Discussed The Honest Company in my module two discussion. In reviewing the annual report for the period ended December 31, 2021; the statement of cash flows paints a not so pretty picture in terms of operating cash flow. For the annual periods of 2019, 2020, and 2021, net cash used in operating activities were $20.0 million, $12.1 million, and $38.2 million, respectively. Net cash (used in) provided by investing activities was $11.0 million, $36.7 million, and ($8.6) million in 2019, 2020,and 2021, respectively. Net cash (used in) provided by financing activities was ($305,000),($973,000), and $60.4 million in 2019, 2020, and 2021, respectively. Overall, the net (decrease)increase in cash and cash equivalents for 2019, 2020, and 2021 were ($9.3 million), $23.7 million, and$13.6 million, respectively (The Honest Company, 2022).

Since The Honest Company went public in 2021, they received $96.5 million from IPO proceeds, and paid dividends worth $35 million. It would be critical as controller for the upcoming year to manage cash effectively, especially considering the IPO. The operating cash flow is not great for the company and potentially signals trouble, especially during the recent pandemic as well as economic downturns. Cash forecasts are critical, and I would plan to assess them on a regular weekly basis and update the variables as necessary. If there is a customer with a large receivable balance that has trouble paying, that will have a detrimental effect on cash collections if the balance goes unpaid for months. Sales forecasts are also a critical factor for cash flow. If the targets are not achieved, and the variance is especially significant, that will spell even more trouble for The Honest Company, or any company. If there are deals in the pipeline that suddenly drop out, it's imperative to revise the forecast and determine the appropriate plan of action. If the cash forecast is not assessed on a weekly or bi-weekly basis, especially with the recent economic arena, it could be the difference between disaster or keeping heads above water, in my opinion.

In addition to keeping a close eye on the cash forecast and accounts receivable aging, I wouldeffectively manage payables by researching vendors for the best value and price, negotiate promptpayment discounts, as well as extended payment terms that would benefit cash flow. Controllingoperating expenses will be huge for The Honest Company. They are in a tough spot wanting toachieve a certain level of quality but try not to pay through the roof for it. I would specifically lookat ways to cut back on expenses for R&D and outsourced providers. The company already has a $35.0million credit line facility with JP Morgan which matures on April 30, 2026. As of December 31,2021, there was $28.7 million available to draw upon. (The Honest Company, 2022). I would focus on keeping the outstanding balance low to avoid drawing too much and then run into a situation wherewe struggle to pay it back.

To help increase liquidity, I would focus on increasing sales by expanding into other retailers,increasing online sales, as well as potentially selling assets. The Honest Company has an in-houseresearch and development lab which could be outsourced if the right provider could meet theirstandards. Selling the building could certainly help to improve liquidity, even if they sold anddownsized to a smaller location. I am curious to see their annual report for December 31, 2022 thatshould be published next month and examine their cash flow and other financial statements.

Share your ideas on how to increase liquidity. Include in personal or professional experience you have in regards to this topic?