I will be analysing MJM’s cash flow forecast, identifying problems and making recommendations. I will look at what will happen to the ratios if the problems develop further.
Opening Balance Overdraft – Looking at the opening balance in January on MJM’s cash flow forecast, I can see that the business started with an overdraft of £185,001, and an explanation is needed as to why. Why did the business start with a £185,001 overdraft? MJM may have started with the £185,001 overdraft for several reasons; MJM could have had the overdraft because they wanted to purchase extra materials to use and make the ladies’ underwear. The overdraft could have been used to purchase the company’s opening stock; the owners may have not had enough money to purchase enough of the opening stock, hence the reason as to why the overdraft was taken out in January. The January overdraft could have been used to pay MJM’s suppliers for the materials used to make the lingerie.
Healthy and strong cash flow – overall, looking at MJM’s cash flow forecast throughout the whole 12 months, I can see that the company have a strong and solid cash flow, as well as a healthy bank balance of £5,225,007 at the end of the year. Why is MJM’s cash flow strong throughout the 12 months and why does the company end with a healthy balance of £5 million?
The company may have had their strong cash flow for several reasons; MJM may have had their strong cash flow because they may have paid their suppliers on time without having to retime payments, MJM made some good sales throughout the twelve months. The sales figures slightly fluctuated in the fourth, fifth and ninth month, but the sales figures for November and December display a strong increase in sales.
Figures – Looking at MJM’s cash flow forecast for the whole 12 months, I can see that the cost of materials fluctuate throughout the twelve months. For example, MJM purchased materials for a total of £600,000 in January, but then purchased materials for a total of £1.2 million in February. Why do their material purchasing figures fluctuate? The company’s cost of materials could be fluctuating for various reasons; this could be because the materials that the company use to make the female underwear may have gone up in price because of the season that they are operating in. For example, the company purchased materials for a total of £900,000 in October during the autumn season, but then purchased materials for a total of £2.4 million in November during the winter season.

The company’s materials may be irregularly increasing and decreasing simply because the company’s supplier may have had very few of the materials requested by MJM, which may had lead them to increase the price of their materials. For example, MJM purchased materials for a total of £600,000 in April, but then purchased materials for a total of £1,200,000 in May. This may have been because MJM’s supplier may have had only a few materials left to sell to MJM, and had to increase their prices in order to collect more of them.
Business’ Confidence on Future Predictions – Looking at MJM’s twelve month cash flow forecast, I can see that the business has ended with a £5,225,007 profit. This allows me to pose the question, how confident are the business about their future predictions? Considering the fact that the company had various fluctuating figures such as its materials and its labour costs, it still managed to end its first year with a profit of £5million. I feel that the business can make predictions about their future figures for several reasons. Firstly, the business started off with an overdraft of -£185,001 in January, and ended the month of June with a total of £1,510,003. Secondly, MJM will be able to predict their future profits if they continue to operate correctly in their market, and continue to produce the correct products for their customers.
Five Fold Increase – Looking at the company’s cash flow, I can see that the sales figures slightly fluctuate, and that there is a dramatic uplift in sales at the end of the year. For example, the company had a total amount of sales of £1,500,000 in both September and October, but had a sales total of £4,000,000 in November, and £5,000,000 in December. This allows me to pose the question, what is the basis of the dramatic uplift on sales over the 12 months? There are several reasons as to why MJM’s sales increased hugely towards the end of the 12 month period, as well as slightly decreased. One reason could be that the company may have had less demand for their products for the first 5 to 10 months, but had a higher demand for their products in the last two months of their first year. The company may have not produced the correct products to target its audience for the first three months. MJM’s customers may have not had much money to spend in specific months like January, March and April, but had much more money to spend in the months of November and December.
Website – Looking at the organisation’s twelve year cash flow forecast, I can see that the company spend a total of £50,000 on their website to get it running, every month for the whole year. It is understandable that the company want to promote themselves and have other forms of purchasing for their customers, but can the business really afford to spend £50,000 on their website monthly?

By looking at the business’ twelve month cash flow forecast, I feel that the business is fully capable of spending a total of £50,000 on their website each month. This is simply because the company started off with an overdraft of £185,000, and ended with a £5 million profit; If the company are able to do so, then a monthly fee of £50,000 a month should not do any damage to the company.
Credit Agreement For Materials – I feel that the credit agreement would be suitable for the organisation for several reasons. Firstly, I feel that the business would need a credit agreement to prevent them from not having enough money to purchase new stock in months that they sell the majority of their products. Such as in the winter period, the credit agreement could also help with payment to MJM’s suppliers, for the raw materials that they provide for them.