Statement of Cash Flows Essay example

1873 Words8 Pages
Exhibit 1: Alpha Corporation

I. For each of the years on the Statement of Cash Flows:

1. What were the firm’s major sources of cash? Sources of cash: Sales of depreciable assets and sales of discontinued operations in 1990 and increasingly from operating activities, especially related to restructuring and other unusual items.

2. What were the firm’s major uses of cash? Cash comes mainly from payment of debt and investments in depreciable assets.

3. Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures. The net income was negative from 1989 to 1991. The net income is negative due to the depreciation costs. Operating
…show more content…
Concluding, this company seems to be in crisis of undergoing a transition phase.
Exhibit 2: Beta Corporation

I. For each of the years on the Statement of Cash Flows:

1. What were the firm’s major sources of cash? The main source of cash is A/R. In 1991 the company also gathered $23M issuing stock.

2. Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures. The CFO was higher than net income in 1989 and 1990. In 1991, the CFO is lower than net income due to a considerable increase in payments for income tax and suppliers and employees.

3. Was the firm able to generate enough cash from operations to pay for all of its capital expenditures? In 1989 and 1990 the firm was able to generate enough cash flows to cover its capital expenditures. However, in 1991 the firm’s capital expenditures were 50% higher than CFO.

4. Did the cash flow from operations cover both the capital expenditures and the firm’s dividend payments, if any? I could not pinpoint any dividend payments in the statement.

5. If it did, how did the firm invest its excess cash? The firm used excess cash to pay off debt in 1990.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends?

More about Statement of Cash Flows Essay example

Get Access