Statement of Cash Flows Essay

Words: 1884
Pages: 8

Exhibit 1: Alpha Corporation

I. For each of the years on the Statement of Cash Flows:

1. What were the firm’s major sources of cash? Sources of cash: Sales of depreciable assets and sales of discontinued operations in 1990 and increasingly from operating activities, especially related to restructuring and other unusual items.

2. What were the firm’s major uses of cash? Cash comes mainly from payment of debt and investments in depreciable assets.

3. Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures. The net income was negative from 1989 to 1991. The net income is negative due to the depreciation costs. Operating
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7. Were the working capital (current asset and current liability) accounts other than cash and cash equivalents primarily sources of cash, or users of cash? The asset related ones were mainly users of cash: A/R and inventories increased consistently. The liability accounts, A/P, increased as well, thus contributing to cash increase. This is a sign of a healthy growing company.

8. What other major items affected cash flows? In 1991 we see two major accounts causing a major effect in cash: an $8M investment in marketable securities and $23M proceeds from issuance of common stock.

II. What was the trend in:

9. Net income? The net income has been increasing steadily.

10. Cash flow from (continuing) operations? Cash from operations almost doubled from 1989 to 1990. However, it dropped back to the previous level in 1991.

11. Capital expenditures? Capital expenditures have been decreasing 50% every year.

12. Dividends? There are no dividends directly reported in the statement.

13. Net borrowing (proceeds less payments of short- and long-term debt)? Net borrowings have been dropping consistently from being positive in1989 to turning negative the subsequent years.

14. Working capital accounts? Working capital accounts in general have increased in the 3-year period, with some ups and downs on the second year.

III. Based on the evidence in the Statement of Cash Flows alone, what is your