During the latest conference call, one of the analyst mentioned that company currently not generating enough cash flow from operating activities because they’re reinvesting all their cash back into the business. They believe this approach will lead to better cash flow from operations in the future.
Looking at the financial statements, I’ve noticed a couple of key factors affecting their cash flow:
- Increase in Inventories: Inventory levels have gone up slightly from 23 to 24, which means more cash is tied up in stock.
- Significant Increase in Trade Receivables: There’s been a big jump in trade receivables, further blocking cash flow.
These increases in inventory and trade receivables are the main reasons for the current cash flow issues. To improve cash flow in the future, the company needs to manage and possibly reduce the growth in trade receivables.
By implementing better credit control measures and ensuring timely collections, the company can free up cash that’s currently tied up in receivables, which will help improve their cash flow from operating activities.
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