Managing Cash Flow By John Olson Essay

Managing Cash Flow By John Olson Essay

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MANAGING CASH FLOW
“Follow the money”—William Goldman, All the President 's Men
Imagine you were John Olson. You are an energy analyst for Merrill Lynch. Your boss, Donald Sanders, shows you a hand-written note from one of Merrill’s largest customers. It reads in part, ' 'Don -- John Olson has been wrong about … (our company) … for over 10 years and is still wrong … Ken. ' ' Merrill subsequently fired Olson because he refused to endorse the customer’s exaggerated profit claims.
The Ken, of course, is Ken Lay of Enron fame; the analyst was John Olson, by his own description an old-fashioned analyst who refused merely to promote stocks, relying instead on fundamental analysis to assess the companies he examined.
Ironically, he was the only analyst who used Enron’s Cash Flow Activities to correctly identify the scam. Using Cash Flow Analysis, he determined the firm had few tangible assets and generated sham profits spawned by contrived financial flimflam generated by hundreds of off-balance sheet entities.
Visualize Enron as a major client owing you a significant chunk of money in Receivables. Where would you be if you had wholeheartedly endorsed Enron like Henry Blodgett of Merrill Lynch and Mary Meeker of Morgan Stanley did?
This is why we will focus our discussion of accounting on cash flow analysis as the key to understanding solvency, both your customers and your own and not a broader overview of the Accounting process. I assume all students studied Accounting during their academic career. For those needing a refresher in accounting basics, please visit Accountingverse for detailed information.
Why cash Flow?
We like cash flow because it permits us to “follow the money” rather than the accrual-based numbers favored by Wall Str...


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...-time employees to contract work, transferring your labor costs from fixed to variable expenses. You would save money on payroll taxes and benefits, provide yourself flexibility in hiring and your ability to respond to changing market conditions, conserving cash flow. Shifting equipment expenditures from purchase to lease can also deliver cash savings.
To increase cash flow, sell subscription services with automated monthly credit card billing and offer discounts for annual plans to generate cash in advance.
Customer billing is difficult for small businesses. You can automate your billing to reduce the time it takes your customers to pay. Make a promotional offer with an expiration date limiting the number offered to generate cash up front.
Individual Analysis: Using the materials provided create 3 years Income Statement, Balance Sheet, and Statement of Cash Flows.

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