Question

CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years ended September 24, 2016 September 29, 2018 September 30, 2017 Cash and cash equivalents, beginning of the year 20,289 $ 20,484 $ 21,120 Operating activities: Net income 59,531 45,687 48,35 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 10,903 10,157 10,505 Share-based compensation expense 4,840 5,340 4,210 Deferred income tax expense/(benefit) (32,590) 5,966 4,938 Other (444) (166) 486 Changes in operating assets and liabilities: Accounts receivable, net (5,322) (2,093) 527 Inventories (2,723) 828 217 Vendor non-trade receivables (8,010) (4,254) (51) Other current and non-current assets (423) (5,318) 1,055 Accounts payable 9,175 8,966 2,117 Deferred revenue (626) (44) (1,554) Other current and non-current liabilities 1,125 (1,906) 38,490 Cash generated by operating activities 64,225 66,231 77,434 Investing activities: Purchases of marketable secunities (71,356) (159,486) (142,428) Proceeds from maturities of marketable securities 31,775 21,258 55,881 Proceeds from sales of marketable securities 47,838 94,564 90,536 Payments for acquisition of property, plant and equipment (13,313) (12,451) (12,734) Payments made in connection with business acquisitions, net (721) (329) (297) Purchases of non-marketable securities (1,871) (521) (1,388) Proceeds from non-marketable securities 353 126 Other (745) (124) (924) Cash generated by/(used in) investing activities (46,446) (45,977) 16,066 Financing activities: Proceeds from issuance of common stock 495 669 555 Payments for taxes related to net share settlement of equity awards (2,527) (1,874) (1,570) Payments for dividends and dividend equivalents (12,150) (29,722) (13,712) (12,769) Repurchases of common stock (72,738) (32,900) Proceeds from issuance of term debt, net 28,662 6,969 24,954 Repayments of term debt (6,500) (3,500) (2,500) Change in commercial paper, net (37) (397) 3,852 Cash used in financing activities (87,876) (17,974) (20,890) Increase/(Decrease) in cash and cash equivalents (195) 5,624 (636) Cash and cash equivalents, end of the year 20,289 25,913 20,484 Supplemental cash flow disclosure: Cash paid for income taxes, net 10,417 11,591 $ 10,444 2,092 $ Cash paid for interest 3,022 $ 1,316

1. Describe the normal pattern of cash activity in the first two sections, and demonstrate how the statement reconciles the Cash account on the Balance Sheet.

Answer 1

Cash flow statement provides the comprehensive view of the liquidity status of the business in a way that it helps the end users with the information about the ability of the business to generate cash.This information is very vital for the different stakeholders as it helps them to determine the future viability and directions of the business entity.

We will study the pattern of cash activity in the first two segments of the given cash flow statement,namely Operating activity and Investing activity.

Cash flow from Operating activities:

(i) The company has a net inflow of cash from Operating activities during the periods show in the statement which reflects a good operational efficiency

(ii) The inventory level was very high in the year 2017 which the company has managed to dispose and sell in the year 2018.However it would be require a detailed study of the inventory turnover ratio to conclude whether the cash used in holding the inventory is optimum or it could be utilized more efficiently.

(iii) Both Accounts receivable and Accounts payable balances are showing increase during the periods shown in the statement. This can be attributed to either of the two factors mentioned below:

(a) A steady increase in both Accounts receivable ans Accounts payable could be because of a steady increase in the Turnover of the Company in the stated period, or

(b) A major part of the cash inflow is being generated of other operating activities which may or may not be ancillary to the main operating activity of the Company.

(iv) Other current & non current liabilities have increased substantially in the year 2018 which may need a more detailed evaluation.

Cash flow from Investing activities:

(i) A major part of the cash generated from operations has been invested in the first two years of the statement period

(ii) Major part of the investing activities involve purchase and sale of marketable securities.

(iii) The investment in purchase of Plant and equipment has remained constant during the three years and considering the depreciation figures, it can be concluded that the new purchases are to replace the existing plants and equipment and there has been no expansion of the existing plant.

Additionally,the cash flow statements show that the company has had free cash flows in all the three years which has been utilized in Investing activities and it also shows that the Company is good investment option for potential investors.

Reconciliation of Cash account
Particulars	2016	2017	2018
Opening Balance	21,120.00	20,484.00	20,289.00
Cash Profit	77,586.00	82,831.00	56,179.00
Income Taxes	(10,444.00)	(11,591.00)	(10,417.00)
Interest	(1,316.00)	(2,092.00)	(3,022.00)
Cash generated due to changes in Operating assets and liabilities	405.00	(4,923.00)	34,694.00
Cash from investing activities	(45,977.00)	(46,446.00)	16,066.00
Cash from financing activities	(20,890.00)	(17,974.00)	(87,876.00)
Closing Balance	20,484.00	20,289.00	25,913.00