2011, pp. 21-23); Richards (2010, pp. 2-17) and Liu, et al. (2009, pp. 2-5) provided an exhaustive list of internal and external factors that affect the adequacy of a company's cash flows. According to them, these factors include:
The level and constancy of operating profit generated by the company
Changes in the amount of working capital required for operations
Good and/or bad investments made by the company
Overly aggressive asset growth and expansion
The company's debt burden
The company's trade and payment terms
The size of the company
Foreign exchange rates (especially for company's involved with import or export operations)
The company's business practices and other common business activities
The company's payment cycle
The company's pricing policies and strategies
The company's cost management practices
The company's debtor management practices
The company's business and cash flow planning techniques
The level of efficiency and asset utilisation by the company

Effect of Cash Flows on a Company's Financial Condition
According to Sullivan (2012, pp. 1-2), Way (2014), the Chartered Institute of Management Accountants (2014) and Richards (2013b), a company with cash flow inadequacies is not likely to survive. In their opinion, a poor cash flow position would have the following effects on a business:

Constrained business growth ' due to the lack of cash for the seamless continuance and/or expansion of business

Loss of profits due to increased interest and bank charges ' businesses with cash flow issues are likely to seek refinancing from (more) expensive sources or at higher costs. This would further create challenges for the business as it would even reduce the amount of cash available for operations.

Poor relationships with suppliers ' the inadequacy of cash flows would mean that the business would struggle to pay its suppliers on time. This would lead to unfavourable terms of trade with suppliers and further increase the cost of doing business as the suppliers would no longer be willing to receive payments after making supplies or would only accept to provide goods and services on credit at a premium charge.

Poor relationships with customers ' the inadequacy of cash flows would prevent the company from maintaining quality standards with respect to goods and services sold to customers. Furthermore, a company under the stress of cash flows would be unwilling to extend credit terms to its customers, and this would cause a loss of customers.

Low employee morale ' a clear sign of a business undergoing cash flow stress is delayed salaries to employees and poor employee welfare. This translates to low employee morale and consequently lower productivity.

Missed business opportunities ' inadequate cash flows would prevent a business from seizing the opportunities facing it immediately. This again would lead to a slower growth rate, lower profitability and even a further reduction in cash flow adequacy.

Poor overall business performance ' following on all the issues listed above, the managers of a business would find it difficult to produce profits and make returns to the business owners where cash flow inadequacy persists.

Insolvency / bankruptcy ' the final and extreme cost of cash flow inadequacy is business failure. Cash flow inadequacy is the main reason why companies go out of business.

Food Concepts Plc has experienced (or is experiencing) all of the effects described above, except insolvency/bankruptcy.

Summary of Literature Review
This literature review looked at the financial condition of a company as very important area of study. It considered definitions of the subject matter and the factors affecting it.

The first section of the review looked at definitions of the term, 'financial condition' and established its importance to a business. It also looked at the key determinants of a company's financial condition, namely: profitability, working capital, liquidity/cash flows and leverage.

The next section looked at two of the popular theories relating to assessing the financial condition of company i.e. the Univariate Model, the Multivariate (or Multiple Discriminant Analysis) Model.

The final section focused on cash flows and cash flow adequacy. It provided definitions of these concepts and established that cash flow adequacy has a profound effect on the financial condition of a business.
Conclusion
This chapter reviewed relevant literature on the key variables of the research objectives (Financial Condition and cash flow Adequacy) as well as the theoretical framework guiding the study. The next chapter describes the research method and process used in this study.'
Research Methodology
Introduction
The objective of this chapter is to report and present the methodology of the study that was conducted. The chapter looks at the research design that was used in addressing the research questions, a description of the sample group, the techniques, the research instruments used and the method of analysis.
Research Design
The research design was quantitative research. It involved the use of secondary data obtained from the company's financial statements. The researcher also obtained clarification on the data gathered through brief interviews with key officers in financial management roles.
Population of Study, Sample and Sample Size
Due to the type of research conducted, secondary data was mainly used. The data used was obtained from the company's financial reports from 2009 to 2012 and estimates based on management accounts for 2013.

Additional information was obtained from a careful selection of respondents who were chosen to provide insight into the company's data. These respondents were: The Group Chief Financial Officer (Group CFO), the Group Finance Manager (GFM) and the Head, Business Analysis and Financial Reporting.
Research Instrument
The researcher prepared a list of questions (based on the research questions) to act as a script for the discussions. In addition to the guide questions, the researcher asked follow-up questions similar to the pattern of questions recommended for action learning sets. The script contained seven questions as shown in Table 4.

Table 4: Interview Questions' Layout
Questions Remarks
Q1-Q3 These questions relate to research objective 1
Q4 This question relates to research objective 2
Q5-Q7 These questions relate to research objective 3
Source: Researcher
Validity and Reliability of Research Instrument
To validate its content, the research instrument was reviewed by the researcher's set advisor, leading to some changes being effected.
Data Administration & Collection
The researcher obtained secondary data using the company's annual reports from 2009 to 2012. These reports were obtained from the company secretary/head of corporate affairs. At the time of conducting this research, the 2013 accounts were yet to be published. Hence, estimates of the financial performance for the year 2013 (based on the management accounts) were obtained from the finance team.

In addition to the data used, the researcher also obtained primary data by means of interview sessions. Prior to the interview sessions, the researcher took time to explain the purpose of the research to the respondents. He also ensured to get their buy-in and cooperation. Respondents were assured that their comments would be considered as their professional opinions. The interviews lasted between 35 minutes and 45 minutes.
Analysis of Data
The information obtained from the company's financial records was analysed using financial ratios and analytical techniques. The details of this analysis and a summary of the same are presented in chapter four.
Conclusion
This chapter presented the research method and process used in this study. It described the (secondary) data used as well as the sources of additional information. It also discussed the methods used in collating and analysing the researcher's findings. The next chapter presents the results of the analysis of the data obtained from the discussions and the researcher's findings.

Results and Findings
Introduction
This chapter presents the data collected through the process outlined in chapter three. It also contains the interpretation of the data as well as supporting information of the findings.

Data Gathered and Used in the Research
Secondary Data (Financial Information)
Financial data was obtained via the information contained in company's annual reports for the last 5 years .

The secondary data obtained include:
The Income Statement (Sales, Profits/Losses, Expenses)
The Balance Sheet (Assets, Liabilities, Equity)
The cash flow Statement (Operating Activities, Financing Activities, Investing Activities)

These were analysed, based on popular accounting ratios and key indices such as the cash flow Adequacy ratio (prescribed by Beaver) and the Altman Z-score were obtained for the company. For some indices (such as liquidity and working capital), the researcher performed analysis over a three year period, while for others, the researcher considered a trend of 5-years.
Primary Data (Interviews)
As already noted in chapter 3, the researcher interviewed three of the most senior officers of the company in the finance function. The objective was to obtain a clear background for the current performance and cash flow position of the business.
Financial Analysis: Key Performance Indicators
The performance of the company based on key indicators that have been analysed and reported as follows:
Annual Sales and Sales Growth
The company's annual sales represent the total value of goods and services sold by the company to its customers in each year. As the graph below shows, the company's sales are significantly below its value in 2010.

Figure 4: Sales and Sales Growth (Nominal and Real)

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's findings

Similarly, the company's sales have been growing at rates slower that what was achieved in 2009. The average nominal sales growth for the 5-year period (2009 ' 2013) was 9%. The major business of Food Concepts Plc is fast foods. The industry grew by an average of 30% annually over the last ten years in Nigeria (Akingbolu, 2014). Hence, the company's nominal growth is poor compared to the industry average.

In addition, when adjusted for inflation, the company's real sales declined annually for the 5-year period under review (except in 2009). On average real sales declined by approximately 2%.
Profitability: Expenses, Profits and Returns
The company's Profit after Tax (PAT) has been declining since 2009. PAT stood at N194 million (17% of sales) as at 2009, but fell to an estimated loss of N94million (-2% of sales) as at the end of 2013.

Figure 5: Profit after Tax (PAT), Margins, Operating Expenses and Returns

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analysis

Except for 2010, where the company experienced a drastic fall in its gross profits, the company's gross margins have hovered above 50% for the last 5 years. However, most of these profits were swallowed up by huge operating expenses, which stood at an average of 41% for the five year period.

The company's interest expense grew by nearly 10 times over the five year period, from N56million (less than 1% of sales) in 2009 to about N501million (over 9% of sales) in 2013.

Lastly, the company's returns were below the risk-free rate of return i.e. Nigerian Treasury Bills (T-Bill) Rate. Average T-Bill rates were 10% over the 5-year period, whereas the company's return on equity, was about 2% in the same period. This is an indication that the company failed to provide its owners with a return, commensurate with the amount of risk they took in investing in the company. The indicators show that the company's profitability is very low.
Asset Composition and Financing Structure
The company's asset composition was similar to others in the Food and Beverages and Quick Service Restaurant Industries. As expected, there were heavy investments in long term assets (about 58% of total assets) and consequently, Shareholders' equity, formed the largest source of financing (62% of total assets).

Figure 6: Asset Composition and Financing Structure

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analysis

Working Capital Adequacy
The company's days in need of working capital investment was in excess of 200 days on average, between 2011 and 2013. This is far above the recommended maximum of 60 days, commonly held by financial managers.

Figure 7: Days in Working Capital Need and Days in Working Capital Deficiency

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analysis

The company's internally generated working capital was unable to cover the days in need of working capital. Hence, the company spent an average of 52 days deficient of working capital (requiring external financial support to complete its operating cycle) during the same period. These indicators show that the company's working capital was inadequate between 2011 and 2013.

Leverage
Due to its level of borrowings, compared with the rest of its performance, the company's cash flow was unable to cover the interest payments adequately. Cash flow could only cover interest payments 0.57 times on average, between 2011 and 2013, far below the threshold of 50 times recommended by experts.

The company's debt as a percentage of Total Assets and Equity were also below the recommended thresholds.

Figure 8: Leverage Ratios ' cash flow Interest Coverage, Interest Expense to Sales, Debt to Assets and Equity

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analysis

Cash Flow Adequacy
The company's Operating Cash Flow (OCF) was an average of 56% of returns to providers of financing (i.e. interest and dividend payments) between 2011 and 2013. This was far below the recommended minimum of 200%. Likewise, during the same period, OCF was 4% of sales on average, whereas, a typical company is expected to retain 15% of its sales as OCF.

Figure 9: Operating cash flow as a % of Sales and Returns to providers of Financing

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analysis

Using the cash flow adequacy proposed by Beaver, the company's cash flow failed to cover outstanding debts adequately during the period under review. The company's cash flow could only cover an average of 5% of total debts, against the 20% minimum recommended (Stickney, et al., 2010, p. 270).

Figure 10: cash flow Adequacy Ratio

Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analysis
Z-Score
The company's Z-score using the Altman's MDA model (Pak, 2010 and Aquino, 2010, p. 148) given below, is shown in Table 5:
Z = 1.2X_1 + 1.4X_2 + 3.3X_3 + 0.6X_4 + .999X_5

Table 5: Z-Score for Food Concepts Plc
Variable 2011 2012 2013e
X1 = Working Capital/Total Assets; 0.11 0.21 0.21
X2 = Retained Earnings / Total Assets; 0.03 0.02 0.03
X3 = Earnings before Interest and Taxes / Total Assets; 0.04 0.03 0.03
X4 = Market Value of Equity / Total Liabilities; and 0.02 0.02 0.03
X5 = Sales/ Total Assets 0.44 0.34 0.38
Z-Score 0.76 0.72 0.79
Source: Food Concepts Plc (2013, 2012, 2011 and 2010); Researcher's Findings and Analyses

A company like Food Concepts Plc requires a Z-score of at least 2.9 or higher to be safe (Hauschild, 2013, p. 7). A score of 0.79 sets the company in the danger zone.

Findings from Interviews
To obtain further clarity regarding the data obtained from the financial reports, the researcher conducted brief interviews using a script (containing a set of questions, patterned after the Research Questions) to guide discussions with the respondents. The 3 respondents that were interviewed provided answers to the questions and shared their further thoughts and opinions.
Research question 1: What are the factors affecting the cash flows of Food Concepts Plc?
In providing answers to Research Question 1, Interview Questions 1 and 2 used.

Question 1: What is your assessment of the state of the company's cash flows?
The respondents all agreed that the company's cash flows are stressed and inadequate. The following words were used in describing the current situation: 'not sufficient at the moment', 'near a crisis point at the moment' and 'very tough'.

Question 2: What are the key factors defining or impacting the cash flows?
The company's debt burden was identified as the main factor affecting cash flows. Interviewees explained that the company's attempt at rapid expansion between 2007 and early 2009 led to the amassment of a colossal amount of debt. In that phase, the company grew from less than 25 QSR stores/outlets/bakeries to 63 outlets in 24 months.

Following shocks in the global and local economy that occurred in late 2008 and early 2009, the company was forced to shut down 17 of these stores and bakeries that were not performing, leaving a fewer number of stores to carry the burden of debt. It was also noted as part of the discussions that interest expense accounts for nearly 78% of whatever Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) that the company records.

The other factors listed include:
Poor Sales
Poor reputation of the company (amongst suppliers arising from debts owed) preventing favourable trade terms and causing higher purchasing costs
No 'ownership' by operations staff, leading to the inability to account for a significant amount of inventory items and/or funds disbursed in the past
Poor inventory planning and management

Question 3: What kind of impact are the factors mentioned having on the cash flows?
The participants identified the following as the impact of the identified factors on the cash flows:
Difficulty in paying suppliers, and staff
Difficulty in settling all obligations.
Additional costs to the business and a further reduction in the amount of cash available for operations
Causing the business to veer nearer to bankruptcy
Research question 2: What is the impact of the company's cash flows on the business's financial condition?
In providing answers to research question 2, Discussion question #4 was used.

Question 4: What impact are the cash flows (in the current state) having on the overall financial condition of our business?
The participants agreed that the impact of the Cash flow situation (as is) include, but is not limited to:
Further weakening the financial condition
Causing the business to refinance existing loans at a much higher interest rate.
Exerting more pressure on the (executive) management team
Impacting operations and product/service quality
Worsening an already bad situation.

Research Question 3: How can improved cash flows transform the financial position of Food Concepts Plc
In providing answers to research question 3, discussion questions 5, 6 and 7 were used.

Question 5: What type of improvements are required for the cash flows of the business?
The respondents/participants identified the following as the required improvements:
Cash injection
Improvement of internal capacity and operational efficiencies to turnaround cash investment into returns

Question 6: How can these improvements to the cash flows be achieved?
When asked to provide suggestions on how the improvements can be achieved the respondents raised the following suggestions:
'Equity injection is required'.
'We should also consider improving our sales and operational efficiency'.

Question 7: What is the expected impact of these improvements on the business?
The respondents/participants identified the following as the improvements that the business will undergo should the requirements in questions 5 and 6 be implemented:
The business would become more stable and less at risk
Improved operations, market position, reputation and standing with banks (and providers of funds)
Increase in profits and Shareholder value ' respondents believe that improvements would result in at least N250million increase in profits before tax (PBT) annually, returning the company to levels it experienced in years past. If sustained for 3 years, it would create a total value of at least N750m.

Summary of findings from research questions and discussions
The findings from the research are as follows:
The company's nominal sales growth is much slower than the average industry growth and its real sales have declined by an average of 2% between 2009 and 2013
The company's profitability is very low, offering its shareholders a 2% return on average, between 2009 and 2013 (far below the risk free rate of 10%).
The company's asset composition and financing structure is similar to the rest of its peers in the industry
The company's working capital position is very poor (over 52 days deficient of working capital between 2011 and 2013, much higher than the recommended maximum of 15 days).
The company is highly leveraged. Cash flow cannot adequately cover Interest payments and the level of debt to equity is too high
The company's Z-Score is less than the required level (0.79 as against 2.9)
The key issue affecting the company's financial condition is its cash flows, which are currently inadequate
The main issue affecting the company's cash flows is the debt burden that it has been carrying from years past, and as a result of its aggressive growth plans of the past
As a result of its cash flow situation, the company is experiencing difficulty in paying suppliers, staff and settling all obligations.
The Cash flow situation (as is) is further weakening the financial condition, causing the business to refinance existing loans at a much higher interest rate, exerting more pressure on the (executive) management team, Impacting operations and product/service quality and worsening an already bad situation.
Cash injection and enhancement of internal capacity and operational efficiencies to turnaround cash investment into returns are the required improvements to the business.
Cash injection should be by way of equity
If the desired steps are taken, the business would become more stable and less at risk; improve its operations, market position, reputation and standing with banks (and providers of funds); increase its in profits and Shareholder value by at least N250million profits before tax (PBT) annually, returning the company to levels it experienced in years past. If sustained for 3 years, it would create a total value of at least N750m.

Conclusion
This chapter presented the analysis of data collected from the company's annual reports and through interviews with key staff. It also gave a descriptive summary of the data collected. The next chapter gives the researcher's recommendation and options from results analysed.
'
Conclusion, Recommendations and Options
Introduction
The last chapter gave the analysis of the data gathered through the research, as well as the interpretations of the findings. This chapter draws conclusions from the study. It also presents recommendations as well as various implementable options.
Conclusions
The conclusions drawn from the study are as follows:
Food Concepts Plc is facing a near crisis situation with respect to its financial condition
The weak financial position is primarily as a result of cash flow inadequacy
The key factor affecting the cash flows is the company's debt burden that is causing most of the cash generated from operations to be used up in repaying interest to lenders
The other factor affecting the business's cash flows are operational inefficiencies, such as poor planning and wastages
The company requires cash injection immediately, to stave off the debt burden
The company also needs to improve its operational efficiencies to prevent cash flow leakages in the system
If the cash flow adequacy improves, it would positively affect the financial condition of the business, improving the company's market position, reputation Sales and Profits.
Recommendations
The researcher believes that the company needs to improve its cash flow adequacy to prevent business failure and reverse the downward trends it is currently witnessing in its overall financial condition.

To transform its cash flow, the company must seek to address the following:
Improve Operational Efficiencies
Inject Cash into the business

The following are the researcher's recommendations on how to achieve these:
Recommendation 1: Improve Operational Efficiencies
The company needs to address the operational issues including but not limited to poor sales, wastage, poor planning, inventory management and pilferage. The researcher recommends that the company undertakes an Operational and Restructuring project to ensure that
Overall business planning is properly done
Staff are well trained to know what the standards are and how best to maintain them
Security and monitoring is enhanced with respect to stores and inventory management to prevent pilferage
Staff are well-paid to discourage pilferage and other leakages
Marketing efforts are enhanced
Sales drive is improved

Recommendation 2: Cash injection into the business
This is probably the more important recommendation. The interviewees, including the CFO (Chief Operating Officer) and Group Finance Manager (GFM) of the company, estimated that N420million is required to plug the cash flow and working capital gaps the company is experiencing.

Because of the company's current debt profile, it would be unwise to cover this gap through additional commercial loans. The company must seek a fresh injection of equity, soft loans/debentures.

While this is an executive decision, the researcher recommends that it should be given top priority. It is worthy to note that the CFO mentioned that the company is already in talks with potential investors.

Generation and Evaluation of Options
Based on the earlier mentioned recommendations, the researcher proposes that following options for the company:
Maintain business as usual ('status quo') and hope that things would somehow change
Implement the recommendations (i.e. source for funds, perform an overhaul of the business's operations to improve efficiencies) using the business's own resources
Invite external experts (funds arrangers and management consultants) to assist the company with sourcing for equity and reengineering the business
Option 1: Maintain status quo
For this option, the business needs to do nothing to change the prevailing conditions. If this option is followed there would be very little chance of any change happening. Although the immediate cost of this option is zero, in the end it could cost the company its very existence. The researcher therefore recommends that this option is unacceptable.

Option 2: Use internal resources to raise funds and improve efficiencies
This option suggests that the business would make efforts to transform itself by itself. It would involve inwards looking by the company's management staff. There is a need to dedicate some staff to raise the required funds and develop the strategy to solve these pertinent issues. The company's chosen team would need to upgrade their strategic planning, financial advisory, business knowledge and problem solving skills to be able to effect these changes.

The benefits associated with this option include:
The benefit of cash flow adequacy
The general benefits derivable from a transformed company (cost-efficiencies, value-added services, increased sales and profits)
Positive changes in the overall performance of the company

The costs associated with this option would include
Direct costs such as training and travel costs associated with either research or information gathering and seeking funding
Indirect costs such as time spent focusing on the issues to be resolved and/or the labour costs linked to apportioning a set of employees to focus on resolving the issue.

It is important to note that the company would still require some external help, especially with sourcing of equity funds.
Option 3: Invite 3. Invite external experts (funds arrangers and management consultants) to assist the company with sourcing for equity and reengineering the business
Considering that a fresh perspective may actually be required, it would be wise to consider an independent approach towards solving the company's problems. According to Albert Einstein, 'Problems cannot be solved by the same level of thinking that created them' (LaDuke, 2013).

The professional assistance that can be obtained from a financial advisory firm and the fresh views of a reputable management consulting firm may assist the business in achieving the turnaround that it requires in achieving operational efficiencies. There may also be a need to allocate some of the company's Finance and Operations' staff to the consultants, so that the transfer of knowledge and skills would be complete.

The benefits associated with this approach include:
Easier access to funds (if a Financial Advisory/Funds' Arrangement team is engaged)
A fresh perspective that could prove to be very successful with the company
The opportunity to tap into the vast knowledgebase / skills of the consultants and transfer these to the company's staff
The other benefits derivable from an improved cash flow
Less risk to business continuity, being that only a small number of staff may be required to assist the consultants in their work, leaving the rest of the company to focus on managing the existing processes, while change is ongoing.

The costs associated with this include:
The fees to be paid to the consultants ' this is expected to be considerably higher than using internal resources to accomplish the task
Indirect costs such as time spent working with the consultants and/or labour costs linked to apportioning even a small set of employees to work with them.
Selection of Preferred Option
The researcher has used a decision matrix to select the best implementable option for the company. The decision matrix was developed with a view towards removing subjectivity. The matrix considered a basic assessment as well as a weighted assessment of the available options. The Basic assessment of each option is given in Table 6.

Table 6: Basic Assessment of Solution Options
Option Implementation Cost Anticipated Benefits Implementation Duration Total Score
1 5 0 5 10
2 3 3 2 8
3 0 5 4 9
Source: Researcher

The weighted assessment of each option is given in Table 7.

Table 7: Weighted Assessment of Solution Options

Cost Benefit Time Total
Weights
Option 1 5 1
1 5 0 5 10
2 3 15 3 21
3 0 25 4 29
Source: Researcher

From the analysis above, the best option for the company is to invite external experts (funds arrangers and management consultants) to assist the company with sourcing for equity and reengineering the.
Conclusion
This chapter presented the recommendations based on the outcome of the research, three solutions were also generated and after critical evaluation of the three options, a preferred option ' inviting external experts (funds arrangers and management consultants) to assist the company ' was selected for implementation. Two sets of professional services firms (a funds' arrangement/financial advisory team and a management consulting team) may be considered. The consultants are expected to assist with improving efficiencies and with the injection of fresh capital. The next chapter presents the implementation of the selected option and researcher's reflections. '
Implementation Plan
Introduction
The previous chapter presented the conclusion, recommendation and options. This chapter provides a road map for the implementation of the preferred option. It also presents the researcher's reflections on the outcomes of the research.
Implementation
To implement the option chosen in chapter 5, the following is a plan of action developed by the researcher. The researcher would seek to obtain approval to execute this plan. He believes that he would be in the best position to implement it. Nevertheless, the plan is detailed enough to assist anyone else that may be chosen to implement it.

Table 8: Solution Implementation Plan
Task # Task Name Task Description Responsibility Requirements / Tools Deliverable Timeline
Pitch Sell the idea about the need for change in the company, to forestall the impact of poor cash flows.

Convince Executive Management to appoint a Project Manager (most likely the researcher) to champion this change Researcher Presentation Document

Executive Meeting Executive Committee Approval 15-May-14
Analyse Gap(s) Document the needs of the business in a document that would be shared with the selected consultants.

The document needs to be signed by the key stakeholders. Project Manager / Researcher Signed Requirements' Document 7-Jun-14
Set up KTS (KTS: Knowledge Transfer Structure).

This refers to ensuring that there is a documented process as to how the consultants would ensure that the required knowledge and skills would be transferred to the company's Finance and Operations teams. Project Manager / Researcher / FC Plc's team KTS document 13-Jun-14
Set up Implementation team Put together a team comprising of 1 Operations staff and 2 Finance Staff to join the Project Manager / researcher in accomplishing these goals and driving change Project Manager / Researcher Project Team 16-Jun-14
Select Consultants Conduct a selection process to choose a suitable consulting and financial advisory firms to carry out this task for the company.
Project Manager / Researcher RFP documents Selected Consulting firm showing the justification 23-Jun-14
Core Implementation work Handle / Oversee the consultants, to confirm that the company's needs have been adequately understood, a roadmap developed, and tasks executed
Project Manager / Researcher / Consultants Updated SOPs, processes and policies; Clearer estimate of the amount of funds required; Funds' Arrangement Plan and associated documents 30-Aug-14
Funds Arrangement Obtain approval for and implement funds arrangement plan Project Manager / Researcher / Consultants Obtain Required Funds
29-Nov-14
Change Management Implement strategic plans and enforce new policies Project Manager / Researcher Change Management procedures Evident results in the SC operations
31-Dec-14
Review Review progress achieved so far and report to Executive Committee Project Manager / Researcher Review Report(s)

Fresh research to measure attainment of objectives 2-Mar-15
Implementation Budget
The budget for implementing the solution is shown in Table 9. Please note that this budget excludes the cost of additional investment that may be required in certain areas mentioned such as
Equipment and other inputs required to improve operational efficiency (These would be determined by the operational designs to be produced by the consultant)
Changes to warehouse or store layouts, to improve efficiencies
Training of staff etc., to deliver better service
Injection of funds to make the company's cash flows and financial condition more stable (already estimated at N420 million, but may drastically change upon the consultant's review)

Table 9: Solution Implementation Budget
Item Amount (N)
Consultant's Fees 8,000,000
Cost of post-implementation research / reviews (Travel costs etc.) 300,000
Total 8,300,000

Cost-Benefit Analysis
According to the company's CFO, if the cash flow situation is improved, the company stands to increase its returns to shareholders by almost N250m annually. This would outweigh the cost of implementation (N8.3m) by far. It would also represent a 58% return on investment.

Researcher's Reflections
The researcher believes that this Action Learning Project (ALP) has been of immense personal and professional value. The researcher also believes it would be of great value to his organisation. The researcher saw the importance of cash flow and Financial Management as a whole in shaping the company's performance and growth. The researcher also gained a better appreciation of the jobs performed by his peers in the Finance role.

The researcher was able to use the vast resources available to him (EBSCO, books and the internet) to improve his level of knowledge about the cash flow and Finance. The ALP also helped the researcher to improve on his research and report writing skills.

Even though the researcher spent a considerable amount of time in planning project, the researcher encountered a few challenges that altered the implementation of this ALP, and had to seek an extension to complete it.

The researcher would like to continue to explore other areas of inefficiency in the company so that he can use the skills learnt from this ALP to assist the company in achieving the required turnaround and growth.

Source: Essay UK - http://ntechno.pro/free-essays/finance/cash-flow-adequacy-food-concepts-plc.php


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