Comparing Cash Flow Information from Two Companies
In the long run, a company must generate positive net cash flows from operating activities to survive. A business that has negative cash flows from operations will not be able to raise cash indefinitely from other sources and will eventually cease existing. Many creditors and stockholders are reluctant to invest in companies that do not generate positive cash flows from operations. However, some investors will invest in companies with negative cash flows from operations due to an optimistic future outlook for the company. Thus, investors have invested millions of dollars in Internet companies that have negative cash flows from operations.
Instructions
a. Using the search approach of your choice, locate Coca-Cola ’s most recent 10K filing or annual report. View the Consolidated Statements of Cash Flows.
b. Using the search approach of your choice, locate Amazon’s most recent 10K filing or annual report. View the Consolidated Statements of Cash Flows.
c. Compare the Net Cash Provided by Operating Activities for these companies. Which company has higher Net Cash Provided by Operating Activities? Speculate why one company has much higher Net Cash Provided by Operating Activities than the other.
d. What type of company may have Negative Net Cash Provided from Operating Activities?
e. What type of company may have large Positive Net Cash Provided from Operating Activities?
Internet sites are time and date sensitive. It is the purpose of these exercises to have you explore the Internet. You may need to use the Yahoo! search engine www.yahoo.com(or another favorite search engine) to find a company’s current web address.
EXHIBIT 13–1
Allison Corporation Statement of Cash Flows
ALLISON CORPORATION | ||
STATEMENT OF CASH FLOWS | ||
FOR THE YEAR ENDED DECEMBER 31, 2015 | ||
Cash flows from operating activities: |
|
|
Cash received from customers | $ 870,000 |
|
Interest and dividends received | 10,000 |
|
Cash provided by operating activities |
| $ 880,000 |
Cash paid to suppliers and employees | $ (764,000) |
|
Interest paid | (28,000) |
|
Income taxes paid | (38,000) |
|
Cash disbursed for operating activities |
| (830,000) |
Net cash flows from operating activities |
| $ 50,000 |
Cash flows from investing activities: |
|
|
Purchases of marketable securities | $ (65,000) |
|
Proceeds from sales of marketable securities | 40,000 |
|
Loans made to borrowers | (17,000) |
|
Collections on loans | 12,000 |
|
Purchases of plant assets | (160,000) |
|
Proceeds from sales of plant assets | 75,000 |
|
Net cash flows from investing activities |
| (115,000) |
Cash flows from financing activities: |
|
|
Proceeds from short-term borrowing | $ 45,000 |
|
Payments to settle short-term debts | (55,000) |
|
Proceeds from issuing bonds payable | 100,000 |
|
Proceeds from issuing capital stock | 50,000 |
|
Dividends paid | (40,000) |
|
Net cash flows from financing activities |
| 100,000 |
Net increase (decrease) in cash |
| $ 35,000 |
Cash and cash equivalents, Jan. 1, 2015 |
| 20,000 |
Cash and cash equivalents, Dec. 31, 2015 |
| $ 55,000 |
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