Machiq Limited (see previous case studies) was formed on 1 July 2014 and has been making increasing profits. By 30 June 2016 it reports the following summarised income statements and statements of financial position:

Income statements for the year ended 30 June 2016 2015

£ £

Gross profit 176,400 133,260 Less Expenses (includes depreciation £5,060 in 2016) (58,600) (39,460)

Operating profit for the year 117,800 93,800 Less Interest payable (1,800) (1,800)

Profit for the year before taxation 116,000 92,000 Less Taxation (26,950) (18,400)

Profit for the year 89,050 73,600 Statement of financial position as at 30 June 2016 2015

£ £ £ £

Non-current assets (depreciated value) 165,980 74,040 Current assets:

Inventory 32,650 17,370 Receivables 30,950 39,560 Bank – 6,240 63,600 63,170 Less Current liabilities Payables 46,080 41,710 Taxation 26,950 18,400 Bank overdraft 2,400 –

2016 2015 £ £ £ £
(75,430) (60,110)
Net current assets/(liabilities) (11,830) 3,060 Total net assets 154,150 77,100 Equity Share capital 24,000 14,000 Share premium account 31,000 21,000 Retained earnings 99,150 42,100 Total equity 154,150 77,100 Reconciliation of movements in equity Share Share Retained Total 2014/5 capital premium earnings At 1 July 2015 14,000 21,000 42,100 77,100 35,000 Issue of shares 10,000 10,000 20,000 –
Profit for the year 89,050 89,050 73,600 Equity dividends paid (32,000) (32,000) (31,500)
At 30 June 2016 24,000 31,000 99,150 154,150 77,100 The changes in the share capital and share premium account were due to a sale of shares to Trixie Richardson, who had recently left Kazam Limited after 10 years’ service as chief accountant. Trixie was appointed managing director of Machiq Limited on 10 April 2016. During the year ended 30 June 2016, Machiq Limited bought two Mercedes cars for £48,500 each for Marvin’s and Chiquita’s use. No assets were sold in the year.
Trixie is concerned that, whilst the company seems to be profitable, its cash flow appears to be poor.
Required

(a) Prepare a cash flow statement for the year ended 30 June 2016.

(b) Do you agree with Trixie’s opinion of the cash flow? What have been the key cash inflows and outflows in the year?