ACCT:400C Financial Accounting and Reporting

Cash Flow Analysis Case:

Refer to the attached Cash Flow Statements for Firm A and Firm B to answer the following questions. Financial statement information other than that provided is not necessary to answer the questions.

Basic Concepts:

1. If possible, determine the net change in Accounts Receivable, Inventory, and Accounts Payable over the three-year period presented for each company (you should report only one number for each three-year period). What other working capital accounts have significant changes over the period? Briefly discuss what these changes might imply about working capital management for these firms. (Please present T-Account)
2. What are the significant non-cash or non-operating adjustments these firms made during the years presented?
3. Identify the major investing and financing transactions for each firm for the three years presented. For each firm, indicate what the primary source of cash flows has been in the years presented.

Basic Analysis:

1. For each firm, compute and interpret the interest coverage ratio and cash flow adequacy ratio for the most recent year (as defined in the Class 13 slides). (Interest Expense for Firm A is 459 and for Firm B is 437.)
2. For each firm, compute and interpret the quality of earnings ratio for the most recent year (as defined in the Class 13 slides). Discuss any weaknesses of the ratio as a measure of the actual quality of earnings.

Extended Analysis:

1. Indicate which, if any, of these firms are at risk of having inadequate cash flows to continue operations. Briefly discuss the factors you considered in your analysis.
2. For each of the firms, indicate which phase of the companys life cycle you believe it is in (introduction, growth, maturity, or decline). Briefly discuss the reasons for your conclusion.

^ Firm A

^ Firm B

12 Months Ended Feb. 01, 2015 CONSOUDATED STATEMENT OF CASH FLOWS-USD (S) $ in Thousands Jan. 31, 2016 Feb. 02, 2014 CASH FLOWS FROM OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense Deferred income taxes Impairment charges Loss on retirement of debt (Gain) loss on disposal of property and equipment (Gain) on refranchising Share-based compensation Unrealized (gains) losses on commodity derivative positions Other Change in assets and liabilities: Receivables Inventories Other current and non-current assets Accounts payable and accrued liabilities Other long-term obligations and deferred credits Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment Proceeds from disposals of property and equipment Acquisition of stores and franchise rights from franchisees Proceeds from refranchising Other investing activities Net cash used for investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt and lease obligations Deferred financing costs Proceeds from exercise of stock options Repurchase of common shares Net cash used for financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental schedule of non-cash investing and financing activities: Assets acquired under leasing arrangements 32,398 30,060 34,256 16,199 16,650 4,926 12,840 15,729 11,106 $8,014 $ 967 (1,879) 161 238 $ 5,584 811) 187 4,466 1,498 1,128 6,452 298 (808) 556 4,553) 1,917 (1,913) 1,595 56,912 (1,343) 2,780 4,867 94 78,938 62,874 (31,447) 2,341 (23,419) 1,719 (28,934) 1,847 1,114 (29,156) 456 (22,166) (24,658) (132) 2,517 (23,057) (45,330) (10,584) 66,332 55,748 $1,933 (51,561) (49,968) 10,259 (34,006) 777) 55,748 50,971 50,971 50,785 $2,139 8,045 918 CONSOLIDATED BALANCE SHEET - USD (S) $ in Thousands Jan. 31, 2016Feb. 01, 2015 CURRENT ASSETS Cash and cash equivalents Receivables, net Receivables from equity method franchisees Inventories Other current assets Total current assets Property and equipment Investments in equity method franchisees Goodwill and other intangible assets Deferred income taxes Other assets Total assets CURRENT LIABILITIES: Current portion of lease obligations Accounts payable Accrued liabilities Total current liabilities Lease obligations, less current portion Other long-term obligations and deferred credits Commitments and contingencies SHAREHOLDERS' EQUITY: Preferred stock, no par value; 10,000 shares authorized; none issued and outstanding Common stock, no par value; 300,000 shares authorized; shares issued and outstanding: January 31, 2016 $ 50,785 28,088 338 16,312 3,619 99,142 $127,709 $50,971 27,799 782 18,194 6,856 104,602 $115,758 $ 30,985 74,874 10,165 342,875 $30,070 91,523 10,760 352,713 326 19,760 29,633 49,719 11,217 $25,799 17,095 32,530 49,958 9,354 $25,615 $ 266,724 $310,768 63,069 and February 1, 2015-64,926 Accumulated other comprehensive income Accumulated deficit Total shareholders equity Total liabilities and shareholders' equity (10,584) 256,140 342,875 $ (42,982) 267,786 $352,713