ST.

XAVIER’S COLLEGE
Maitighar, Kathmandu
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– A Report on

Cash flow in the production cycle

Prepared by
Shishir Bogati
Class: XI
Section: E
Roll No: 283 
Submitted to
October 2022
Department of Chemistry
(Bishal Gautam)

Plus Two Programme

Cash flow in the production cycle

Introduction: The cash flow in the production cycle is the time it takes a company to convert
raw materials into cash. It is also known as the cash conversion cycle which refers to the time
between purchasing the raw materials used to make a product and collecting the money for
selling the product. It makes take several years for a company to bring the final product to the
market from the first stage of manufacturing. This is the time the company is spending money.
It will either find this money by using profits from previous years or by borrowing money from
the bank. Whichever choice is made, there is expense involved. The company is willing to bear
the expense for several years if it believes that the product will make a profit.

Objectives:

1. To know about the cumulative cash flow in the production cycle.

2. To know about the stages of cash flow in the production cycle.

Methods of Study:

Primary source: Books

Secondary sources: Google , Wikipedia

Findings: 

1. Cumulative cash flow refers to a financial statement that summarizes the movement of
the company's assets from one year to the next. If the value of the assets increases from
year to year, the cumulative cash flow increases as well. If the value of the assets
decreases from year to year, the cumulative cash flow will decrease. It can be understood
as positive and negative cash flow in the production cycle.
2. There are five stages to the cash flow in the production cycle which includes

 Research and development

Research and development is the first stage of the product life cycle where the
company has a research team for new ideas and products for a business. The
cash flow at this stage is very low i.e negative. A negative cash flow indicates
the company is paying or investing more than receiving.

 Production

After a period of research and development, the company launches its product
in the market for sale. As profits are made their cash flow graph gradually
climbs up. The income generated is used to pay previous losses. The company
at this stage spends a lot of money to create awareness. The cash flow at this
stage is gradually increasing but still negative for a further few years.

 Growth

If the product succeeds, then the sales will grow. The company starts to move
into a profitable zone. The cash flow starts to gain more revenue which
indicates positive cash flow.

 Maturity

At this stage the prices and profit fall due to high competitive pressure. The
growth rate becomes stable as the company is still making income. A mature
industry has passed both the emerging and growth phase of the industry
  Decline phase

In this phase, product price decreases significantly after patent expiry.

There is less product price due to the highly competitive market also the
product becomes less interesting for purchasers and the decline of the
product commences.

Suggestions: 
To gain control of cash flow a company should come up with a visionary framework for
business ideas and products. A company at a mature stage should work to upgrade the product
form to make it more interesting for consumers to gain stability.

Conclusion: 
The cash flow will change from the beginning for a product as it moves through its life cycle.
Initially, due to high development and promotional costs, there is negative cash flow, the
product moves through the growth phase and into its maturity, where the cash flow becomes
maximum. After this, the patent is run out, the profits get decline due to the competitive
market.