Global Business Context - Abc Medical Widget Company

Executive Summery

ABC is financial distress as a result of unrealised revenues due to the Global Financial Crisis (GFC) and needs to rebuild cash recourses within the company or risk loosing the Vietnam venture.

Not proceeding with the Vietnam venture will expose ABC to a number of risks, both financially and competitively and may result in insolvency of the company.

If ABC follows the best practise guides to cash management in all of the three of the current operating sites, significant revenue can be achieved to invest back into Vietnam as well as pay down owed finance ensuring the business remains operational, profitable and solvent.

Introduction

ABC Medical Widget Company (ABC) faces a challenging future as the company comes to terms with the impacts of the Global Financial Crisis creating an aftermath financial issues and monetary issues both on a local and global front.

The impacts of the GFC have been significant for the business with sales revenue falling by over 30% compared to the previous year, resulting in the company reporting a loss of A$27 million and significantly diminished cash resources.

Additional impacts of the GFC, along with several new competitors with similar products entering the market, initiated a rapid halt to the company's explosive expansion and growth rate experienced in the previous year, which resulted in the company still being in the development and expansion phase of the business cycle rather then a year of consolidation that was expected.

Further exasperating concerns of financial distress across the company is the new venture in Vietnam which is draining much of the remaining cash resources available, this has started to highlight some apprehension around the solvency of the company.

This report will outline the impacts of the likely financial performance issues to arise if left unaddressed, options for good management practice in responding to these issues and, recommendations as to the general approach to be taken.

Issues and Options

ABC needs to rebuild the cash recourses lost as a result of the GFC, cash is required so the business can continue investing in the firms operations and purchasing of real assets as well as, when possible, returning cash to investors.

Capital or cash injection can be generated by the firm's operations, raised by selling financial assets to investors or financing in the form of a loan, however the only real prospect of replenishing cash for ABC at this stage is from cash generated by operations, rather than by way of additional share issues or further debt.

If ABC is unable to raise cash generated by operations across the company the Vietnam venture will not be able to proceed. The cost of mothballing the facility in Vietnam, however the cost of closing the facility along with the investment spent to date building the facility will result the company needing to disperse sunk costs across the existing operations.

Realising the costs of a failed Vietnam venture will reduce liquidity in the company, as well as increase the amount of revenue required to service existing financing debt. Inevitably this may lead to the insolvency of ABC.

Raising Capital

ABC's sales revenue has fallen by over 30% in the year of the GFC and whilst it is reasonable for the business to expect this growth to revert back to something similar to the original forecasted growth targets over time there are some other options that can be looked at to further increase revenue streams into the business.

Bragg (2010) introduces Cash Management Best Practices which is primarily concerned with creating an orderly flow of cash into and out of a company's coffers, to help free up the largest possible amounts for investment purposes.

These best practices are bullet pointed below, however will not be detailed in this high level report.

 Access bank account information on the Internet

 Automatically apply cash

 Avoid delays in check posting

 Collect receivables through lockboxes

 Install remote deposit capture

 Consolidate bank accounts

 Implement