Question

In a 2-3 page analysis, answer the following questions Warf Computers, Inc., was founded 15 years ago by Nick Warf, a computer programmer. The small initial investment to start the company was made by Nick and his friends. Over the years, this same group has supplied the limited additional investment needed by the company in the form of both equity and short- and long-term debt. Recently the company has developed a virtual keyboard (VK). The VK uses sophisticated artificial intelligence algorithms that allow the user to speak naturally and have the computer input the text, correct spelling and grammatical errors, and format the document according to preset user guidelines. The VK even suggests alternative phrasing and sentence structure, and it provides detailed stylistic diagnostics. Based on a proprietary, very advanced software/hardware hybrid technology, the system is a full generation beyond what is currently on the market. To introduce the VK, the company will require significant outside investment. Nick has made the decision to seek this outside financing in the form of new equity investments and bank loans. Naturally, new investors and the banks will require a detailed financial analysis. Your employer, Angus Jones & Partners, LLC, has asked you to examine the financial statements provided by Nick. Here are the balance sheets for the two most recent years and the most recent income statement: WARF COMPUTERS Balance Sheet ($ in thousands) 2015 2014 2015 2014 Current assets Current liabilities Cash and equivalents Accounts receivable Inventories Other $ 452 $ 391 668 663 78 Accounts payable $ 519 485 401 716 641 92 Accrued expenses 247 Total current liabilities $ 766 $ 886 Total current assets $1,901 1,800 Long-term liabilities Deferred taxes Long-term debt 330 159 1,148 Fixed assets 1.179 Property, plant, and $4,148 $%3,179 Total long-term liabilities equipment Less accumulated depreciation $1,509 $1,307 1.340 092 Stockholders' equity Preferred stock Common stock Capital surplus Accumulated retained $ 21 21 126 779 2.478 ,603 Net property, plant, and equipment Intangible assets and others $2,808 $2,087 709 $3,60 $2,796 126 794 793 Total fixed assets earnings Less treasury stock 126 $3,227 $2,403 192 Total equity Total liabilities and shareholders' equity $5,502 $4.596 Total assets $5,502 $4,596

Answer 1

PARTICULAR	AMOUNT($)	AMOUNT($)
Cash at the beginning of the year		391000
OPERATING ACTIVITY:
Net Income	1167000
ADD:Depreciation	248000
:Deferred taxes	171000
ADD:Increase in A/p	34000
Decrease in Inventory	22000
LESS: Increase in other CA	14000
Increase in Accounts Receivables	48000
Decrease in other CL	154000
Net cash from operating Activities		2249000

INVESTING ACTIVITY
sale of fixed assets	429000
purchase of fixed assets	(1482000)
Net cash from investment		(1053000)
FINANCING ACTIVITY
Equity purchased	(66000)
Equity sold	15000
Debt raised	228000
Debt retired	(197000)
Dividend Paid	(292000)
increase in long term loan	31000
Net cash from financing		(281000)
increase in net cash		915000
cash at the end		1306000

FINANCIAL CASH FLOWS:

cash flow from assets = cash flow paid to creditors + cash flow paid to equity investors

cash flow from assets= Operating cash flow - net capital spending- changes in net working capital

operating cash flow:

operating cash flow= EBIT + depreciation -tax

=2080000+248000-776000=1552000

net capital spending = ending net fixed assets- beginning net fixed assets + depreciation

=3601000-279600+248000=1053000

changes in net working capital= ending NWC- beginning NWC

( CA-CL)-(CA-CL)

(1901000-766000)-(1800000-886000)= 221000

CASH FLOW FROM ASSETS:

PARTICULARS	AMOUNT$
operating cash flow	1552000
less: net capital spending	(1053000)
changes in NWC	(221000)
cash flow from assets	278000

CASH FLOW TO CREDITORS :

PARTICULARS	amount
interest paid	137000
less: net borrowing	31000
cash flow to creditors	106000

CASH FLOW TO STOCKHOLDERS:

PARTICULARS	AMOUNT
DIVIDENDS PAID	292000
less: equity raised	(66000)
debt raised	(228000)
cash flow to stockholder	(2000)

CASH FLOW TO INVESTORS:

=cash flow to creditors +cash flow to stockholder

=106000+2000=108000

CASH FLOW FROM ASSETS = CASH FLOW TO INVESTORS

Q1 according to warf computer cash flow

*it is having inflows from operating activities whereas outflow from financing activities

*but overall there is cash inflow in the firm which shoe good cash generating ability of the firm

*financial investors can consider investing in this firm because its cash flow are positive and there is less chance of bankruptcy

Q2

from investment point of view, accounting cash flow more accurately describes cash flow at the company as:

* it shows the investors each activity and the cash generation from activities separately

*all expense and revenues to the year , investments and financial position is shown through this statements

*investors can take decision at a glance by seeing the statement that whether they should invest or not

Q3

Nick expansion plan is favorable because:

*even by raising amount of debt, increasing equity and investing in fixed assets it have a positive cash flow according to  accounting cash flow statements