AgBiz 1 and AgBiz 2 are similar agribusiness firms, but with a few differences in cash flow management, as illustrated below. Study the information in the supplied scenarios and answer the following (3) questions:

1. Given both firms have identical sales forecasts, which one is in the best position from a cash flow perspective? What tells you that?
2. Explain how the factors influencing difference in the scenarios impact the outcome.
3. In general terms, what impact on the comparison would you expect if all assumptions stayed the same, but AgBiz 1 now had Accounts Receivable turnover ratio of 6 (= 60 days)? Why?

AgBiz I

AgBiz 1 Assumptions:

1. 75% of sales are on credit.
2. Accounts Receivable Turnover Ratio = 12
3. Cost of Goods Sold is 25% of sales.
4. Accounts Payable Turnover Ratio = 12.
5. Monthly selling and administrative expenses are 100.
6. Beginning cash balance is 200 in June.
7. Minimum cash balance is never less than 200.
8. Inventory Turnover Ratio = 12.

AgBiz 1 cashflow	June	July	August
Cash Outflows
Forecast Sales	2000	4000	6000
Purchases	1000	1500	2000
Accounts Payable	500	1000	1500
Selling and Administrative Expenses	100	100	100
Total cash outflow	600	1100	1600
Cash Inflows
Forecast Sales	2000	4000	6000
cash sales	500	1000	1500
accounts receivable	750	1500	3000
Total cash inflow	1250	2500	4500
Cash flow summary
Beginning cash balance	200	850	2250
cash inflow	1250	2500	4500
total cash available	1450	3350	6750
cash outflow	600	1100	1600
net cash	850	2250	5150
needed to borrow/repay	0	0	0
Ending cash balance	850	2250	5150

AgBiz 2

AgBiz 2 Assumptions:

1. 50% of sales are on credit.
2. Accounts Receivable Turnover Ratio = 12
3. Cost of Goods Sold is 50% of sales.
4. Accounts Payable Turnover Ratio = 12.
5. Monthly selling and administrative expenses are 100.
6. Beginning cash balance is 200 in June.
7. Minimum cash balance is never less than 200.
8. Inventory Turnover Ratio = 12.

AgBiz 2 Cash flow	June	July	August
Cash Outflows
Forecast sales	2000	4000	6000
purchases	2000	3000	4000
accounts payable	1000	2000	3000
Selling and administrative expenses	100	100	100
Total cash outflow	1100	2100	3100
Cash Inflows
Forecast sales	2000	4000	6000
cash sales	1000	2000	3000
accounts receivable	500	1000	2000
total cash inflow	1500	3000	5000
Cash Flow Summary
Beginning cash balance	200	600	1500
cash inflow	1500	3000	5000
total cash available	1700	3600	6500
cash outflow	1100	2100	3100
Net cash	600	1500	3400
needed to borrow/repay	0	0	0
Ending cash balance	600	1500	3400