PROBLEM 10-11
a.
1
Tightening of credit by suppliers could lead to cash flow problems.
b.
5
For a profitable firm, a substantial decrease in receivables would not
contribute to bankruptcy.
c.
5
Change in notes payable to bands is not part of cash flows from
operating activities.
d.
5 & 2
Proceeds from selling land is not part of cash flows from operating
activities. (Note: 2 is also correct. There is no amortization of goodwill).
e.
4
Cash inflows from operating activities represents an internal source of
cash.
3
Revenue from services represents an operating inflow.
3
Inventory represents an operating activity.
h.
5
Short-term investments in marketable securities is part of cash and cash
equivalents.
5
4
The sale of common stock will increase working capital.
2
Management should use the statement of cash flows to determine cash
flow from investing activities.
2
This is a noncash investing and financing activity.
333
PROBLEM 10-12
a.
Donna Szabo Company
Statement of Cash Flows
Years Ended December 31, 2011, 2010, 2009
Total
2011
2010
2009
Increase (decrease) in cash:
Cash flows from operating activities:
Cash received from customers
$
508,381
$
173,233
$
176,446
$
158,702
Cash paid to suppliers & employees
(451,801)
(150,668)
(157,073)
(144,060)
Interest received
326
132
105
89
Interest paid
(1,357)
(191)
(389)
(777)
Income taxes paid
(12,225)
(6,626)
(4,754)
(845)
Net cash provided from operation
43,324
15,880
14,335
13,109
Cash flow from investing activities:
Capital expenditures
(21,156)
(8,988)
(5,387)
(6,781)
Proceeds from property, plant & equipment
disposals
1,452
1,215
114
123
Net cash used in investing activities
(19,704)
(7,773)
(5,273)
(6,658)
Cash flows from financing activities:
Net increase (decrease) in short-term debt
12,300
—–
5,100
7,200
Increase in long-term debt
13,000
4,100
3,700
5,200
Dividends paid
(22,250)
(6,050)
(8,200)
(8,000)
Purchase of company stock
(11,412)
(8,233)
(3,109)
(70)
Net cash used in financing activities
(8,362)
(10,183)
(2,509)
4,330
Net increase (decrease) in cash & cash
equivalents
15,258
(2,076)
6,553
10,781
Cash & cash equivalents at beginning of year
50,768
24,885
18,332
7,551
Cash & cash equivalents at end of year
$
66,026
$
22,809
$
24,885
$
18,332
Reconciliation of Net Income To Net Cash
Provided by Operating Activities
Total
2011
2010
2009
Net income
$
11,358
$
7,610
$
3,242
$
506
Provision for depreciation & amortization
30,700
12,000
9,700
9,000
Provision for losses on accounts receivable
473
170
163
140
Gains on property, plant & equipment disposals
(4,620)
(2,000)
(1,120)
(1,500)
Changes in operating assets & liabilities
Accounts receivable
(5,350)
(2,000)
(1,750)
(1,600)
Inventories
(8,100)
(3,100)
(2,700)
(2,300)
Other assets
(57)
—–
—–
(57)
Accounts payable
12,300
—–
5,100
7,200
Accrued income taxes
1,200
1,200
—–
—–
Deferred income taxes
5,420
2,000
1,700
1,720
Net cash provided by operating activities
$
43,324
$
15,880
$
14,335
$
13,109
334
Cash flows used in financing activities are 19% of the cash flows from operating
activities. At first glance, one might assume the company is paying down debt.
Further analysis reveals that a substantial part of the borrowing is short-term rather
than long-term. Such money is riskier.
c.
DONNA SZABO COMPANY
Statement of Cash Flows
For Year Ended December 31, 2011
(Inflow & Outflow by Activity)
Inflow
Outflow
Inflow %
Outflow %
Cash flows from operating activities:
Cash received from customers
$
173,233
96.95
Cash paid to suppliers & employees
$
150,668
83.35
Interest received
132
0.08
Interest paid
191
0.11
Income taxes paid
6,626
3.67
Net cash provided by operationg activities
173,365
157,485
97.03
87.13
Cash flows from investing activities:
Capital expenditures
8,988
4.97
Proceeds from property, plant & equipment
disposals
1,215
0.68
Net cash used in investing activities
1,215
8,988
0.68
4.97
Cash flows from financing activities:
Net increase (decrease) in short-term debt
—–
Increase in long-term debt
4,100
2.29
Dividends paid
6,050
3.35
Purchase of company stock
8,233
4.55
Net cash used in financing activities
4,100
14,283
2.29
7.90
Total cash flows
$
178,680
$
180,756
100.00
100.00
(180,756)
Increase (decrease) in cash
$
(2,076)
335
were used to pay dividends and purchase shares. Almost as much was spent to
pay stockholders as for outflows for capital expenditures.
PROBLEM 10-13
expansion.
Alpha appears to be the firm in danger of bankruptcy. Cash is used in operations,
capital expenditures appear to be nominal, and financing activities are using instead of
providing cash.
long-term debt, etc.).
PROBLEM 10-14
a.
Accounts receivable, January 1, 2011
$
30,000
Sales
480,000
$
510,000
Accounts receivable, December 31, 2011
(40,000)
$
470,000
PROBLEM 10-15
a.
Revenues from customers
$
150,000
Decrease in accounts receivable
8,000
$
158,000
336
CASES
CASE 10-1 TRAVEL COMPANY
a. 1. Current ratio
=
Current Assets
Current Liabilities
2010
2009
$1,957,464
$1,022,941
$471,168
$408,765
4.15
2.50
Material increase in current ratio.
2. Debt Ratio
=
Total Liabilities
Total Assets
2010
2009
$1,046,828
$476,610
$2,905,953
$1,834,224
36.02%
25.98%
Material increase in debt ratio.
3. Total revenues
Horizontal Common Size
2010
2009
2008
163.7
124.06
100.0
Material increase in total revenues.
4. Gross Profit
Horizontal Common Size
2010
2009
2008
199.7
131.9
100.0
Material increase in gross profit.
337
5. Net income
Horizontal Common Size
2010
2009
2008
284.5
263.7
100.0
Material increase in net income.
6. Per diluted common share
2010
2009
2008
276.74
264.2
100.0
Material increase in per diluted common share.
7. Net cash provided by operating activities
2010
2009
2008
246.3
161.5
100.0
Material increase in net cash provided by operating activities.
338
CASE 10-2 CASH FLOW THE DIRECT METHOD
(This case represents an opportunity to review a cash flow statement presented on a
direct method.)
a.
ARDEN GROUP, INC. AND CONSOIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Total
Fifty-Two
Weeks
Ended
January 1,
2011
Fifty-Two
Weeks
Ended
January 2,
2010
Fifty-Two
Weeks
Ended
January 3,
2009
Cash flows from operating activities:
Cash received from customers
$
1,328,266
$
417,580
$
431,108
$
479,578
Cash paid to suppliers and employees
(1,214,551)
(384,624)
(391,957)
(437,970)
Interest and dividends received
4,658
1,580
565
2,513
Interest paid
(290)
(94)
(87)
(109)
Income taxes paid
(40,794)
(11,354)
(13,895)
(15,545)
Net cash provided by operating activities
77,289
23,088
25,734
28,467
Cash flows from investing activities:
Capital expenditures
(10,646)
(2,597)
(2,890)
(5,159)
Purchases of investments
(85,155)
(29,861)
(30,164)
(25,130)
Sales of investments
100,609
51,926
13,127
35,556
Proceeds from the sale of property, plant and equipment
85
16
48
21
Net cash provided by (used in) investing activities
4,893
19,484
(19,879)
5,288
Cash flows from financing activities:
Cash Dividends Paid
(88,510)
(3,161)
(3,161)
(82,188)
Net cash used in financing activities
(88,510)
(3,161)
(3,161)
(82,188)
Net increase (decrease) in cash and cash equivalents
(6,328)
39,411
2,694
(48,433)
Cash and cash equivalents at beginning of year
58,919
82,585
13,180
10,486
58,919
Cash and cash equivalents at end of year
$
52,591
76,257
$
52,591
$
13,180
$
10,486
Purchase of investments represented the major use of investing activities, while
in the first year.
Cash and cash equivalents at end of year increased materially.
339
c.
ARDEN GROUP, INC. AND CONSOIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Fifty-Two Weeks Ended January 1, 2011
Inflows Separated from Outflows
In Thousands
Percent
Inflow
Outflow
Inflow
Outflow
Cash flows from operating activities:
Cash received from customers
$
417,580
88.6
Cash paid to suppliers and employees
384,624
89.1
Interest and dividends received
1,580
0.3
Interest paid
94
0.0
Income taxes paid
11,354
2.6
Net cash provided by operating activities
419,160
396,072
90.0
91.7
Cash flows from investing activities:
Capital expenditures
2,597
0.6
Purchases of investments
29,681
6.9
Sales of investments
51,926
11.0
Proceeds from the sale of property, plant and
equipment
16
0.0
Net cash provided by (used in) investing activities
51,942
32,2783
11.0
7.5
Cash flows from financing activities:
Cash dividends paid
3,161
0.7
Net cash used in financing activities
3,161
0.7
Changes in cash:
Total cash inflows (outflows)
471,102
431,511
100.0
100.0
Total cash outflow
431,511
Net increase in cash
$
39,591
Cash paid to suppliers and employees represents approximately eighty nine percent
340
CASE 10-3 THE GLOBAL TECHNOLOGY
indirect method.)
a. 1.
2008
2009
2010
Net income
100.0
154.2
201.2
Net cash provided by operating activities
100.0
118.6
141.1
b. Depreciation and amortization are added back to net income because they did not
provide the company with any cash flow. They are simply non-cash charges.
purchases of intangible and other assets.
d. These transactions represent significant investing and/or financing activities, and