Professional Documents
Culture Documents
Learning Curve Case Study PDF
Learning Curve Case Study PDF
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any
form or by any means electronic, mechanical, photocopying, recording, or otherwise without
prior written permission from enParadigm Knowledge Solutions.
Table of Contents
INTRODUCTION ....................................................................................................................................... 3
Product .................................................................................................................................................... 4
MARKETING............................................................................................................................................. 4
Geographies .................................................................................................................................... 4
Customer Segments ........................................................................................................................ 6
Advertising ...................................................................................................................................... 7
SALES ....................................................................................................................................................... 9
AFTER-SALES ......................................................................................................................................... 10
OPERATIONS ......................................................................................................................................... 11
LOGISTICS .............................................................................................................................................. 11
RESEARCH & DEVELOPMENT ................................................................................................................ 12
HUMAN RESOURCES ............................................................................................................................. 14
Performance Management System .............................................................................................. 14
Workforce Planning ...................................................................................................................... 16
Compensation & Benefits ............................................................................................................. 16
Organizational Effectiveness Initiatives ........................................................................................ 17
FINANCE ................................................................................................................................................ 17
ACCOUNTING ........................................................................................................................................ 19
Balance Sheet ................................................................................................................................ 20
Profit and Loss Statement ............................................................................................................. 23
Cash Flow Statement .................................................................................................................... 24
INTRODUCTION
MEMO
From: Mahendra Nath Singhania, Group Chairman, Singhania Group
Congratulations! You have been selected to head our companys mini robot division based
on the exceptional performance you have exhibited in your career so far. This is your
biggest responsibility to date. You will be briefed on the industry, the mini robot division,
and the roles that you will step into. We have decided to spin off the mini robot division into
a standalone company, with its own top management and financial responsibilities. The
Singhania Group is the sole shareholder of this subsidiary company. You will have to take
charge of the company and rebuild it.
While the entire mini robot industry may currently be struggling for profitability, I am
expecting you to deliver good profits in the long run to justify our continued investment in
the mini robot industry. In other words, I will be looking at the return on shareholders
equity investment (ROE) as the definitive measure of your performance vis-a-vis your
competitors. You will do well to remember that being part of the top management team
also means that the entire responsibility of ensuring company performance is on you.
You will now be debriefed by the heads of the different departments of the mini robot
company.
Product
Robots are used to carry out tasks that are repetitive in nature
or performed in areas that are hazardous to human life. The
robot market has seen a revolution through the introduction of
autonomous mini robots which can operate in areas which
were hitherto considered inaccessible to robots. Only a few
companies, including us, have the technology to manufacture
mini robots. Though other companies are trying to acquire this
technology, it is felt that entry barriers are too high for a new
entrant to launch within the next few years.
MARKETING
Mr. Ashish Gupta (Senior Vice President, Marketing - He has been with the company for
20 years, and he travels widely across the world to keep in touch with fast changing
customer requirements)
Geographies
As you all know, our company has its headquarters in India, Asia. Our main export
geography, North America (NA) has already adopted the new product, and a majority of the
mini robots there use our technology. As of date, Asia, our home geography, is yet to have
the same demand prospects as North America. However Asia is a fast growing geography,
unlike North America, which is nearing maturity. We can also decide to enter Latin America
(LA), currently a very small geography, but with high growth potential. We feel that Latin
America could be the future engine of growth once North America and Asia slow down. The
marketing, sales and after-sales plans for each geography should be relevant to the
industry situation in that geography.
An industry market research team has provided the following demand forecasts for the
entire mini robot industry across the three geographies in Table 1. This demand will be
catered to by us and our competitors in the mini robot industry.
The actual growth rates of these geographies will depend on several parameters and might
differ from research projections, based on the attributes of the products and services made
available in each market.
The company does not have a presence in any geography as of now, due to the revamp in
operations. We can choose to enter in any combination of the above geographies in the
coming quarters. The main overheads incurred due to presence in geography are the
quarterly operating costs of our sales offices. The sales office maintenance cost has to be
incurred every quarter to operate in a region. These increase by about 10% quarter on
quarter as we delay the entry decision. Therefore, early movers into a region will benefit
from lower fixed costs for each quarter. However, in the upcoming quarters, the demand
from some of the geographies may not be enough to support the overheads that we will
have to incur if we enter them early. Besides, our focus in terms of advertising, sales force,
after-sales force and top management mind share will be split among the different
geographies we enter. Once we enter a geography, we are free to exit it in any future
quarter, but we will lose the advantages gained by early entry.
Customer Segments
There are three customer segments in each of our geographies - Original Equipment
Manufacturers, Value Added Resellers and Wholesalers. Though the core technology used
in the mini robots sold across all segments is the same, the services required by each
segment are very different. These services include on-time delivery, advertising and after-
sales service support. Customer segment focus must be a key element in our business
strategy to deliver profitability to our shareholders in the long run.
7,000. They do not have a direct relationship with the actual users of our mini robots. Hence
they are less informed about various product offerings available in the market, and they
prefer older versions of mini robots that are tried and tested.
Figure 1 indicates the importance of different attributes for the 3 customer segments.
As the needs of each segment are very different, it will not be possible to satisfy all the
segments at the same time. If we try and aggressively sell to all segments, our focus in
terms of product offering, spend on advertising, sales and after-sales may be diluted. On
the other hand, if we align the rest of our business functions such as R&D, production &
planning based on a key segment, our costs may be rationalized and profits could increase.
Advertising
important for wholesalers, as it makes it easier for them to sell to their clients.
There are three different mediums for advertising Research Journals, Trade Journals and
Trade Fairs. The relevance of each medium differs from customer segment to customer
segment. Our marketing research team has compiled the relative importance of each
medium for the different segments in Figure 2.
Spending more than INR 200,000 in a quarter on any single medium in a geography is not
advisable. The additional sales as a result of advertising vary according to the curve shown
in Figure 3. Beyond a level, the additional sales from every additional INR 10,000 of ad
spend in a quarter decreases.
Advertising Spend
SALES
The number of salespeople required per customer segment is also different. We should
ideally have salespeople for each client as the chances of getting orders increase as per the
curve shown in Figure 3 below. However, when the number of salespeople goes beyond a
level, the additional orders per every new salesperson decrease.
Impact on Demand
Sales Spend
AFTER-SALES
OPERATIONS
Mr. Kapoor (Senior Vice President, Operations - He graduated from a premier engineering
college and has been with the company for 15 years. He has a clear focus on keeping the
production costs low, and was instrumental in shifting the plants to China) We have a
plant in China for manufacturing mini robots, with a quarterly capacity of 1,000 units. The
mini robots are then shipped to our customers in Asia, North America and Latin America.
The cost of production is INR 4,000 and is almost the same for all segments. We also have a
long term contract with a Chinese vendor, CunningFox, who produces mini robots for us at
INR 4,500. The contract has a technology transfer clause which enables CunningFox to
produce to our technology specifications.
We can add capacity by building new plants with a quarterly capacity of 1,000 units. The
investment required to build a new plant is INR 1,500,000. Plant construction will take one
quarter for completion irrespective of the number of plants we want to construct.
Our plants and supply chain are configured in such a manner that we can only sell one
version of mini-robots in any quarter. We must make an annual production plan, based on
data compiled from different market research reports. This will enable us to plan our
capacity accordingly.
LOGISTICS
to that customer before we look at fulfilling orders from any other customer. Since we plan
our production before receiving customer orders, we may not be able to clear the mini
robots immediately from the warehouses. The warehouses charge an inventory holding cost
of INR 50 per unit quarter for any inventory that does not get sold during the quarter.
If we stock out in a quarter to any customer, we lose the unfulfilled demand to our
competitors. The customers to whom we failed to deliver will perceive us as unreliable and
reduce their orders for the next quarter. On the other hand, if we are able to supply to our
customers the unfulfilled orders of competitors, they will reward us by increasing their
orders to us in the next quarter.
We can avoid stock outs to customers who are more important to us, by assigning a higher
priority to them. However if a customer makes a demand for mini robots late in the quarter
as a result of the competition failing to meet their supply commitments, this demand will
be fulfilled only after the previous orders of other customers are met.
Version Enhancement projects are aimed at upgrading the functionalities of our mini robots
and to develop the next generation of mini robots. Value Added Resellers and OEMs scan
the market closely for new versions, so that they can then differentiate their offerings to
their customers. Wholesales prefer older versions that are tried and tested. We are right
now at Version 1 of our product. The market research studies conducted by our Corporate
Marketing team indicate that having a version two levels higher than competition could give
us around 20% additional demand in the value added reseller segment, while having a
version two levels lower than competition could give us around 20% additional demand in
the wholesaler segment. Each version enhancement will increase the production cost per
unit by INR 100 - 200. Once we successfully complete a project, all our inventory would get
upgraded to the latest version at no additional cost to us. Our Chinese vendor, CunningFox,
also produces mini robots of our latest version for us due to the technology transfer
agreement. Due to the high costs incurred in carrying out Version Enhancement projects,
our corporate marketing guidelines specify that we will not be allowed to roll back our
offering to previous versions once a project is successful. A maximum of one version
enhancement can be carried out in a quarter.
Automation projects improve the efficiency of our plants by replacing human labour with
automated machines, and by reducing wastage. The variable cost of production decreases
as a result and the margin on each unit will increase. A successful automation project shall
result in all our plants getting upgraded and this will be indicated by the Automation Level
of our plants. Our plants in China are currently at Automation Level 1. The variable cost per
unit is INR 4,000, which can decrease by around INR 30 - INR 50 following each successful
automation project. A successful automation project has a smaller variable cost reduction
on higher versions of our mini robots than on lower versions, as higher versions require
more complex machinery to be installed. The automation of our plants can be increased by
a maximum of one level in a quarter.
Quality Improvement projects help in reducing the defect rate of our products. The defect
rate indicates the number of mini robots with technical defects for every 100 mini robots
sold. A high defect rate does not result in wastage as the product can be used after
adequate repair work, but will reduce demand for our product. These repairs are carried out
by our after-sales people and hence we can offset the impact on demand by providing our
customers with the required number of after-sales people. At present our plants have a
defect rate of 10%. A successful quality improvement project will reduce the defect rate by
around 2 percent. Only one quality improvement project can be carried out during a
quarter.
Research Budgets Research budgets have to be allocated as a part of the decisions for the
quarter. If the cost of a project is within the budget allocated, the project will be successful;
otherwise additional funds will have to be allocated next quarter. If the project requires a
budget less than what was allocated, the additional funds shall be utilized for the next
project. The initial Version Enhancement, Automation and Quality Improvement projects
will require an investment in the range of INR 90,000 - INR 110,000, INR 40,000 - INR 55,000
and INR 8,500 - INR 10,000 respectively. Due to the inherent uncertainty of research
projects, the costs for each project can only be approximated, and can be off target by as
much as 10%. The investments in research projects have to be closer to the upper
investment limit to increase the probability of success. The research budgets required for
further projects need to be exponentially increased as we keep improving our products,
and we will need your help to understand how we should go about our R&D investment.
HUMAN RESOURCES
Ms. Kavitha Maheshwari (Senior Vice President, HR - She is a decade old veteran in the
Singhania Group, and has been the main force behind our talent management efforts
across various Singhania Group companies)
The Human Resources Department is a key player in ensuring both the performance of the
company, and that of each individual manager in the company. We ensure that
responsibilities for carrying out day to day business activities are allocated clearly to the
different managers. We also try to create a positive and healthy work environment, so that
all departments are able to contribute in full towards business decision making. The
challenging business environment in front of us ensures that all of us will be under pressure
to perform. Therefore, conflict resolution and consensus building are key elements in
ensuring that top management make good decisions.
The Singhania Group is a merit based conglomerate, and there is no limit to what you can
achieve here if you work hard and perform well. We have identified certain key
performance metrics for each department to give you overall guidance on evaluating your
performance. In every quarter, each top manager will have to set the targets for the key
performance metric pertaining to his/her department. At the beginning of the following
quarter, you will need to check the actual results against the targets set and determine
whether you are on the right track. The different metrics are given below in Table 3.
Head, MKT & % Market Share By Revenue It is the ratio of revenue of the
Sales company to the revenue of the
industry as a whole in the quarter
Head, Finance Interest Coverage Ratio It is the ratio of profit before interest
and tax (PBIT) to the interest expenses
of the company in the quarter
All Functions Return on Equity (ROE) It shows the return to shareholders for
the capital that they have invested in
the business. It is the ratio of the net
profit to the total equity held by
shareholders in the company
In lieu of our merit based philosophy, each member of the top management team is
entitled to get a quarterly bonus of INR 50,000 if s/he meets or exceeds his/her respective
performance target. This money will be paid out by the Singhania Group, and will not be an
expense for your mini robot company.
Workforce Planning
We will need to ensure adequate staffing to meet the business needs of the organization.
We can hire more talent from the marketplace, and also retrench them as the need arises.
Having too few people prevents us from fulfilling the needs of the market and making
profits, while having too many people increases our fixed overheads, and again reduces our
profits.
Our corporate head office allows a quarterly budget for a maximum of 15 salespeople for
OEMs, 10 for value added resellers and 20 for wholesalers in each geography. We incur a
one-time expense of INR 15,000 for hiring or retrenching a salesperson.
The corporate head office has given us a quarterly budget to have a maximum of 5, 10 and
15 after-sales people on our rolls in each geography for OEMs, VARs and WHLs respectively.
We incur a one-time expense of INR 30,000 for hiring or retrenching an after-sales person.
Each sales / after-sales person can be allocated to only one customer segment in one
geography for a quarter. However, salespeople and after-sales people can be shifted
between different customers / geographies in subsequent quarters without any additional
cost.
The HR function is also responsible for deciding the compensation and benefits that our
employees receive. While increasing compensation improves employee morale and
productivity, we have to keep an eye on the impact of the same on the profitability of the
company.
The compensation for a salesperson is currently INR 30,000 a quarter, while that for an
after-sales person is currently INR 60,000 per quarter. HR can vary the compensation of
salespeople between INR 25,000 and INR 35,000, and that of after-sales people between
INR 55,000 - INR 65,000.
We invest in training and development to improve the effectiveness of our people and the
company as a whole. Improving processes within the company increases the productivity
level of our employees, thus enabling us to conduct more business with lesser people, and
hence reduces the dependence on individual capabilities. We need to invest an amount of
INR 100,000 to improve our sales process level in a quarter, and an amount of INR 200,000
to improve our after-sales process level in a quarter.
FINANCE
For each quarter, we will have to pay 55% of the money we owe our raw material suppliers
on the spot, and the balance 45% in the next quarter. Our customers pay us 40% of the
money they owe us on the spot, with the balance 60% coming in the next quarter.
Whenever we do not have sufficient cash for a quarter, we can borrow from the bank
through working capital or long term loans. A working capital loan is currently available at a
quarterly interest rate of 6%, and will be due for repayment in the next quarter after it is
taken. A long term loan will remain on our balance sheet till we pay it back. The interest we
have to pay on a long term loan we have taken will be at the fixed long term interest rate
decided when taking the loan. The interest rates are different for the two types of loans,
and they might vary from quarter to quarter. The interest for each quarter is calculated by
the bank on the outstanding loan amount at the beginning of that quarter. In other words,
the interest for a working capital or a long term loan taken in a quarter is due only in the
next quarter, as the loan amount is released by the bank only by the end of the quarter.
There are some financial covenants imposed by the bank on borrowing. The maximum
working capital loan we can avail of in a quarter is INR 1,500,000, and the maximum long
term loan is INR 4,000,000. The bank will not lend us more than INR 12,000,000 as long
term loans in total.
The interest rate on working capital loans is currently 6%. The interest rate on long term
loans depends on the amount of long term loans we have taken till date. As the loan
amount increases, the risk incurred by the bank increases, and hence our long term interest
rate also go up. The interest rate goes up in slabs, as given in Table 4. For example, if the
loan amount is INR 2,300,000, then the first INR 1,000,000 is at 7%, the next INR 1,000,000
is at 7.5% and the next INR 300,000 is at 8%.
The interest rate slabs for long term loans are as follows
Table 4: Interest Rate for Different Loan Amounts (in INR million)
The interest for each quarter is calculated by the bank on the outstanding loan amount at
the beginning of that quarter. In other words, the interest for a working capital loan or a
long term loan taken in a quarter is due only in the next quarter.
If we run out of cash and have not borrowed from the bank, we will have to go for
emergency loans from loan sharks. Emergency loans come at a premium interest rate of
20% per quarter, and should be avoided by keeping a buffer of cash reserves. They have to
be repaid in the next quarter after they are taken.
Administrative Expenses
The quarterly administrative costs associated with our business are factory personnel costs
of INR 60,000 per plant, and the operating cost of INR 300,000 for sales offices in each
geography we have a presence in. This administrative cost for a geography will keep
increasing by 10% quarter on quarter as we delay our entry into that geography. The
administrative costs also include the hiring / retrenching costs and the investments in sales /
after-sales process upgrades.
Taxation
According to the Income Tax Act, our plants will be depreciated over a period of 20
quarters, while research investment will be amortized over a period of 3 quarters. While a
plant will be depreciated from the quarter it is ready for production, research investments
will be amortized once the respective research projects for that investment are successful.
We pay tax on a quarterly basis, at a tax rate of 30% on our profit before tax. The losses for
a quarter cannot be set off against the profits of any other quarter while computing our tax
liabilities.
ACCOUNTING
Welcome! I understand that most of you are not very comfortable with financial statements
and accounting terms. One of the key challenges faced by the senior leaders from non-
finance backgrounds is being able to interpret financial statements to make prudent
business decisions. I will take you through the various sample financial statements so that
you can have a good grip on how the big picture looks like, before embarking on the new
journey.
Financial statements are the records of the various activities performed by a company. They
can be used to compare our companys performance against its past track record, and
against our competitors performance. The most commonly used financial statements are:
1. Balance Sheet
2. Profit and Loss Statement
3. Cash Flow Statement
Balance Sheet
The balance sheet is a snapshot of our company's assets, liabilities and shareholders' equity
at a specific point in time. It is usually computed at the end of every quarter / year. It shows
what the company owns and owes, as well as the amount invested by the shareholders. In
Table 5 below, you can have a look a sample balance sheet.
Assets Liabilities
Cash 1,500,000 Common Stock 3,000,000
Accounts Receivable 0 Accounts Payable 0
Inventory 0
Gross Plant 1,500,000
Accumulated Depreciation 0
Net Plant 1,500,000 Short Term Loan 0
Gross Research 0 Long Term Loan 0
Accumulated Amortization 0
Net Research 0 Retained Earnings 0
Total Assets 3,000,000 Total Liabilities 3,000,000
Assets
Our companys assets are the tangible or intangible resources that it owns which can be
used to produce value for itself. Tangible assets owned by our company include its
production plants, its inventory of raw material, finished goods and goods being produced,
buildings, equipment etc, while intangible assets are those such as patents, copyrights,
trademarks, intellectual property, and financial assets such as cash, receivables from
customers, bonds and stocks owned by the company.
Current assets are those assets which can be converted into cash in the short-term. Current
assets include cash, receivables from our customers, inventory, short-term investments
which are expected to be redeemed within a year, etc.
Inventory represents the value of the unsold goods that we have at the end of each
quarter / year.
Fixed assets are those which assets which cannot easily be converted into cash in the short-
term (perhaps a period of 1 year, or 1 operating cycle). Our companys plant, equipment,
property, etc are fixed assets.
Depreciation
If you look closely at the asset side of the balance sheet, you will see notice a term called
accumulated depreciation. Depreciation is an accounting term that represents the cost of
using long term assets over a specific period of time such as a quarter or a year. Those
assets that are not directly consumed during the business of the firm, such as our plant etc,
are depreciated. The cost of an asset so allocated as depreciation, is the difference between
the total amount paid for the asset and the total amount expected to be received when it is
disposed by the company. One of the accounting methods used for depreciation is straight-
line depreciation. In this method, the difference between amount paid for the asset, and
amount expected to be received on disposal of the asset, is allocated as a cost to the
company in such a manner that it is equally split over the useful life of the asset.
Annual depreciation expense = (Gross value of asset expected disposable value) / useful life
in years
Your companys investment in plant and research will be depreciated based on the cost paid
for each investment and the quarter in which you invest.
Accumulated depreciation on an asset is the total depreciation on that asset from its initial
acquisition onwards.
Net value of a depreciable asset = Gross value of asset accumulated depreciation on asset
Amortization
You would also have noticed a term called accumulated amortization. Amortization is the
equivalent of depreciation for intangible assets of our company, such as investments in
research, patents, copyrights, trademarks, intellectual property etc.
Annual amortization expense = (Gross value of intangible asset expected disposable value)
/ useful life in years
Liabilities
Our companys liabilities represent what it owes to the external world, such as its suppliers,
its lenders or banks, etc.
Current liabilities are those which are expected to be paid off in the next year or operating
cycle.
Accounts payable is the balance payment due to your suppliers against the raw
materials for your products.
Short term loan repayments are those payments for which payment is due within
the next one year.
Long term liabilities are those liabilities which are not expected to be discharged in a years
time. They include long term loans, long term leases, pension obligations etc.
Shareholders equity represents the benefit that shareholders of a company gain by virtue
of their stake in the company. Shareholders equity is comprised of common stock, which is
the capital invested into the company by its shareholders in return for shares, and retained
earnings, which is the value created / destroyed by the company for its shareholders by
virtue of its existence over time. Retained earnings can also be defined as the sum of profits
/ losses over the entire period of your companys existence.
Accounting Equation
Now that you have come this far, I will introduce you to the accounting equation. The
accounting equation provides the mathematical structure of the balance sheet.
In simple words, any liability that our company incurs to an external agent will also result in
the creation of an equivalent asset for the company. For example, if a bank gives a loan of
INR 1,000,000 to our company (liability), it results in the company getting cash of INR
1,000,000 (asset). If our shareholders decide to increase the capital invested in the company
by INR 2,000,000, then it again results in the company getting cash of INR 2,000,000.
The profit and loss statement summarizes the revenues and expenses incurred by our
company during a specific period of time - usually a quarter or a year. In Table 6 below, you
can have a look at a sample Profit and Loss Statement for a quarter.
Revenue 5,000,000
Research Amortization 0
Advertising cost 0
Interest Cost 0
Tax 66,000
Cost of Goods Sold (COGS) comprises of all the costs that are associated directly with
production. It includes electricity charges, labor cost, plant maintenance, raw
material cost, plant depreciation etc. For our company, the variable cost of goods
sold consists of the direct costs involved in the production of goods such as the raw
material cost.
Inventory holding cost is the cost of storing inventory at warehouses for a quarter or
year. Inventory holding costs include rent for the required space; equipment,
materials, and labor to operate the space; insurance; security; interest on money
invested in the inventory and space, and other direct expenses. Another major cost
is cash held down in the form of inventory.
Advertising cost is the total amount spent on advertising for a quarter or year.
Sales cost reflects the salary payment to the sales force over a quarter or year.
After-sales cost consists of the salary payment to the after-sales people for a quarter
or year.
Other fixed costs represents the total cost of running operations in each geography,
along with the wages for factory personnel cost.
Profit before Interest and Tax (PBIT) consists of revenue less the above expenses.
Interest cost is the sum of the interest on short term loans, long term loans and
emergency loans.
Profit after Tax (PAT) is PBT less tax. This is the profit available for company
shareholders after all expenses are met. It can also be termed as net profit.
It shows all cash inflows and cash outflows our company incurs during the course of its
operations, investments and financing activities, during a specific period of time usually a
quarter or year. The cash flow statement is used to analyze how the cash position of our
company has changed from previous year, and to keep a tab on the short term viability our
company.
The cash flows resulting from the activities of our company can be divided into three
categories.
Profit After Tax (PAT) The PAT is taken from the Profit And Loss Statement. We
start from this figure, and make the necessary adjustments for inflow and outflow of
cash in the period that are not reflected in the Profit And Loss Statement, to arrive
at the actual change in the cash balance of our company during the period.
Change in Inventory If our inventory in the current quarter is higher than that of
the previous quarter, our cash has been sucked up for the excess inventory, and
there is a net outflow of cash for the company.
Change in Accounts Payable If the accounts payable of a quarter is higher than the
accounts payable of the previous quarter, it results in a net inflow of cash for our
company and hence has a positive effective on our cash balance.
The net change in cash due to the above heads consists of the cash flow from operating
activities.
The net change in cash due to the above heads consists of the cash flow from investing
activities.
Change in short term loans If the short term loan outstanding in the current
quarter is greater than those in the previous quarter, it results in an inflow of cash
for our company
Change in long term loans - If the long term loan outstanding in the current quarter
is greater than those in the previous quarter, it results in an inflow of cash for our
company
The net change in cash due to the above heads consists of the cash flow from financing
activities.
It is the sum of the cash flow from operating activities, cash flow from investing activities
and cash flow from financing activities.
The closing cash balance at the end of a quarter or year is obtained by adding the net
change in cash to the opening cash balance at the beginning of the quarter / year.
Note: The closing cash balance in the cash flow statement must obviously be the same
figure as that shown in the Cash head of our balance sheet for the same date. This is a
simple, but effective check to see whether the accounting has been done properly.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any
form or by any means electronic, mechanical, photocopying, recording, or otherwise without
prior written permission from enParadigm Knowledge Solutions.