A companys statement of comprehensive income and statement of financial position for the year to 31 December 2020 are shown below.

Statement of comprehensive income for the ended 31 December 2020

	000
Sales	2,960
Cost of sales	(1,410)
Gross profit	1,550
Administrative and selling expenses	(920)
Interest payable	(60)
Dividends received	110
Profit before tax	680
Taxation	(150)
Profit for the year	530

Statement of financial position as at 31 December 2020

	2020 000	2019 000
Assets
Non-current assets
Property, plant and equipment	1,580	1,100
Investments	830	675
Total	2,410	1,775
Current assets
Inventories	610	790
Receivables	720	380
Cash at bank	-	120
Total	1,330	1,290
Total	3,740	3,065
Equity
Share capital	650	550
Share premium	200	160
Retained earnings	1,730	1,300
Total	2,580	2,010
Liabilities
Non-current liabilities
Long-term loan	465	425
Current liabilities
Payables	400	540
Accrued interest payable	25	-
Taxation	150	90
Bank overdraft	120	-
Total	1,160	1,055
Total	3,740	3,065

The following notes are relevant:

1. Administrative and selling expenses include employee salaries of 540,000 and equipment depreciation of 250,000.
2. An asset with a written down value of 40,000 was sold for 35,000 during the year to 31 December 2020.
3. A dividend of 100,000 was paid in February 2020.

i). You are required to:

Prepare the statement of cash flow for the year ending 31 December 2020 using the direct method, and include a reconciliation of the movement in the cash balances from 31 December 2019 to 31 December 2020. (25 marks)

The managing director of the company is concerned to note that the cash balances have decreased during 2020, and that the company is now in an overdraft position, despite having made a profit for the year. He asked the finance director to provide some analysis.

ii). You are required to:

Analyse the operations of the company, using the data you have prepared in drawing up the statement of cash flow. Highlight and explain how the three elements of the statement of cash flow analyse the movement in cash and comment on ways in which the cash flow of the company could be improved. (10 marks)