Genesis Energy Case Summary

Based on the income statement and balance sheet, we can get the cash flow statement for year 2002, 2003 and the first quarter of 2004. From the cash flow, it is obviously see that the main use of fund is for operations, materials purchasing, wages payment, interest payment etc. While the source of fund is from financing, bank loan and trade notes payables.

The operative cash flow reports inflows and outflows because of regular operating activities. Cash flow from operating activities is the cash version of net income. Net income includes non-cash costs such as depreciation and does not consider other cash expenditures, such as purchases of properties or equipment. Cash flows from operating activities are contributed by earnings, cash receipts from the sale of products, net of costs to manufacture and market products, accrued income from employee wages, interest expenses and income taxes. As per the annual report for the financial year ended on Dec 31,2015, net cash provided by operating activities for 2015 amounted to $1,691 million. The net income for the same year amounted to $ 614 million which is approximately 36% of the total operating cash. The difference is the result of the factors such as, adjustments made to reconcile net income to operating cash flows, income from postretirement benefit plan contributions, variations in operating assets and liabilities, net of acquisitions.

In 2007 the company was generating cash from everyday operations but the statement of cash flows shows that the company has had a negative profit from 2006 to 2007, but this is because More Vino has expenses that are higher than their sales

The statement of cash flows explains the change during the period in cash and cash equivalents. Cash includes currency on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to cash (Flight. 2006). Because of this there are two recommendations for Tyva.

The cash flow statement shows the amount of cash within a company. Items that affect the cash balance are listed on the statement. The first section of the cash flow statement is operating activities, which shows the cash flowing in and out of the company in relation to its business operation. The operating activities section also includes net income and the change in dollars of certain accounts listed on the balance sheet. The next section, investing activities, shows cash the company received and spent on a company's capital investments. The financing activities section shows the inflows and outflows of cash related to the company’s issued financial securities, which is also listed on the balance sheet and statement of shareholders' equity.

Annual Cash Budget - Year 1 Assumptions January February March April May June July August September October November December Sales 100% 22,814 24,399 25,984 27,569 30,769 32,324 35,494 38,664 38,664 32,324 29,154 25,984 Cash Inflows: 364,143 6.27% 6.70% 7.14% 7.57% 8.45% 8.88% 9.75% 10.62% 10.62% 8.88% 8.01% 7.14% Cash 22,814 24,399 25,984 27,569 30,769 32,324 35,494 38,664 38,664 32,324 29,154 25,984 Loan Proceeds 175,000 Total Inflows: 197,814 24,399 25,984 27,569 30,769 32,324 35,494 38,664 38,664 32,324 29,154 25,984 Cash Outflows: Purchases 38.00% 8,669.32

Based on information given, we established the free cash flows from operations for Torrington, for the period 1999 to 2007. We made the assumption that net working capital was 7% of sales for Torrington, based on historic patterns. From this assumption, we found “Change in Net Working Capital” for the selected years. Next, we chose a value for “Capital Expenditures”, again based on historic patterns. From this we computed the “Free Cash Flows to the Firm”.

Also this cashflows also depend on the financing alternative we choose. In this case I used the Industrial Revenue Bond.

Financing requirements of the company can be determined by calculating the cash requirements of the company by adding the working capital needs and capital expenditure needs of the company. Working capital needs can be calculated by subtracting current liabilities from current assets of the company. Current assets of the company will remain significantly lower than current liabilities for next three years. Working capital needs of the company come out to be $17.523 million, $21,028 million and $21,028 million for years 2010, 2011 and 2012. Capital expenditures of the company will remain at $0.9 million for all three years. Adding the values of working capital needs and capital expenditure needs for all years and by subtracting these values from net income, we can calculate the external financing required by the company to meet the cash needs for next three years. As shown in calculations in excel sheet, external financing requirements for the company come out to be $15.231 million for 2010 and $18.091 million for 2011 and 2012 respectively.

Net income is not a sufficient indicator of the financial health of an entity. It only serves as a basis of allocation of expenses from the revenues that are generated for a certain financial period. It involves “noncash expenses,” specifically “depreciation and amortization of intangible assets” that reduces its value, but have no effect on the net cash flows of the business. It also differs with cash flow under the context of timing of revenue and expense versus the actual “occurrence” of cash flows (Williams, et al.). There are other considerations that must be probed at, such as the procurement of funds from credit facilities, the ability to pay short-term and long-term financial obligations, distribution of annual dividends, cash inflow and outflow from operating, financing and investing activities. Along with the income statement, balance sheet and critical analysis of several factors, the use of cash flow statement of the company serves an important indicator of the financial health and continuous operations of the business.

While the Statement of Cash Flows is discussed at the end of the text, the concepts that are needed to understand that information were introduced in Chapter 1.”

The cash outflows for investing activities of the company are primarily for capital expenditures and purchases of investments, whereas cash inflows are primarily provided from maturities of short-term investments. The amount of net cash used for investing activities is $454 million during the fiscal year 2011, $429 million during the fiscal year 2010 and $537 million during the fiscal year 2009, while maturities of short-term investments are $150 million, $600 million, and $125 million in fiscal year 2011, 2010 and 2009.

2. The single most important assessment in Cash Flows in the “cash flow from financial operations” because it provides an overlook on management’s operating decisions. In this case, we can see that Reebok had reported positive cash flows from operations, for example in 1990 reported $39.2M while LA Gear reported a negative (40M) the same year. Looking closely, we can see that LA Gear was retaining huge quantities of inventory while at the same time, not collecting enough money from customers (A/R). Hence we can conclude that for Reebok, operations was a source of cash but on the other hand, LA Gear was quite the opposite: operations was a use (or drain) of cash. Turning our attention to “cash flows from financing activities” we can see that more differences. Reebok is borrowing little money, instead it is paying loans. LA Gear is borrowing huge quantities of money, for example in 1990 it borrowed $56M. As a result of this, we can see where the money to finance

Health care organisations do business on cash basis. They provide proper medical services to different people and they receive cash when operation ends and they don’t use any debt to finance their operating activities. The capital structure of this firm shows a zero inventory turnover and a huge amount of cash from the customers from which partially is used to pay current liabilities and the remaining is in the form of retain earning.

In Chapter 4 we presented a short method for determining whether a firm had been building or burning cash. The short method sums the net cash used in operating activities and the net cash used in investing activities.