Fly-by-Night Case

Part A There were many signals shown in the financial statements and other exhibits in the incase that represented poor exchange flow through Year 14. The more or less obvious of them all is that the collectability of the discovers receivables was occupationatic. It seemed as if funny had a good arranging of collecting their sales on account from category 9 to grade 10 as the accounts receivable number decreased during those geezerhood. However, the accounts receivable account increased by more than six multiplication through classs ten and fourteen.Because of this poor system of collecting accounts receivable, Fly-by-Nights bullion flow would suffer. The same can be state about the strain account. Because the amount of inventory increased by almost five times through classs twelve and fourteen, the coin would continue to decrease at the same rate. A nonher area of concern that affected Fly-by-Nights cash flow negatively was their income from continuing operations. All of the companies expenses on its proportional income statement had enormous increases from year 13 to 14.This was the first year that Fly-by-Night recorded a loss from continuing operations and it was a attractive big loss. This suggests that they paid too much to run their business. Some of the ratios presented in the case also suggests a negative flow of cash for year 14. The long term debt ratio dropped from 88% to 0% in year 14, which means that the partnership paid all of its long-term debt in year 14 and that would necessitate a huge impact on cash flow.The quick ratio also had a major drop from year 12 to year 14, which indicated that the amount of cash and accounts receivable to cover its flow liabilities was becoming a problem. Part B I do not believe that FBN can avoid bankruptcy by year 15. In the case, it states As of April 30, Year 14, the Company is in default of its debt covenants. It is also in default with respect to covenants underlying its capitalized lease obligations. As a result, lenders have the right to accelerate repayment of their imparts. Accordingly, the Company has lassified all of its long-term debt as a current liability. The way the company is moving, it does not appear that FBN provide have enough cash to cover these now current liabilities. The company has to implement new strategies in order to avoid bankruptcy. First of all, there has to be better communication between the members of the board. It says that Mather received a loan authorized by the board for $1,000,000 when later that month the board said it was unaware of this loan and that it never authorized it. Obviously there was maneuver occurring when Mather was the CEO.With better oversight by the board, problems such as this could be averted. Also, FBN take a better system to collect its accounts receivables. As said in Part A, the accounts receivable amount had increased so much in the past 5 years and that negatively affected cash. It is a misnomer that gritty revenue is the sign of success when really it should be how much cash the company has. That is why Mather was confused why there was a problem with cash and the reason was that the company did not pay enough management to the cash flow statement.