IMPROVEMENTS which will hopefully reduce the company’s overdraft



actions the board decide to make, it is essential to act early and with
strength to build up the necessary momentum to have a positive impact. One of
the biggest issues in making significant changes to any established business is
that when changes are made, there is usually a several month delay before any
positive effects can be observed (____ insert). Based on the analysis earlier
on, the following report is an actionable plan on 3 significant areas for the
board to focus on which will hopefully reduce the company’s overdraft and make the
business more efficient.

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Cash Flow
Analysis and Forecasting: The Definitive Guide to Understanding and Using
Published Cash Flow Data 1-119-96265-X; 1-119-96874-7 Year: 2012


Optimise on Assets and Expenses:


As shown
through the ratio analysis, Danalyn Limited is having some efficiency issues and
it is essential for the board to release any cash which is trapped in the balance
sheet, ensuring the company makes the most of all its asset holdings.



Assessment on Overhead costs:


Overhead costs are the expenses which
are associated with running a business that can not be linked to creating or
producing a product or service. (Investopedia)

It’s important to try to assess the overhead costs to
search for potential opportunities to reduce them. Danalyn Limited has increased its admin expenses by 33% over 2 years and lowering overhead can have a
direct impact on profitability and should help build up some cash to tackle the


Asset Productivity Report:


Secondly the board should run a check on the productivity of all assets
and sell off ones which are not benefiting Danalyn
Limited. The company is holding inventory for over 3 times as long in 2017 than
in 2015 and have increased your inventory by 7.5 times! Even though this could be
a sign of growth and expansion, It’s essential the board make some significant
actions to impact the firm’s negative cash flow. Any assets which have just
been sitting in storage should be sold for more cash. It is better to improve the liquidity
than hold them as excess stock.  If the
firm can improve in this manner, Danalyn
Limited will be in a
healthier cash position which will have a great effect on the Core Liquidity ratios.

this will also offer an improved operational efficiency.



Faster conversion cycle of accounts receivables:


Being a
Sports Manufacturer it isn’t uncommon for payments to be held up for long
periods of time. This would cause an increase in the time taken to receive
cash. However, this process has made Danalyn Limited’s
cash flow
cycle extremely tight. Instead of having healthy cash reserves to invest in
opportunities which would grow the business or increase dividends to please
investors, the company’s money is being held up with customers. Additionally, Studies
have shown that the longer receivables go uncollected, the less likely you are
to get paid at all. Knowing both of these facts, below is a 3 step plan to
improve on the firm’s conversion cycle:


Building an organised framework:


A great way
to build the necessary frameworks is to produce an A/R ageing report which
allows the firm to track the payment status of all customers. Orders are aggregated
into the number of days since the invoice was issued (e.g. 15 days, 30 days)
and the amounts due. Creating this, the company can easily spot potential
collection problems early, act on them to ensure to be on top of all the


Deloitte have produced a report on the biggest
organisational concerns when it comes to accounts receivables, here is a summarised
list of 4 things to watch on.


Incentivise early payment …


Having some
reward for early payments could be a great way to reduce Danalyn Limited’s receivable
days. For example, the firm could offer a percentage discount if a customer
pays within a week. It’s better for Danalyn
Limited to draw in
some of the receivables at a discount as it will increase cash which will be
beneficial due to our negative cash flow.


… And Be more firm on payment
deadlines and terms


Right from
the initial purchase, the terms of payment have to be made clear, to keep the
credit period is as low as possible and ensure transparency with customers. As
time goes on, reminders for payment should get firmer. If needed, the firm could
use dunning letters to let customers know that legal action
may be taken if they don’t pay in time.


Improve Balance Sheet efficiency:


The analysis
has shown that the efficiency ratios need an improvement. The Current and Acid
ratio, shows clear signs of liquidity issues, which again gives rise to concern
if the company can pay back its overdraft (which is payable on demand). The
following are various methods which will allow Danalyn
Limited to hold on to cash for as long as possible, improving the health of the


Sweep bank accounts


Sweeping allows
Danalyn Limited to transfer their excess funds to an account which
fetches interest on that fund. The beauty of a sweeping account lies in the
fact that the funds are available to use when necessary. This will cause the
company to maximise on earnings while maintaining liquidity


for Longer Payment Cycles:


As seen in the
analyse, money is being paid out 3 times quicker than is received. Try and
negotiate longer payment cycles with the firm’s suppliers. By doing so Danalyn Limited can hold on to money longer which
will have huge long term benefits to the company.



Reduce Dividends