| Course | BUS 550 Business Finance |
|---|---|
| Module | Module 1 |
| Paper type | Cash flow analysis |
| Length | About 1,038 words, 6 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for BUS 550 Module 1
Selling More, Keeping Less Cash: Free Cash Flow and the Cash Conversion Cycle at an Outdoor Furniture Maker
Student Name
MBA Program, Aspen University
BUS 550: Business Finance
Instructor Name
Month Day, Year
Selling More, Keeping Less Cash: Free Cash Flow and the Cash Conversion Cycle at an Outdoor Furniture Maker
Wasatch Outdoor Living, a composite manufacturer in Ogden, Utah, makes powder-coated aluminum patio furniture sold through independent dealers and two regional home improvement chains. Over three years, sales grew 41%, and the owners now plan a $4 million second plant to keep up with dealer orders. They expected to fund much of it with internal cash. Yet the company's bank balance has dropped two years running, and its line of credit is nearly fully drawn. Before committing to the plant, the owners asked for an analysis of where the cash is going.
Measuring Cash, Not Just Profit
Net income measures performance under accrual accounting, but finance focuses on cash, because cash pays suppliers, lenders and owners. Brigham and Ehrhardt (2020) describe free cash flow as the cash a company generates from operations after the capital spending needed to sustain and grow its operating assets, the amount available to distribute to all investors. Penman (2013) argues that analysis should separate a firm's operating activities, which create value, from its financing activities, which only distribute it, so that borrowing does not disguise weak operations. This paper follows both principles.
Three Years of Cash Flow
The table summarizes Wasatch's results, in thousands of dollars, drawn from its statements of cash flows with financing items removed.
Net income rose each year, but operating cash flow fell from $1.73 million to $360,000. After capital spending, free cash flow went from a healthy surplus to a deficit. The company has been borrowing to fund growth without realizing it.
| Item | Year 1 | Year 2 | Year 3 |
|---|---|---|---|
| Sales | 22,000 | 26,500 | 31,000 |
| Net income | 1,700 | 1,950 | 2,200 |
| Depreciation | 520 | 580 | 640 |
| Increase in receivables | minus 310 | minus 1,020 | minus 1,380 |
| Increase in inventory | minus 420 | minus 1,150 | minus 1,520 |
| Increase in payables and accruals | 240 | 380 | 420 |
| Operating cash flow | 1,730 | 740 | 360 |
| Capital spending | minus 1,120 | minus 680 | minus 700 |
| Free cash flow | 610 | 60 | minus 340 |
Where the Cash Went
Two lines explain most of the decline: receivables and inventory. Together they absorbed $2.9 million in the third year alone, more than the company earned. The reasons lie in decisions made to support growth. To win the home improvement chains, Wasatch accepted 60-day payment terms instead of its usual 30. To guarantee dealers quick delivery, it stocked more finished furniture in a wider range of colors.
The Cash Conversion Cycle
The cash conversion cycle measures how long cash is tied up between paying for materials and collecting from customers. It combines the days that inventory sits before sale and the days that customers take to pay, minus the days the company takes to pay its own suppliers.
The cycle lengthened by 38 days. At third-year sales of about $85,000 a day, each day of the cycle ties up roughly that much cash, so the longer cycle explains about $3.2 million of cash absorbed by working capital, the gap between profit and free cash flow over the period.
| Measure, in days | Year 1 | Year 3 |
|---|---|---|
| Days of inventory | 68 | 92 |
| Days of receivables | 38 | 54 |
| Days of payables | 32 | 34 |
| Cash conversion cycle | 74 | 112 |
Why Free Cash Flow Matters to Outsiders
Jensen (1986) argued that free cash flow is central to the relationship between managers and investors: when a company generates cash beyond what profitable projects require, managers may waste it on growth for its own sake unless debt or payouts discipline them. The reverse case, a company whose free cash flow is negative while it plans major investment, concerns lenders for a related reason: the investment must be financed externally, and the lender wants evidence that operations will eventually generate the cash to repay. Wasatch's bank will look first at the deteriorating free cash flow when it reviews the expansion loan.
What the Bank Will Ask
When Wasatch applies for expansion financing, its lender will compute several of the same measures. A falling ratio of operating cash flow to sales, from about 7.9% in the first year to 1.2% in the third, signals that each dollar of new sales is bringing in less cash. The lender will also ask how much of the credit line is funding receivables and inventory rather than seasonal needs, and whether the owners have taken distributions while free cash flow was negative. Answering these questions with a credible plan to shorten the cycle will matter more to the loan decision than the growth in sales.
Is the Growth Worth It
The analysis does not show that growth is bad. Wasatch's margins held steady, and its products are in demand. It shows that growth on current terms consumes cash faster than profits replace it. If the company built the new plant now, it would add capital spending of $4 million on top of working capital needs, requiring large borrowing at a moment when its cash generation is weakest.
Recommendations
Before committing to the plant, Wasatch should take four steps. First, it should negotiate 45-day terms with the home improvement chains, or offer a small discount for payment within 30 days, aiming to bring receivables back to about 40 days. Second, it should set inventory targets by color and model, reducing slow-moving finished goods and building more to order in the off-season. Third, it should ask its aluminum and powder-coat suppliers for 45-day terms in exchange for annual volume commitments. Fourth, it should stage the expansion, starting with a $1.2 million addition to the existing plant, and revisit the second plant once free cash flow has been positive for four consecutive quarters.
What Success Would Look Like
If the cycle returned to 80 days, roughly $2.7 million would be released from working capital, enough to fund the staged addition without new borrowing and to reduce the credit line. Management should track the cycle monthly alongside sales.
Conclusion
Wasatch's statements show a common pattern in growing companies: rising profit and falling cash. Free cash flow and the cash conversion cycle reveal the cause, longer customer terms and heavier inventory, and point to the remedy. Fixing working capital first would let the company fund growth from its own operations rather than from a lender's patience.
References
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory and practice (16th ed.). Cengage.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
Penman, S. H. (2013). Financial statement analysis and security valuation (5th ed.). McGraw-Hill.
Reading the BUS 550 Module 1 assignment instructions
Aspen's catalog lists financial statement and cash flow analysis as the opening subject of BUS 550, so the first paper usually asks students to analyze a company's statements with a focus on cash. Use the instructions in your classroom for format; this example analyzes three years for one company. Separate operating, investing and financing cash flows and explain what each shows. Compute free cash flow and explain why finance relies on it more than on net income. Measure working capital through the days of receivables, inventory and payables. Present multi-year figures in tables so trends are visible. Interpret the trends with reference to the company's strategy. Use research to support the measures you emphasize. End with specific recommendations that follow from the cash analysis.
How this BUS 550 Module 1 example is built
The paper opens with Wasatch Outdoor Living's plan for a $4 million second plant. A section explains operating cash flow, capital spending and free cash flow, citing Brigham and Ehrhardt's text. A three-year table shows sales rising from $22 million to $31 million, net income from $1.7 million to $2.2 million, and free cash flow falling from $610,000 to minus $340,000. A second table computes the cash conversion cycle, which lengthened from 74 to 112 days as receivables and inventory grew faster than sales. Penman's Financial Statement Analysis and Security Valuation supports separating operating assets from financing. Jensen's American Economic Review article explains why free cash flow matters to lenders and owners. Recommendations include dealer terms, inventory targets and a staged expansion.
BUS 550 Module 1 rubric: what earns full marks
Finance papers built on statements are marked on correct calculation of cash measures, sound interpretation of trends and recommendations grounded in the numbers. This example defines each measure, applies it consistently across three years and shows the calculations in tables so the grader can check them. The cash conversion cycle links the cash decline to specific working capital accounts rather than to a general claim. Brigham and Ehrhardt's Financial Management text supplies standard definitions, Penman's book supports the separation of operating and financing activities, and Jensen's American Economic Review article explains why free cash flow carries weight with investors and lenders. Recommendations address the causes the analysis identified, which is what distinguishes analysis from description in a finance paper.
BUS 550 Module 1 help from the desk
Weak drafts in this module often equate profit with cash and conclude that a profitable company can fund anything. Show where cash actually went. Another frequent problem is mixing financing flows, such as loan proceeds, into operating results, which hides whether the business generates cash on its own. Compute free cash flow consistently and explain each component. Use days measures for receivables, inventory and payables, since they show causes in a way managers can act on. Present several years, because one year's figures can mislead. Avoid recommending growth or cuts without connecting them to the cash figures. Check that your numbers reconcile, for instance that operating cash flow minus capital spending equals free cash flow in every year shown.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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BUS 550 Module 1 questions, answered
What does BUS 550 Module 1 usually ask for?
Aspen's BUS 550 starts with financial statement and cash flow analysis, so a paper analyzing a company's cash flows, often including free cash flow and working capital, is typical. Check your classroom prompt.
What is free cash flow?
Cash from operations minus the capital spending needed to maintain and grow the business, the cash available to pay lenders and owners.
What is the cash conversion cycle?
The number of days between paying suppliers and collecting from customers, calculated from the days of inventory and receivables minus the days of payables.
Where can I find a free BUS 550 Module 1 sample paper?
The full paper appears above: an outdoor furniture maker's operating and free cash flows over three years, its cash conversion cycle and steps to take before expanding.
Why can a growing company run short of cash?
Growth usually requires more receivables and inventory before customers pay, so cash goes out ahead of cash coming in, even when the company is profitable.