Part 1 Gamma Coroporation Part 2 Beta Coroporation Part 3 Alpha corporation

Part 1 Gamma Coroporation Part 2 Beta Coroporation Part 3 Alpha corporation

Part 1 Gamma Coroporation Part 2 Beta Coroporation Part 3 Alpha corporation

Comment

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

1. What were the firm’s major sources of cash?

- The major sources of the cash in the year 1989 were cash received from customers from
operating activities and proceeds of subordinated debt from financing activities. In the year 1990, the
major source of cash was cash received from customers from operating activities The another main
source of cash is A/R. In 1991 the company also gathered $23M issuing stock.
1.2 What were the firm’s major uses of cash?
- The major uses in the year 1989 were cash paid to suppliers and employees from operating
activities and capital expenditures from investing activities. In the year 1990 The major uses of cash
were cash paid to suppliers and employees from operating activities and capital expenditures from
investing activities. For the year 1991, The major uses were cash paid to suppliers and employees
from operating activities and payment of subordinated debt from financing activities.

2. 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 CFO
was higher than net income in 1989 and 1990. In 1991, the CFO is lower than net income due to a
considerable increase in payments for income tax and suppliers and employees.

3. Was the firm able to generate enough cash from operations to pay for all of its capital expenditures?
- In 1989 and 1990 the firm was able to generate enough cash flows to cover its capital
expenditures. However in 1991 the firm’s capital expenditures were 50% higher than CFO.

4. Did the cash flow from operations cover both the capital expenditures and the firm’s dividend payments,
if any?
- There was no dividend in the cash flow statement: therefore, there was enough cash from
operating to pay for the capital expenditure and dividend, which is none, in the year 1989 and 1990.
However, there was not enough cash from operating to pay in the year 1991, as I could not identify
any dividend payments in the statement.

5. If it did, how did the firm invest its excess cash?

- The firm used excess cash to pay off debt in the financing activities of the year 1990.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends?
- In 1991, the company issued $23M of common stock in order to be able to finance its
increasing investment needs.
Part 1 Gamma Coroporation Part 2 Beta Coroporation Part 3 Alpha corporation

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, which were negative result.

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 assessment of the
financial strength of this business? Why?
- Beta Corporation is a healthy company in growing stage. It has consistently produced
positive operating cash flows. The working capital accounts are all growing. Worth noting is the
considerable increase on A/R and A/P. The firm continues to invest at least 50% more than the
depreciation cost. In 1991 the firm decided to issue common stock in order to finance the increase in
capital expenditures and to make an $8M investment in marketable securities. There are no signs of
trouble sin the company, like restructuring or discontinuation of operations; neither the company is
trying to raise money from sales of assets or operations. Concluding, this is a company in growth
stage that is raising money through borrowings first and issuing common stock later on. The
company is in a strong position now to continue its investments and could continue borrowing cash
should the investment needs continue to increase in the future.