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Accounting Cash Flow Analysis

The firm had $2,055 in net income and positive cash flow from operations of $2,643. It invested $1,120 in new fixed assets and $291 in new working capital. Cash flow from assets was $1,232. The firm returned $822 to stockholders and $140 to creditors. The financial cash flow statement better reflects interest payments as financing rather than operating activities. The expansion plans appear reasonable as the firm had cash to return to shareholders but expansion may be a better use of funds, as will be discussed later.

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34 views4 pages

Accounting Cash Flow Analysis

The firm had $2,055 in net income and positive cash flow from operations of $2,643. It invested $1,120 in new fixed assets and $291 in new working capital. Cash flow from assets was $1,232. The firm returned $822 to stockholders and $140 to creditors. The financial cash flow statement better reflects interest payments as financing rather than operating activities. The expansion plans appear reasonable as the firm had cash to return to shareholders but expansion may be a better use of funds, as will be discussed later.

Uploaded by

Linh Nguyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Accounting Cash Flows:

Accounting Cash Flows:

Particulars Amount
Cash, beginning of year
Operating Activity:
Net Income $2,055
Add: Depreciation $336
Deferred Taxes $72
$2,463
Add: Increase in Accounts Payable $40
Decrease in Inventory $29
Less: Increase in other Current Assets $18
Increase in Accounts Receivable $62
Decrease in Other Current Liabilities $200
Net Cash From Operating Activities

Investing Activity:
Sale of Fixed Assets $565
Purchase of Fixed Assets ($1,955)
Net Cash from Investments

Financing Activity:
Equity Repurchased ($87)
Equity Sold $22
Debt Raised $301
Debt Retired ($261)
Dividends Paid ($757)
Net Cash from Financing
Net Increase in Cash
Cash End of Year

Financial Cash Flows:


Cash Flow from Assets = Cash Flow Paid To Creditors + Cash Flow Paid To Equity Investor

Cash Flow from Assets = Operating Cash Flow - Net Capital Spending - Changes in Net Working Ca
Following calculations will be made:

Operating Cash Flow = EBIT + Depreciation -Tax


Operating Cash Flow = $2,922 + $336 — $615 = $2643

Net Capital Spending= Ending Net Fixed Assets Beginning Net Fired Assets + Depreciation
Net Capital Spending = $4,746 - $3,962 + $336 = $1120

Changes in Net Working Capital = Ending NWC -Beginning NWC


Changes in Net Working Capital = ($2,508 — $1,014) — ($2,508 — $1,014) = $291

Cash Flow From Assets:


Operating Cash Flow $2,643
Less: Net Capital Spending ($1,120)
Change in NWC ($291)
Cash Flow From Assets $1,232

1. The firm had positive earnings in an accounting sense (NI > 0) and had positive cash flow from op
positive cash flow from assets. The firm invested $291 in new net working capital and $1,390 in new
The firm was able to return $822 to its stockholders and $140 to creditors.

2. The financial cash flows present a more accurate picture of the company since it accurately refle
flows as a financing decision rather than an operating decision.

3. The expansion plans look like they are probably a good idea. The company was able to return a s
of cash to its shareholders during the year, but a better use of these cash flows may have been to r
the expansion. This decision will be discussed in more detail later in the book.
Amount
$516

$2,252

($1,390)

($782)
$80
$596

sh Flow Paid To Equity Investor

al Spending - Changes in Net Working Capital


Net Fired Assets + Depreciation

— ($2,508 — $1,014) = $291

NI > 0) and had positive cash flow from operations and a


ew net working capital and $1,390 in new fixed assets.
140 to creditors.

e of the company since it accurately reflects interest cash


sion.

dea. The company was able to return a significant amount


e of these cash flows may have been to retain them for
ail later in the book.

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