Question

Some extracts from the cash flow statement of Trackball plc are included below for the year to 30th June 20x6.

Group cash flow statement

			20x6				20x5
			£m				£m
Operating activities
Cash generated from operations	612.9				550.4
Interest paid	(82.5)				(71.7)
Tax paid	(43.2)				(88.2)
Net cash from operating activities			487.2				390.5
Investing activities
Purchase of tangible fixed assets	(401.7)				(374.0)
Sale of tangible fixed assets	264.0				118.9
Purchase of shares in other companies	(1,175.1)
Interest received	4.1				3.0
Net cash used in investing activities			(1,308.7)				(252.1)
Financing activities
Proceeds of loan capital	1,848.6				314.2
Repayment of loan capital	(877.1)				(263.1)
Dividends paid	(160.5)				(148.8)
Net cash from financing activities			811.0				(97.7)
Net increase (decrease) in cash/cash equivalents			(10.5)				40.7

Required:

Make notes about the information that a potential lender might gain from the above cash flow statement and debt reconciliation.

Answer 1

The analysis of the Cash Flow Statement :

1) Huge debt: The Company’s interest expense has been increasing every year means that the company is under a huge debt. The fact is displayed by the Proceeds from loan under the Financing activities.

2) Tax payment: Reduction in the taxes means reduction in the company’s turnover an lowering of the business.

3) Equity investment: The Company is making investments in the equities of the other company which is a risky proposition and could lead to huge losses if share market crashes.

4) Rise in dividend: In the event of reduction in business, the Board has been declaring and paying higher dividend to the shareholder, which means no capital contribution from the company.

5) Losing Cash: The Company has been losing cash instead of making money.

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