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    Cash Flows and Life Cycle of Firm

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    Sharath Chandra
    The document discusses the cash flows of a business through different stages of its life cycle: 1) In the start-up phase, cash flow is highly negative due to negligible sales, high costs, and heavy investment in operations and expansion. 2) In the growth phase, cash flow becomes less negative or positive as sales pick up, costs reduce, and debt financing becomes available to fund continued expansion. 3) In the maturity phase, cash flow turns highly positive as sales and profits stabilize, costs remain efficient, and funds can be used to repay loans and pay higher dividends. 4) In the decline phase, cash flow becomes slightly positive or negative as sales decrease, assets are sold off

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    Cash Flows and Life Cycle of Firm

    Uploaded by

    Sharath Chandra
    24 views6 pages
    The document discusses the cash flows of a business through different stages of its life cycle: 1) In the start-up phase, cash flow is highly negative due to negligible sales, high costs, and heavy investment in operations and expansion. 2) In the growth phase, cash flow becomes less negative or positive as sales pick up, costs reduce, and debt financing becomes available to fund continued expansion. 3) In the maturity phase, cash flow turns highly positive as sales and profits stabilize, costs remain efficient, and funds can be used to repay loans and pay higher dividends. 4) In the decline phase, cash flow becomes slightly positive or negative as sales decrease, assets are sold off

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    Cash Flows

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    Cash Flows and life cycle of firm

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    The document discusses the cash flows of a business through different stages of its life cycle: 1) In the start-up phase, cash flow is highly negative due to negligible sales, high costs, and heavy investment in operations and expansion. 2) In the growth phase, cash flow becomes less negative or positive as sales pick up, costs reduce, and debt financing becomes available to fund continued expansion. 3) In the maturity phase, cash flow turns highly positive as sales and profits stabilize, costs remain efficient, and funds can be used to repay loans and pay higher dividends. 4) In the decline phase, cash flow becomes slightly positive or negative as sales decrease, assets are sold off

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    24 views6 pages

    Cash Flows and Life Cycle of Firm

    Uploaded by

    Sharath Chandra
    The document discusses the cash flows of a business through different stages of its life cycle: 1) In the start-up phase, cash flow is highly negative due to negligible sales, high costs, and heavy investment in operations and expansion. 2) In the growth phase, cash flow becomes less negative or positive as sales pick up, costs reduce, and debt financing becomes available to fund continued expansion. 3) In the maturity phase, cash flow turns highly positive as sales and profits stabilize, costs remain efficient, and funds can be used to repay loans and pay higher dividends. 4) In the decline phase, cash flow becomes slightly positive or negative as sales decrease, assets are sold off

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 6

    Cash Flow and Business

    Life Cycle
    Business Life Cycle

    Start Up Growth Maturity Decline


    Cash Flows in the Start-Up Phase
    PROFITABILITY CFO CFI CFF

    Negligible Sales Negative Highly Negative Highly Positive

    Highly Negative Profit Higher Credit to Capacity Building and


    Customers Expansion High Funding Needed
    for Operations and
    Expansion
    Higher Discounts No Proceeds from Sale of
    Assets
    Lesser Debt & More
    Higher Inventory Equity
    Buildup

    High Costs due to No Dividends and


    inefficiencies and low Lesser Credit from Interest
    scale Suppliers
    Cash Flows in the Growth Phase
    PROFITABILITY CFO CFI CFF

    Sales Picking Up Less Negative/ Positive Negative Positive

    Continuous Expansion Debt Funding now


    Positive Discounts Stabilizing available
    and Capacity Buildup

    Higher Inventory Interest Cost


    Buildup & Credit to
    Customers No Dividend as funds are
    reinvested

    Some Credit from


    Suppliers

    Some Tax Expense as Cost reduction due to


    Book Profits are +ve scale and experience
    Cash Flows in the Maturity Phase
    PROFITABILITY CFO CFI CFF

    Highly Positive Slightly Negative Negative


    Positive

    High Cost Efficiency due No additional avenue for Repayment of Loans


    Sales High & Stabilized to scale Investment
    Higher Dividend
    payments
    Stability in Working Inflation Adjusted
    Capital Assets like Investment in Assets Reducing/ Stabilizing
    Receivables and Interest
    Inventory
    Buy Back of Shares
    High Tax Outflows

    High Credit from


    Suppliers
    Cash Flows in the Decline Phase
    PROFITABILITY CFO CFI CFF

    Slightly Positive & Positive Negative


    Low & Declining
    Declining
    Sale of Redundant Repayment of Loans
    Sales Saturated & Working Capital Assets Capacity and Assets
    Declining Reducing Higher Dividends
    Concentration of
    High Tax Outflows as Manufacturing Facilities Reducing Interest
    Capital Investments go may improve margins
    down and Assets are
    sold Buy Back of Shares

    Cost inefficiencies due to


    reducing scale

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