Analysis of cash flow statement of Alpha Corporation

As on 30 June 1989

1. What were the firms major sources of cash? Its major use of cash?

ANS: Major sources of cash are proceeds from long-term debt and short term borrowings.

Major uses of cash would be investment in depreciable assets and payments of long-term

debt

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

Ans: Cash from operations is greater than that from net income. The increase in net operating

cash can be accounted to:

Depreciation:- The value is subtracted in net income, but not from cash as it

does not result in any cash

Restructuring and other unusual item:- This reduces the net income, however it

doesnt affect the net cash

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans: The firm was not able to generate enough cash from operations to fund its capital

expenditures

4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any?

Ans: The firm was not able to generate enough cash from operations to fund its capital

expenditures and dividend payments

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

Ans: If the Firm Had Excess cash it can be used to repay debt obligations, pay dividends,

replace or renew the depreciated assets etc.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans: Sources of cash used to pay for capital expenditures and/or dividends are proceeds from

long-term debt and short term borrowings.

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?

Ans: Net working capital account is primarily a source of cash.

8. What other items affected cash flow?

Ans: The purchase of treasury stocks and effect of changes in foreign exchange are other users

of cash.
Analysis of cash flow statement of alpha Corporation

As on 30 June Year-1990

1. What were the firms major sources of cash? Its major use of cash?

Ans: Major sources of cash are sale of discontinued operations and disposal of depreciable and
other assets. Major uses of cash would be payments of long-term debt short-term

borrowings and paid dividend also

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

Ans: Cash from operations is greater than that from net income. The increase in net operating

cash can be accounted to:

Depreciation:- The value is subtracted in net income, but not from cash as it does
not result in any cash

Inventory: - The adjustment of inventory also increases the net cash from

operations in comparison to net income. This increase is because of sales of

inventory which was created before the current period.

Accounts Receivable:- The adjustment of accounts receivable also increases the

net cash from operations in comparison to net income. This increase is because of

payments of accounts receivable existing towards that in opening balance.

Restructuring and other unusual item:- This reduces the net income, however it

doesnt affect the net cash

3. Was the firm able to generate enough cash from operations to pay for all capital
expenditures?
Ans: The firm was not able to generate enough cash from operations to fund its capital

expenditures

4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any?

Ans: The firm was not able to generate enough cash from operations to fund its capital

expenditures and dividend payments

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

Ans: If the Firm Had Excess cash it can be used to repay debt obligations, pay dividends, replace

or renew the depreciated assets etc.

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

Ans: Sources of cash used to pay for capital expenditures and/or dividends are proceeds from

long-term debt and that of sales of depreciable assets and discontinued operations

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?

Ans: Net working capital account is primarily a user of cash.

8. What other items affected cash flow?

Ans: The purchase of treasury stocks and effect of changes in foreign exchange are other users

of cash.
Analysis of cash flow statement of alpha Corporation

As on 30 June Year-1991

1. What was the firms major sources of cash? Its major use of cash?

Ans:- Major sources of cash are proceeds from disposal of depreciable and other assets & the

sale of discontinued operations and cash from operating expenses. Major uses of cash

would be payments of long-term debt and investment in depreciable assets.

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

Ans:-Cash from operations is greater than that from net income. The increase in net operating

cash can be accounted to:

Depreciation:- The value is subtracted in net income, but not from cash as

it does not result in any cash

Inventory:- The adjustment of inventory also increases the net cash from

operations in comparison to net income. This increase is because of sales

of inventory which was created before the current period.

Accounts Receivable:- The adjustment of accounts receivable also

increases the net cash from operations in comparison to net income. This

increase is because of payments of accounts receivable existing towards

that in opening balance.

Restructuring and other unusual item:- This reduces the net income,

however it doesnt affect the net cash

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?
Ans:-The firm was not able to generate enough cash from operations to fund its capital

expenditures

4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any?

Ans:-The firm was not able to generate enough cash from operations to fund its capital

expenditures and dividend payments

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

Ans:- If the Firm Had Excess cash it can be used to repay debt obligations, replace or renew the

depreciated assets etc.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans:-Sources of cash used to pay for capital expenditures and/or dividends are proceeds from

long-term debt and that of sales of depreciable assets and discontinued operations

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?

Ans:-Net working capital account is primarily a source of cash.

8. What other items affected cash flow?

Ans:-The purchase of treasury stocks and effect of changes in foreign exchange are other users

of cash.
Analysis of cash flow statement of Beta Corporation

As on 30 June Year-1989

1. What was the firms major sources of cash? Its major use of cash?

Ans:-The major source of cash is Proceeds of subordinated debts and Cash from operating

activities. The major use of cash is towards Capital Expenditure

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?

Ans:-Cash flow from operations was greater than that from net income. This is because a major

chunk of the increase in net income can be attributed to:

Depreciation and amortization: This value is deducted from net income, but

not from net cash as it does not result in any cash flow.

Decrease in Inventory: The decrease in inventory is not marked in net income

as this value was already accounted in a previous financial year. But the cash

arising out of this transaction was realized only in this financial year. Hence, it

results in an increase in net cash.

Similarly, a payment towards accounts payable and accrued expenses for a

previous year results in an increase in net cash, but does not change the net

income.

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans:-Since the net cash from operating activities accounted to $3670 mn while the capital

expenditure was $3650 mn. , the cash from operating income was sufficient to fund the

capital expenditure.
 4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any?

Ans:-Yes, the cash flow from operations cover both capital expenditures and firms dividend

payments.

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

Ans:-The excess cash can be used for payments towards working line, equipment line or capital

lease obligations.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans:- Sources of cash used to pay for capital expenditures and/or dividends are Proceeds of

subordinated debts and Cash received from customers.

7. Were the working capital (current assets and current liability) accounts other than cash and

cash equivalents primarily sources of cash, or users of cash?

Ans:-The working capital accounts other than that of cash and cash equivalents are primarily

users of cash.

8. What other major items affected cash flow?

Ans:-The other major sources of cash were proceeds from issuance of common stock. Similarly,

the other major users of cash were net payments towards working capital line and

equipment line of credit. Similarly, payments towards capital lease obligations is also an user

of cash.
Analysis of cash flow statement of Beta Corporation

As on 30 June Year-1990

1. What was the firms major sources of cash? Its major use of cash?

Ans:-The major source of cash is Cash from operating activities & proceed from issuance of

common stock.The major use of cash is towards Capital Expenditure

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?

Ans:-Cash flow from operations was greater than that from net income. This is because a major

chunk of the increase in net income can be attributed to:

Depreciation and amortization: This value is deducted from net income, but

not from net cash as it does not result in any cash flow.

Decrease in deposits and other assets

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans:-Since the net cash from operating activities accounted to $7000 mn while the capital

expenditure was $4600 mn. , the cash from operating income was sufficient to fund the

capital expenditure.

4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any?

Ans:-Yes, the cash flow from operations cover both capital expenditures and firms dividend

payments.

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

Ans:-The excess cash can be used for payments towards working line, equipment line or capital

lease obligations. In fact the excess cash is sufficient for payment towards all these financing

activities.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans:- Sources of cash used to pay for capital expenditures and/or dividends Cash received from

customers

7. Were the working capital (current assets and current liability) accounts other than cash and

cash equivalents primarily sources of cash, or users of cash?

Ans:-The working capital accounts other than that of cash and cash equivalents are primarily

users of cash.

8. What other major items affected cash flow?

Ans:-The other major sources of cash were proceeds from issuance of common stock. Similarly,

the other major users of cash were net payments towards working capital line and

equipment line of credit. Similarly, payments towards capital lease obligations is also an

user of cash.
Analysis of cash flow statement of Beta Corporation

As on 30 June Year-1991

1. What was the firms major sources of cash? Its major use of cash?

Ans:-The major source of cash is Proceeds from the issuance of common stock.

The major use of cash is towards purchases for marketable securities and capital

expenditures.

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?

Ans:-Cash flow from operations was less than that from net income. The major reason for the

difference between net income and net cash can be attributed to:

Depreciation and amortization: This value is deducted from net income,

but not from net cash as it does not result in any cash flow.

Increase in accounts receivable: As a major part of the net income is

realized as accounts receivable, the net income increases, but cash flow

does not change.

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans:-Since the net cash from operating activities accounted to $3919 mn while the capital

expenditure was $6031 mn. , the cash from operating income was insufficient to fund the

capital expenditure.

4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any?
Ans:-No, the cash flow from operations was insufficient to cover capital expenditures and firms

dividend payments.

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

Ans:- The excess cash can be used for payments towards working line, equipment line,capital

lease obligations and payment of subordinated debts. In fact the excess cash is sufficien for

payment towards all these financing obligation.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans:-The capital expenditures were funded from proceeds of issuances of common stock.

7. Were the working capital (current assets and current liability) accounts other than cash and

cash equivalents primarily sources of cash, or users of cash?

Ans:-The working capital accounts other than that of cash and cash equivalents are primarily

users of cash.

8. What other major items affected cash flow?

Ans:-The other major sources of cash were proceeds from issuance of common stock. Similarly,

the other major users of cash was payments towards capital lease obligations. Similarly,

net payments towards working capital line and equipment line of credit is also an user of

cash.
Analysis of cash flow statement of Gamma Corporation

As on 30 June Year-1989

1. What was the firms major sources of cash? Its major use of cash?

Ans:- Major Sources of Cash- Cash from Operating Activities, Proceeds from Issuance of debts and

issuance of treasury shares, including tax benefits

Major Uses of Cash- Purchase of plant, property, and equipment, Increase in other assets,

Payments to retire debt and Purchase of treasury shares

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?

Ans:-Cash flow from operations was greater than that from net income. The major reason for the

difference between net income and net cash can be attributed to:

Depreciation and amortization: This value is deducted from net income,

but not from net cash as it does not result in any cash flow.

Increase in Deferred Revenue and customer advances

Other adjustment to income

Decrease in prepaid expense

Increase in accounts payable

Increase in other liabilities

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans:-The cash from operating income was sufficient to fund the capital expenditure.

4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any
Ans:-The cash from operating income was sufficient to fund the capital expenditure and dividend

payments.

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

Ans:-The excess cash could be used for funding a portion of payments of increase of other assets,

Payments to retire debt or Purchase of treasury shares.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans. The sources of cash the firm used to pay for the capital expenditures and/or dividends

Issuance of treasury shares, including tax benefits and increase in deferred revenue and

customer advances.

7. Were the working capital (current assets and current liability) accounts other than cash and

cash equivalents primarily sources of cash, or users of cash?

Ans:-The working capital was primarily users of cash

8. What other major items affected cash flow?

Ans:-The other major items affecting cash flow are: proceeds from issuance of debt, purchase of

treasury shares and issuance of treasury shares.

Analysis of cash flow statement of Gamma Corporation

As on 30 June Year-1990

1. What were the firms major sources of cash? Its major use of cash?

Ans:-Major Sources of Cash- Cash from Operating Activities, Proceeds from Issuance of debts and

issuance of treasury shares, including tax benefits

Major Uses of Cash- Purchase of plant, property, and equipment, Increase in other assets,

Payments to retire debt and Purchase of treasury shares

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?

Ans:-Cash flow from operations was greater than that from net income. The major reason for the

difference between net income and net cash can be attributed to:

Depreciation and amortization: This value is deducted from net income,

but not from net cash as it does not result in any cash flow.

Increase in Deferred Revenue and customer advances

Increase in restructuring reserve

Increase in other liabilities

Decrease in inventories

Other adjustment in income

Decrease in accounts payable

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans:-The cash from operating income was sufficient to fund the capital expenditure.
 4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any

Ans:-The cash from operating income was sufficient to fund the capital expenditure and dividend

payments.

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

Ans:-The excess cash could be used for funding a portion of payments of increase of other assets,

Payments to retire debt or Purchase of treasury shares.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans:- The sources of cash the firm used to pay for the capital expenditures and/or dividends

Issuance of treasury shares, including tax benefits and increase in other liabilities

7. Were the working capital (current assets and current liability) accounts other than cash and

cash equivalents primarily sources of cash, or users of cash?

Ans:-The working capital was primarily users of cash

8. What other major items affected cash flow?

Ans:-The other major items affecting cash flow are: proceeds from issuance of debt, purchase of

treasury shares and issuance of treasury shares and increase in restructuring reserve.
Analysis of cash flow statement of gamma Corporation

As on 30 June Year-1991

1. What was the firms major sources of cash? Its major use of cash?

Ans:-Major Sources of Cash- Cash from Operating Activities, Proceeds from Issuance of debts and

issuance of treasury shares, including tax benefits

Major Uses of Cash- Purchase of plant, property, and equipment, Increase in other assets,

Purchase of Kienzle business Payments to retire debt and Purchase of treasury shares

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?

Ans:-Cash flow from operations was greater than that from net income. The major reason for the

difference between net income and net cash can be attributed to:

Depreciation and amortization: This value is deducted from net income,

but not from net cash as it does not result in any cash flow.

Other adjustments to income

Decrease in inventories

Decrease in prepaid expense

Increase in Deferred Revenue and customer advances

Increase in restructuring reserve

Increase in other liabilities

3. Was the firm able to generate enough cash from operations to pay for all capital

expenditures?

Ans:-The cash from operating income was sufficient to fund the capital expenditure.
4. Did the cash flow from operations cover both the capital expenditures and firms dividend

payment, if any

Ans:-The cash from operating income was sufficient to fund the capital expenditure and dividend

payments.

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

Ans:-The excess cash could be used for funding a portion of payments of increase of other

assets, purchase of Kienzle business, Payments to retire debt or Purchase of treasury shares.

6. If not, what were the sources of cash the firm used to pay for the capital expenditures

and/or dividends?

Ans. The sources of cash the firm used to pay for the capital expenditures and/or dividends

Issuance of treasury shares including tax benefits and increase in deferred revenue and

Customer advances.

7. Were the working capital (current assets and current liability) accounts other than cash and

cash equivalents primarily sources of cash, or users of cash?

Ans:-The working capital was primarily a source of cash.

8. What other major items affected cash flow?

Ans:-The other major items affecting cash flow are: proceeds from issuance of debt,purchase of

Kienzle business, purchase of treasury shares and issuance of treasury shares and increase

in restructuring reserve.
Trends For Alpha Corporation for the
year 1989 -1991

Basis/years 1989 1990 1991

Operating Cash $ 46.3 $ 89.3 $ 125.2
Flow
Net income $ 320.6 $ 623.5 $ 377.9
Capital $ -363.1 $ -230.5 $ -163.5
Expenditure

Dividend $ -26 $ -7.2 $ 0

Net borrowing $ -353.1 $ -599.7 $ -84.7
Working Capital $ 76.5 $ 85.8 $ 120.3

$800.00

$600.00

$400.00

Operating cash flow

$200.00
Net income
capital expenditure
$0.00
Dividend
1989 1990 1991
($200.00) Net borrowing
Working capital
($400.00)

($600.00)

($800.00)

Comments:-
I. We can see that the trend of net income first increased then fall down.
II. Operating first decrease then increasing
III. Capital expenditure is showing a continues increase
IV. Dividend is increasing but at a very slow rate
V. Net borrowing first fall then rises sharply
trends For beta corporation for the
year 1989 -1991

Basis/years 1989 1990 1991

Operating Cash $ 3670 $ 7000 $ 3919
Flow
Net income $ 417 $ 5201 $ 6322
Capital Expenditure $ 3650 $ 4600 $ 6031

Dividend $ 0 $ 0 $ 0
Net borrowing $ -2876 $ -2339 $ -6154
Working Capital $ 3253 $ 1799 $ -2404

8000

6000

4000

Operating Cash Flow

2000
Net income
0 Capital Expenditure
1989 1990 1991 Net borrowing
-2000
Working Capital
-4000

-6000

-8000

Comments:-
I. Operating cash flow of the company first increasing and then decreasing after
1990.
II. Net income of the company is continuously increasing.
III. capital expenditure of the company is increasing at increasing rate.
IV. Initially company was borrowing more but now it is seen its borrowing is
decreasing
Trends For Gamma Corporation for the
year 1989 -1991
Basis/years 1989 1990 1991
Operating Cash $ 1479391 $ 1434074 $ 1040961

Flow
Net income $ 1073610 $ 74393 $ -617427

$ 1,290,662 $ 1,103,114 $ 1,026,591

Capital
Expenditure

Dividend $ 0 $ 0 $ 0

Net borrowing $ -112820 $ -3235 $ -98177

Working Capital $ -447870 $ -339217 $ 95048

2000000

1500000

1000000
Operating Cash Flow
Net income
500000
Capital Expenditure
Net borrowing
0 Working Capital
1989 1990 1991

-500000

-1000000

Comment:-
I. Operating cash flow first decreasing at diminishing rate then at increasing rate.
II. Net income is continuously deceasing at fast rate.
III. Capital expenditures are decreasing at slow rate.
IV. Net borrowing of the company has increased in 1990 slightly and now again
decreasing.
V. Working capital requirement of the company is increasing at fast rate after 1990.
VI. Working capital requirement of the company is falling continuously.
VII. Working capital of the firm is increasing at constant rate.

Assessment of the financial strength of the business Based on

the evidence of Statement of Cash Flows.

company Assessment Reasons

Alpha

Beta

gamma