Essay About Cash Situation And Negative Cash Flows Of Operating

Merril Lynch Case Report
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[pic 1][pic 2][pic 3]Financial crises of 2008 forced many giant firms to shut down, liquidate or sale themselves. Merrill lynch, one of those giant financial Firms also sold out itself to Bank of America (BofA) because of huge losses in crises. Merrill lynch’s share was sold in $29 which had value of $90 just a year ago and over all transaction was made in almost $50 Billion. Merrill Lynch known as a Stockbroker but it also do operations in investing banking.Merrill Lynch performance before 2008 was also not very satisfactory especially in years 2005, 2006 and 2007 after analyzing its financial statements specially cash we have seen some Evaluate the cash situation at year-end[pic 4]If we see the cash in year 2005 the cash is decreased by 30% from 2004 ending cash $20,970 but in 2006 cash is increased by 120% from last year and in 2007 the increase is by 29%. So these positive cash account are telling that firm is well capitalized in term of cash.  But if we see the source of these cash accounts all of the cash generated from financing activities. Because negative cash flows of Operating and investing activities cannot produce cash. So this cash is borrowed through financing activities which is not a good sign, Firm has borrowed cash and not using or investing it. Firm should have used these cash account either to should pay off loans or form this cash or it should have invested these cash account so it could have pay or avoid interest payment on these cash accounts generated from financial activities.Analyze cash flow provided (used)  by Operating Activities [pic 5]There are negative cash flows from operating activities in all three years, even there was Profit in first two years in 2005, $5,116 million dollars and in 2006, $ 7,499 million Dollars while in 2007 there is loss of $(7,777) million dollars, But still both years have negative cash flows from operation activities and reason behind these cash flows are huge amount of cash is stuck or lost in different operation accounts.[pic 6]These are just few main accounts which are main reason of negative cash flows operation activates. Merrill Lynch should have worked on its receivable collection,  And we can see in that firm is faced huge losses in loan, notes and mortgage sales and it is happening because of change in market situation change and fluctuation in market and firm also faced huge losses in trading its assets in year 2006 and 2007.  So over all these three accounts are main reason behind negative cash flows of operation activates.Analyze cash flow provided (used) by Investing Activities [pic 7]Cash flows from investing activities are also negative, but negative cash flows are showing that FirmHave invested its cash for earning or growth purpose. But if we see in cash accounts firm still have a lot have cash unused. They borrowed that cash and kept it to themselves they should have invested that also in investing operations. In secure securities, providing loans, purchasing Government Bonds or other safe investment if they were afraid to invest in other risky investments. Analyze cash flows provided (used) by Financial Activities[pic 8]Merrill Lynch has adjusted its negative cash flows of Operation and Investment activities and filled its cash account from financing activities. Firm borrowed huge amount of loans in shape long-term borrowings, issued commercial papers, received deposits from customers, and issued common stock. To adjust its negative cash flows. Firm also repaid its loan but borrowing accounts are greater than repaid. Positive cash flows of Financial activates shows that firm is not producing enough cash to support its operations there for it is financing operations thorough borrowings and adjusting its negative cash flows of operation activates. Positive cash flows of financing activates also tells that firm have used financing in investing activities which is good for firm, it shows that firm is growing and investing.  But as we that Investing account total in not that high in comparison to financing accounts. Almost cash provided by financing activates have either adjusted in operation accounts or it is stuck in Cash accounts.