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Group G: (Animesh Anand, Aravind S, Deepa Singaravel Palani, Gautam Rawal, Naval Gupta,

Ranganath Bonagiri, Somaditya Basak, Utkarsh Agarwal)

MAFA - Cash Flow Submission


1. What was the firm’s major sources of cash? Its major use of cash?

1989 1990 1991


Source of Cash Cash received from Cash received from Cash received from
customers. customers customers

Use of Cash Cash paid to suppliers Cash paid to suppliers Cash paid to suppliers
and employees and employees and employees

2. Was cash flow from operations greater than or less than net income? Explain in detail
the major reason for difference between these two figures?

1989 1990 1991


Cash flow from
3670 7000 3919
operations
Net Income 417 5201 6323
Cash flow > Net Cash flow > Net Cash flow < Net
Income Income Income

Reason: For the year 1989 and 1990, cash flow from operating expenses is greater than net
income as cash paid to the customers and employees and the income tax paid for 1991 was
higher than for the other 2 years.
3. Was the firm able to generate enough cash from operations to pay for all capital
expenditures?

1989 1990 1991


Cash flow from
3670 7000 3919
operations
Capital
3650 4600 6031
Expenditure
No, as Cash from
Yes, in 1989 and 1990 since Cash from operations
Answer operations is less than
is greater than Capital Expenditure
Capital Expenditure

4. Did the cash flow from operations cover both the capital expenditures and firm’s
dividend payment, if any?

Yes in 1989 and 1990, the cash flow from operations cover both capital expenditures.
But in 1991, since cash generated by operating expenses is smaller than the capital
expenditure (refer table in question 3).No data is available for dividends.

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

In 1989 and 1990:


The excess cash was used for payments towards working line, equipment line and capital
lease obligations.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures
and/or dividends?

In 1991:
The capital expenditures were paid from proceeds of issuances of common stock (i.e.
$23,082).

7. Were the working capital (current assets and current liabilities) accounts other than
cash and cash equivalents primarily sources of cash, or users of cash?

1991:
Accounts Receivables: user of cash
Inventory – user of cash
Deposits and other assets – user of cash
Accounts payable and accrued expenses – source of cash
1990:
Accounts Receivables: user of cash
Inventory – user of cash
Deposits and other assets – source of cash
Accounts payable and accrued expenses – source of cash

1989:
Accounts Receivables: user of cash
Inventory – source of cash
Deposits and other assets – user of cash
Accounts payable and accrued expenses – source of cash

8. What other major items affected cash flow?


Issuance of common stock in 1991
Marketable securities purchases in 1991.

II. What was the trend in:

9. Net income?
Increased from 1989 to 1991 (i.e. from $417 in 1989 to $6,323 in 1991)

10. Cash flow (continuing) operations?


Increased from 1989 to 1990 (i.e. from $3,919 to $7,000 respectively), then decreased from
1990 to 1991(i.e. from $7,000 to $3,670 respectively).

11. Capital expenditures?


Increased from 1989 to 1991
[i.e. from $3,650 in 1989 to $6,031 in 1991]

12. Dividends?
No data available.

13. Net borrowing (proceeds less payments of short and long term debt)?
1991:
Payments: 6154
Proceeds: 23082
Difference: 16,928

1990:
Payments: 2339
Proceeds: 141
Difference: 2198

1989:
Payments: 1524
Proceeds: 5039
Difference: 3515
Decreased from 1989 to 1990 and then increased from 1990 to 1991.

14. Working capital accounts?


Decreased from 1989 to 1991.

III. Based on the evidence in the statement of cash flows alone, what is your assessment of
the financial strength of this business? Why?

 The increase net income of the business shows that the firm is increasing its value in the
market.
 The cash flow from operating expenses is decreasing in comparison to the previous years.
However, the cash received from customers has increased in the successive years.
 The decrease in cash flow from operations can be attributed to higher income tax and cash
paid to suppliers and employees.
 The capital expenditures of the company are also increasing. This shows that the company
is investing heavily in fixed assets which will lead to an increase in production capacity.
 The net borrowings it has increased over the three years and financed by issuance of new
stocks this indicates that the market has a positive outlook of the company.
 The working capital of the company has increased in the three years. This is a healthy sign
as the excess cash with a company would increase as the working capital increases.
Hence, based on the statement of cash flows, the company is financially strong.