After completing a model train for his nephew sometime time shortly after World War I George Olieux began a small business of repairing model trains for individuals This later assisted in the growth of his current business George's Trains which became a storefront business owned and operated by George Olieux in 1962 George s Trains is now a business that specializes in the sale repair and trading of model trains of all makes and models The organization is a family owned business that bases its business values on honesty fairness and integrity George's Trains 2018 The company has a staff that is knowledgeable about model railroading alongside the various train models and other important aspects of the industry Through this case study we shall examine George s Trains business and the organization's working capital practices Working capital refers to the financial metric that ensures operating liquidity of a business organization firm and other governmental entities Wikepedia 2018 Working capital management is an important concept for business owners and managers of business to understand and today George's Trains working capital shall be examined and analyzed to determine areas of needed improvement to expand the company's future business ventures Working Capital Practices According to Hill 2013 working capital is obtained and defined by deducting current liabilities from current assets which consequently assists in determining the debt amount acquired in order to finance a company's assets
This information is highly important and enables owners and managers to be aware of short term efficiency and gain full understanding of the business health alongside a comprehension of short time financial obligations and their ability of being met Jackson 2016 George's Trains company grew over time and by following through with its business values the company grew in business in regards to both numbers and reputation This reputation led to a good relationship with the bank which is helpful in that George began the business with no capital to invest into his business in the beginning as well as allowed him to purchase his building to run his business out of INTELECOM producer To have positive working capital practices a capital budgeting method must be in place The three most used methods of capital budgeting are net present value NPV internal rate of return IRR and the payback method Byrd Hickman McPherson 2013 The manner in which George s Trains conducted business attracted many new customers and helped the company build a successful business that is still running today and has even expanded to online as well When demands changed George used capital budgeting methods to look into new products and when economical changes occurred yet again George s Trains followed the trends keeping his business alive Yet even with a strong well defined business and reputation there are always areas that could use improvement Next we shall examine the pitfalls of George s Trains Potential Pitfalls The pitfalls that are noticed in George s capital budgeting procedures are centered around the structure of the capital budgeting methods and how they are implemented One of the concerns could be that the company only offers one type of product trains Having only one product can limit the demographic group that would be interested in the company
Additionally George s Trains lacked an actual capital structure George stocked the shelves based on what he thought he could sell at the time and never overstocked items but when demands for products reduced he looked into obtaining new products However this decision could have failed as it is impossible to really predict consumers purchasing habits Additionally George fails to ever consider the possibility of his plan having failed For businesses it is critical that business owners consider both the risks and benefits of a capital investment According to Hill 2013 Efficient working capital management should be guided by cash profitability Cash flow statement Although very little information is provided on the financial aspects of the George s Trains company we know cash flow is an essential part of any business Cash flow represents the sales minus purchases and expenses of a company Hill 2013 A statement of cash flows includes vital information about a business such as cash receipts cash payments as well as the net change in cash resulting from the operating investing and financing activities within a particular period Byrd Hickman McPherson 2013
Next we shall examine a simple cash flow statement of George s Trains organization George Company For the year ended December 2016 2016 000 Cash flows from operating activities Inflows Sale of goods 27 818 GST collected from customers 2 024 Interest receipts 1 833 Others 560 Outflows Cost of goods sold 20 400 Employee expense 2 029 Supplies and services 1 857 Other 222 Net cash provided by operating activities 7 727 Cash flow from investing activities Inflows Sale of property plant and equipment 10 Outflows Net payment for property plant and equipment 483 Net cash used in investing activities 8 220 Cash flow from financing activities Loan from banks 17 178 Personal equity 23 535 Net cash from financing activities 14 577 Net increase in cash held 1 084 Cash at the beginning of financial year 4 026 Cash at the end of reporting year 19 687 Conclusion The objective of this case study was to analyze George s Trains company and examine the manner in which the business is conducted and structed in regards to working capital practices Through this study we have discussed the company some of its history as well as the working capital processes used by the company From there we have provided recommendation on how George Olieux could improve the business Lastly was a review of the cash flow statement to assist George s Trains in tracking the status of the company and how it is using the money within the organization
