A cash flow statement is simply a summary of cash received for the period and cash paid. It contains some extremely useful information because it gives a lot more detail about the movement in the cash position. (Dyson, J. R. , 2001). The cash flow is vital because it’s possible for a business to be profitable without necessarily having the sufficient cash resources to keep it going.

The above chart 4 illustrates the change in cash flow statement between 2003 and 2004. From chart 4, Jingle Bell has good cash flow performance in both two years.Compared with 2003, Jingle Bell has more sufficient cash available in its cash account at the end of 2004. However, it should be point out that too much cash tied up in debtors would enhance the risks. The annual balance sheet provides a company the overall information about the structure of the assets, liabilities and equity across a financial year.Jingle Bell’s Balance sheet 2003/2004 (chart 5) shows the change in its structure of assets, liabilities and equity over two years.

According to chart 5, there was a significant increase in equity (shareholder funds) from 0. 46 million to  0. 65 million, rising by 40%.

Also the decrease in Jingle Bell’s liabilities was noticeable, from  39,000(2003) to zero at the end of the 2004.In order to interpret the information more specific, a range of ratios will used to analyse. Because there were no current liabilities at the end of 2004, those two ratios cannot be calculated. However, it is obviously that the liquidity of Jingle Bell is extremely high. It allows the sufficient cash flow to cope with the normal operations and contingency.However, a guide of 2:1 is normally recommended. Jingle Bell has had too much unnecessary capital tied up in current assets and will eventually affect the efficiency of using capital. If a business has sufficient assets to pay off the borrowed capital liability, the business is solvent.

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Because Jingle Bell’s total assets far more exceeded its liabilities both in 2003 and 2004 (56:1 & 64:0), the company has no solvency problem at all. However, too much assets could be idle in Jingle Bell’s current situation.According to the overall evolution of two-year process and the final analysis of financial performance, it is glad to claim that Jingle Bell Ltd. has gained the remarkable success in the last two years. The company achieved the most of the tasks it made in terms of the profit, shareholder’s benefits and good reputation in market. Jingle Bell has made  0.

25 million at the end of the 2004, gaining 47. 6% return on capital over last two years. Simultaneously, its share price rose steadily by 41% to 141pence at the end of 2004, becoming one of the strongest in share market of toy industry.On the other hand, with the good reputation between customers, Jingle Bell has already successful fitted into the niche market and maintain the stable market share in toy market. However, behind the current success, there are still two major potential problems having been identified as following: This problem arises from the conflict between the limitation of Jingle Bell’s current operation capacity and its excess acquisition assets and the potential market demands. From the analysis of financial ratio, it has been clearly identified that liquidity and solvency ratios were extremely high.

A great amount of assets were actually idle. Also from the review of the marketing area, there is still potential market for Jingle Bell’s products that could be proved by the previous sales performance. Hence, Jingle Bell must decide how to match the gap between the operation capacity and excess assets to ensure the most efficiency of using capital and assets. Operators’ efficiency has become the torment in Jingle Bell since the big redundancy was made to solve the stock problem.

As the continuous expending in the following period, the efficiency has fluctuated due to the new recruitment.This problem has seriously restricted the productivity and cost control. If it cannot be solved properly, it will become the bottleneck in Jingle Bell future development. After the problem identified, to expending operations capacity under the emphasis on the importance of personnel management has considered as the appropriate approach to cope with it. Hence all the accumulated profit over the two years will be reserved for the future expending.

In addition, by considering the return on total asset is high, around 47(according to previous performance), a long-term bank loan could be taken to support the future expending.Based on the good performance of the last two years and sufficient market research, Jingle Bell decide to put the efficiency of using capital as the top initiative in next year. Expending the business has considered as the most proper approach to achieve that objective. According to the previous sales and the feedback of the market.

There is still certain amount of customer demands from current niche market. The forecast of market share for Jingle Bell is 8% to 10%, but the limited capacity restricted Jingle Bell’s portion under or around 8%.Also compared to start a new subsidiary operation, its profit margin is larger in the beginning period. Thus Jingle Bell has decided to set up a lager operators group in next year to match the gap during the 2005. After the niche market in U.

K. has been fully fitted. Jingle Bell’s next step is to going to start a new larger subsidiary overseas. China, Philippines and Thailand are all taking into account as the future location due to the cheap labour costs and the convenient distribution to the potential Asia market.

The final decision will be made after the specific market research has been made until the end of the 2005. When the specific decision is made about the location, a relevant bank loan could be taken in order to cope with the shortage of set-up capital. The duration of loan will be determinate by the available equity at the end of 2005and the profitability of new business. The subsidiary will be expected to yield the profit at the 2007.

All loan are expected returned by the end of the 2008.