Company Cash Flow Discussion Replies

Company Cash Flow

There are several ways in which an organization can raise funds to assist with current and future cash flow. The promise of an industry changing successful future product allows for more flexibility in which to obtain additional funds.
The ability to leverage intangible assets combined with potential new stock issuance and capital rationing can help close the gap between the end of cash flow and the revenue streams brought in with the new product. As the CFO, we can call on the marketing team to begin to promote the abilities of the new product and educate the market on how the changes can benefit the consumer to generate interest. With an increase in interest in the new product, the firm can evaluate issuing additional stock to increase cash flow and obtain the additional funding to maintain the organization outside of 6 months. There could be several issuances of new stock over the course of time to ensure that the market is not over diluted and decrease the current stock price (Contributor, 2020). The level of interest generated will rely on how effectively the new innovative product is communicated to the market. If the details and benefits are truly industry changing and well communicated, the stock price and interest in new stock issued will provide additional cash flow to help maintain the firm (Contributor, 2020). By adjusting the market perception of the firm, we can add funding through intangible assets that are tough to quantify but can drastically improve the market value.
Another internal measure to help extend the cash on hand is through capital rationing. Capital rationing allows for organizations to examine new projects and place restrictions more thoroughly on new investments (Hayes, 2020). In this situation, this would be imposed by the firm and constitute soft rationing to ensure that any additional investments or new projects undertaken are worth the returns on investment (Brealey et al., 2020). The combination of properly promoting the industry changing product, new stock issuance to support growing interest and provide additional funding, and properly executed capital rationing should help to extend cash flows until the company can see gains from the new product.

References

Brealey, R. A., Myers, S. C., & Marcus, A. J. (2020). Fundamentals of corporate finance. McGraw-Hill Education.
Contributor, C. (2020, August 10). Pros & Cons of Issuing Common Stock. Small – Chron.com. https://smallbusiness.chron.com/pros-cons-issuing-common-stock-55949.html.
Hayes, A. (2020, December 14). Introduction to Capital Rationing. Investopedia. https://www.investopedia.com/terms/c/capitalrationing.asp#:~:text=Capital%20rationing%20is%20the%20act,specific%20portions%20of%20a%20budget.