3.7 Cash flow questions for IB Business Management

Hayate Robotics, a company in Osaka, Japan, launched a robot vacuum cleaner two years ago. Sales doubled last year and the product is now profitable, yet the finance director warns that the product still uses more cash than it brings in.

Explain two reasons why a product in the growth stage of its life cycle, such as Hayate Robotics’ robot vacuum cleaner, may have a negative net cash flow even though it is profitable.

Kantelaar Scooters

Kantelaar Scooters is a start-up in Utrecht, the Netherlands, that designs folding electric scooters for commuters. It launched its first model, the V1, in January 2025 at a price of €1 500. The V1 is sold online and through 12 cycle shops. Reviews praise its light weight and long battery range, but several larger competitors sell heavier scooters for €900–€1 100.

Kantelaar’s founders invested heavily in production and in an online advertising campaign before the launch. Table 1 shows the V1’s quarterly cash flows in 2025.

Table 1: Kantelaar Scooters’s cash flows from the V1, 2025 (€000)

The founders are now discussing two options for 2026. Option A: cut the price of the V1 to €1 200 to win market share quickly. Option B: keep the price at €1 500 and spend an extra €400 000 on promotion, including test-ride events at railway stations and a partnership with a cycling influencer.

Moto Safi Stoves Ltd (MSS)

Read the resources and answer the questions that follow.

Moto Safi Stoves Ltd (MSS) is a social enterprise in Nakuru, Kenya, founded in 2017 by Nduta Wahome and Peter Wekesa. Moto safi means “clean fire” in Swahili. MSS sells efficient cookstoves that use half as much charcoal or wood as a traditional stove and produce about 70 % less smoke. Smoke from cooking fires causes serious lung disease, especially among women and children. A stove costs KES 4 500, which customers can pay in small daily instalments by mobile phone over 90 days. MSS imports the stoves from a manufacturer in China and now wants to build its own factory in Nakuru.

Image: a squat, round metal cookstove painted bright blue, with a clay lining and a pot of ugali steaming on top. A woman sits beside it on a low stool, smiling. Text: “Moto Safi – half the charcoal, none of the cough”.

Resource 1 – News article from the *Rift Valley Business Journal*

Clean-cooking firm plans Nakuru factory – but who will pay for it?

More than two-thirds of Kenyan households still cook with charcoal or wood. MSS has sold over 120 000 stoves since 2017 and says a family saves about KES 1 200 a month on charcoal. Its plan for a factory employing 70 people has been welcomed by the county government. But the investment is large for a young company, and some carbon-credit schemes in East Africa have recently been criticized for overstating the emissions they save.

Table 1: MSS stove sales

Resource 2 – Social media posts from Akinyi, an MSS customer in Kisumu

Since I got my Moto Safi stove I buy one sack of charcoal a month instead of two, and my daughter’s cough has gone. Paying KES 50 a day was easy. Every mother should have one. [1/2]

But my sister has been waiting six weeks – the agent says the stoves are “stuck at the port”. Please, MSS, make them here in Kenya! [2/2]

Resource 3 – Internal email from Grace Mutua, finance manager, to the founders

From: Grace Mutua, Finance Manager

To: Nduta Wahome; Peter Wekesa

Subject: Financing the factory

The factory, machinery and first stock will cost about KES 150 million. We have KES 9 million in cash. Options I have explored:

1. Bank loan: KES 150 million at 16 % a year over five years, secured on the factory.

2. Impact investor: KES 100 million for 35 % of our shares and a seat on the board. They expect to sell their shares within seven years.

3. Carbon-credit pre-sale: a climate fund would pay KES 60 million now in return for all the carbon credits from stoves we sell over the next five years. At today’s prices those credits could be worth about KES 25 million a year if we sold them ourselves.

4. Crowdfunding from Kenyans living abroad: about KES 20 million as loans at 8 % a year.

5. Microfinance partner: a microfinance provider would lend to our customers directly, so we would be paid the full price at the time of sale. It would charge customers 2.5 % a month.

We should also remember that unpaid instalments (debtors) already tie up KES 38 million.

CONFIDENTIAL: this email and any attachments are intended only for the named recipients.

Resource 4 – MSS’s statement of profit or loss for the year ended 31 December 2025 (KES million)

Resource 5 – Factory plan: key figures

Resource 6 – Survey of MSS customers (500 replies)

Fjordline Software, a company in Bergen, Norway, develops booking systems for ferry operators. After receiving a large advance payment for a five-year contract, it is holding NOK 38 million in its bank account. Its current ratio is now 4.80 and its acid-test ratio is 4.60. The chief executive, Sigrid Dahl, says: “Our liquidity has never been better.”

Explain two reasons why Fjordline Software’s current liquidity position may not be desirable.

Tumaini Wholesale Ltd, based in Nairobi, Kenya, distributes solar lanterns and phone chargers to about 900 small shops across East Africa. Almost all its sales are on credit, and its stated credit terms are 45 days. In 2025 Tumaini’s sales revenue was KES 146 million, and at the end of the year its debtors were KES 24 million. Several shop owners in rural areas pay only when the Tumaini sales representative visits them in person.

Hearthwise Retrofit CIC (HRC)

Read the resources and answer the questions that follow.

Hearthwise Retrofit CIC (HRC) is a community interest company* in Liverpool, UK, founded in 2019 by Joanne Okoro, a former social worker, and Gareth Pryce, a builder. It trains young people leaving the care system as installers and fits insulation, new windows and heat pumps in cold, damp homes. Most of its work is for low-income households under a government energy-efficiency grant scheme. HRC employs 38 people, 22 of them care leavers.

* community interest company (CIC): a UK limited company for social enterprises; its assets must be used for the community and dividends to shareholders are capped.

Image: a red-brick terraced house wrapped in scaffolding; a young installer in an HRC hoodie fixes white insulation boards to the wall while a grandmother watches from the doorstep with a mug of tea. Slogan: “Warm homes, bright futures”.

Resource 1 – News article from the *Merseyside Business Post*

Grant delays leave small installers out in the cold

Installers working on the government’s home-energy grant scheme say they now wait an average of 90 days to be paid after a home passes inspection. “We pay for materials and wages up front, then wait three months,” said Joanne Okoro of HRC. “We are busier than ever and have never had less cash.” The government says it is “working to speed up payments”.

Resource 2 – Social media posts from Bernadette, an HRC customer

Forty years in this house and the first winter I haven’t had black mould on the bedroom wall. My gas bill is down by a third. The lads from Hearthwise were polite, tidy and told me all about their training. [1/2]

Only thing – they had to stop for two weeks halfway through because “materials hadn’t been paid for yet”. Hope they’re OK, they’re a credit to Liverpool. [2/2]

Resource 3 – HRC’s final accounts

Table 1: Statement of profit or loss for the years ended 31 December (£000)

Table 2: Statement of financial position as at 31 December 2025 (£000)

In 2024 HRC’s current ratio was 1.64, its acid test ratio 1.18 and its ROCE 46.32 %.

Resource 4 – Internal email from Gareth Pryce to Joanne Okoro

From: Gareth Pryce, Operations Director

To: Joanne Okoro, Managing Director

Subject: Cash, contracts and choices

We have reached our £150 000 overdraft limit. Two opportunities have come up:

1. Mersey Homes, a housing association, wants us to retrofit 300 homes over two years at £8 000 per home. Margins are like our grant work (gross profit margin about 28 %), and it pays 60 days after each home is finished.

2. Private homeowners in the wealthier suburbs keep asking for quotes. Private work earns a gross profit margin of about 40 %, and customers pay a 30 % deposit before we start. At present it is only 15 % of our revenue.

A social bank has offered a £250 000 loan at 7 % over six years; our overdraft costs 12 %. Joanne, I know you worry that private work is not why we exist. But if we run out of cash, we help nobody.

CONFIDENTIAL: this email and any attachments are intended only for the named recipients.

Resource 5 – Comparison of HRC’s work (2025)

Resource 6 – Interview with Kyle, aged 20, an HRC trainee installer

“I left care at 18 with nothing. HRC gave me a trade and a team that actually checks I’m OK. When we fit a heat pump for a pensioner who’s been cold for years, that feels like the point. I wouldn’t mind doing some posh houses too if it keeps us going – but I wouldn’t want that to be all we do.”