Case - Statement of Cash Flow: Three Examples

1069 Words Nov 10th, 2014 5 Pages
Case - Statement of Cash Flow: Three Examples

Exhibit #1 Alpha Corp: In this example we have a case in which years 89, 90 and 91 net income is less than net cash provided by operating activities. One of the major reasons for this appears to have been depreciating high cost of equipment. The depreciation is trending downward over the three-year period indicating less long-term assets are being purchased/capitalized to run operations. While depreciation does not involve cash, it does impact net income. In addition, account payables have been decreasing over the last two years and significant cash has been used in the last year to pay the liability. In 1990 there are significant costs associated with restructuring activities. There
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I would worry that the firm might be decreasing the size of the operations. Also the firm has relied more on debt funding in the past but the incoming cash from taking on debt is going down over the last three years; however, payments for long term debt maintains. I wonder if they are struggling to obtain new debt and are reaching their limit.

Exhibit #2 Beta Corp: In the case of Beta Corp., the reconciliation documents do not provide net income, only the reconciliation of net income generated by the operating activities. It appears net income prior adjustment should be $8,727 (6323 beginning net income prior adjustments with (2404) of adjustments = starting net income of 8727 prior adjustments). In this case, cash generated by operation was less then net income. The most significant contributor of this comes from the cash paid to suppliers and employees. The increase in accounts payable is also significant. The asset increased 10,224 over the prior year so the firm is extended credit, as a way will collect in a later period. Operating cash flow was not enough to cover capital investments (this firm does not to appear to pay dividends as it does not show in the prior 3 years). The firm is financing it operations from the issuance of common stock. $23,082 was raised during the period, which is covering its investments in capital expenditures. The most glaring impact on cash flows was the issuance of stock to infuse