BAT-Cash_flow_statement03

=Cash Flow Statement - Practice #3=

[|cash flow 03a.pdf]

Operations
Total cash from operations: $22,622

__Accounts Receivable & Accounts Payable:__
From 2006 to 2007, A/R decreased from $17,000 to $7,000. The customers returned their debts. Thus, the company obtained $10,000 of cash in-flow. On the other hand, A/P increased from 2006's $15,000 to 2007's $21,000. This brought in another $6,000 of cash to the company. Too much extra cash is coming into the company. $10,000 gain of cash from A/R and $6,000 from A/P suggest that A/R has decreased too much. The decline in A/R may have resulted due to the company's inefficiency in selling their goods on accounts. Or, they may be too strict on determining the customers they will sell their goods on accounts. It is suggested that they sell more goods on A/R and balance out the company's cash flow.

__Merchandise Inventory:__
The merchandise inventory barely changed from 2006's $47,500 to 2007's $48,000. This suggests that the similar or the same managment is taking control of the company in 2007. In addition, little change in merchandise inventory suggests there was not significant increase or decrease in the inventory's value during the year. In another words, not much of the inventory was sold to the customers. This further supports the idea that was brought up in (A/R & A/P section) that Boulton's Fashion Depot is not selling customers enough goods. The capability of A/R department is in question.

Investing
Total cash from investing: $27,340
 * Investing activities are huge problems for the company. $27,340 of cash goes out due to investments, which is much higher value than $22,662, the amount of cash that comes in from operating activities and $16,100 from financial activities.

The expropriation of land value was $8,700 while the purchase value of new land was $7,300. Thus, it can be interpretted that the company made purchase of land to cover up for the land they lost due to the expropriation. This was a reasonable decision.

On the other hand, the company invested $31,000 to purchase machinery. This is an unnecessary and unwise purchase a large amount of machinery all in one year, especially during the time when the company is not selling enough goods, resulting poor performances. Also by looking at end of last year’s machinery the amortization is almost half of the value of the machinery account, meaning that the machinery is not very old and that the company could have waited to purchase more. It would have been wiser to sell many goods to generate high revenue, then use extra cash to purchase sufficient amount of merchandise inventory to boost up the company's performance.

The company paid $12,000 with their cash while the remaining $19,000 of machinery was purchased through share proceeds. The fact that company purchased more machinery with share proceeds than with cash show that other companies consider Boulton's Fashion Deport as a reasonable investment. Boulton Fashion Deport's appeals and their purchases of new equipments could have effected the investors' decisions.

Financing
Total cash from financing: $16,100
 * Dividends Declared and Paid:** The Dividend Rate for the Cash flow statement was very high at $(23,800) which greatly impacted the the Net Cash Provided by Financial Activities negatively. With the Net of Cash provided by Financial Activities lowered, it significantly worsened the net increase (Decrease) of cash. In order to solve this the company would have to speak to the board of directors about lowering its dividend rate to investors to save the company money.

__Cash flow to current debt:__
22,622 / 1800 = 1.3

__Cash flow to total debt:__
22,662 / 28,505 = 0.8

__Cash return on sales:__
22,622 / 308,000 = 0.0735 (7.4 %)

__Cash flow per share:__
11,422 / 13,917 = $ 0.82

BLOG your questions here:
(Feel free to answer one another; just make sure you follow the pattern below)


 * Q:** Is accounting fun?

//**A:** Oh my God, it's my favourite course!//

In 2morrow's test, what is actually provided? like are the format of the cash flow statement and ratio formula sheet provided? Or do we need to actually memorize all of them? :S and the test, only cash flow is coming out is it, or including income statement and balance sheet all those as well? :S
 * Q:** kk, this is Steve HaN, have a question for everyone

//**A:** For tomorrow's quiz we are not given the format for the cash flow statement, so yes you have to memorize it. However I think that we are given the ratio formulas, I am not positive though. And I don't understand your last question.//

1) Cash flow to current debt 2) Cash flow to total debt 3) Cash return on sales 4) Cash flow per share
 * Q:** which of the cash flow ratios are expressed in percentage (%)?

So for example, in cash flow ratio assignment #2, cash flow to current debt calculation is 3.8. Does this mean that it is 3.8%??? but for cash return on sales value, the calculation is 0.099, but this is then converted to 9.9%.

so simply, is the calculated value already expressed in percentage or do we need to convert them into percentage?

also, can cash flow ratios be negative???

//**A**//: //Cash flow to current debt - number Cash flow to total debt - number Cash return on sales - percent (%) Cash flow per share - money value ($)

I don't think that cash flow ratios can be negative because: - you can't have a negative cash value to pay off debt; how can you pay without any cash? - how can you turn sales into negative cash? Sales give you money, they don't take it. - how can you generate negative cash (take away cash) for common shares? Even you have a Net Decrease in Cash on the Cash Flow Statement it doesn't mean that every activity subtracted cash from the company.//


 * Q:** Do we need to know all the ratios for the quiz or just the ones we learned recently that are on the note?