Question

Questions 1. Examine the contents of the three cash flow statements carefully and analyze the situation for each of the three companies. When answering the following questions, please provide a qualitative assessment of major accrual and cash flow components (there is no need for specific numbers). For example, to answer the question “Increase in working capital?” indicate if the capital increased, decreased, or did not materially change, and then explain which component of working capital contributed most significantly to the change for each of the years. a. List major sources of cash b. List major uses of cash c. Is cash from operations greater than net income? d. List the major reasons for the difference between cash from operations and net income e. Is cash from operations greater than capital expenditures? f. Is cash from operations less than capital expenditures? And how did the company finance their capital expenditures? g. What is the trend in net income? h. What is the trend in cash from operations? i. What is the trend in capital expenditures? j. What is the trend in working capital? 2. Based on your analysis above, what is your overall assessment of the cash flow situation for each company? Please rate each company on a scale of 1 to 5, where 1 indicates that the corporation will declare bankruptcy next year, 3 represents a reasonable cash flow situation with only a few problems noted, and 5 represents an outstanding cash flow situation.

Answer 1

Company A:

a. Major sources of Cash:

Proceeds from sale of property & Investments,Business unit,Receivables; Proceeds from debt issuance, sale leaseback financing and Short term borrowings are major sources of cash.

b. Major uses of Cash:

Operating expenses,Purchase of property & equipment, Repayments of debt and debt issuance costs are major uses of cash.

c. Cash from Operations greater than Net Income:

No. Cash from Operations is not greater than Net Income due to non-cash incomes like Tax valuation allowance and gain on sale of assets.

d. Major Reasons for difference between Cash from Operations and Net Income:

Cash from Operations is less than Net Income due to non-cash incomes like Tax valuation allowance and gain on sale of assets and changes in working capital.

e. Cash from Operations greater than capital expenditures:

No. Net cash provided by operating activities is less than net cash provided by Investing activities for each year.

f. Cash from Operations less than capital expenditures:

Yes.  Cash from Operations is less than capital expenditures.The company financed their capital expenditures through proceeds from sale of property and investments.

g. Trend in Net Income:

There is no trend in net income. It reduced in 2016, while it increased in 2017. That is Net Loss increased in 2016 and reduced in 2017.

h. Trend in Cash from Operations:

There is no trend in cash from operations. It increased in 2016 and reduced in 2017. That is cash used for operations reduced in 2016, while it increased in 2017.

i. Trend in Capital Expenditures:

There is decreasing trend in Capital Expenditures. Cash used for Purchase of property and equipment have decreased over the years.

j. Trend in Working Capital:

Changes in Working Capital
	2017	2016	2015
Inventory	1144	1213	-229
Accounts Payable	-472	-526	-47
Deferred Income Taxes	670	-907	-614
Other operating assets	51	-52	54
Other operating Liabilities	-477	118	-136
Net Change in working capital	916	-154	-972

There is Decreasing Trend in Working Capital expense. Cash from changes in working capital has increasing trend.