EFL Cash Flow and Profitability Report

This report analyzes the difference between cash flow and profitability at EFL, a company with three factories and £35 million in turnover. It examines the impact of working capital, noting a debt increase from £15 million to £18 million and significant outstanding payments from customers (Canterbury Cookers and Radio Formidable). A large inventory buildup due to disputes is also highlighted. The report defines profitability and cash flow, explores working capital needs and usage at EFL, and proposes strategies for effective working capital management. Finally, it offers recommendations to improve EFL's working capital requirements.

Executive Summary
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Table of contents
Part 1 …………………………………………………………………………………………………………............ Page 3
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Introduction
This report is prepared to provide the information about the difference between the cash flow and
the profitability of EFL and how these are shown in the accounts of it. It also puts impact of working
capital on the company and how it is used in the company and how it can be improved or financed so
that it can be used effectively as per the needs of EFL.
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Findings
a. Three factories are operated by EFL and generating turnover of £35 million.
b. Ownership is Dieter – 25% and 75% between Hild, Angela and Ragnar.
c. Operating profit for last year £5 million before interest and taxes
d. Debt increased to £18 million which was earlier £15 million.
e. £1.5 million owed by company by the customers Canterbury Cookers and £2 million of
payment is outstanding amount from customer Radio Formidable
f. Due to the disputes, large stock of inventory is lined up at the company’s London site which
Mr. Dieter thinks is the required level of stock needed after the dispute is solved and is
unwilling to put pressure on the customers to make due payments.
1. What is profitability and what is Cash Flow
2. Need for working capital and how it is used
3. How the working capital can be managed by the company effectively.
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Conclusion
1. Difference between profit and cash.
2. Application of working capital for EFL and causes for it.
3. Steps to improve EFL’s working capital requirement.
Recommendations
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