At a press briefing for investors in October, 2009, John Lee, then chairman of Jamroc Company, announced the companys earnings for the first nine months of 2009 exceeded projections and was up 26% over the previous year.

He painted a very optimistic outlook for earnings for the rest of the current financial 2009 and expressed his confidence in our strong earnings outlook for the year ahead.

Less than six months later, the company filed for bankruptcy (insolvency). Its stock price fell dramatically to $1.00 on the stock exchange as investors lost confidence in the management of the company.

Presented below is Jamrocs statement of cash flows for the first nine months of 2008 and 2009 (restated to correct the previous accounting errors).

Notes: i) Jamrocs revenues were $133,762 in 2009 and $ 55,494 in 2008

ii) Use total assets of $ 61,783 for 2009 and $ 64,926 for 2008).

Required:

Assume you report to an investment broker who has asked you to analyze this statement for clues as to why the company went under.

1. For the two time periods shown, compute the cash generating efficiency ratios of:

a) Cash flow yield

b) Cash flows to sales

c) Cash flows to assets

d) Free cash flows

Jamroc Company Ltd Statement of Cash Flows For the Year Ended December 31, 2009 & 2008 2009 225 2008 797 617 (In millions of dollars) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash flows from operating activities Cumulative effect of accounting changes, net of tax Depreciation, and amortization Investment losses Deferred taxes Gain on sale of equipment Changes in current assets and current liabilities Accounts receivable Inventory Prepaid expenses Aaccounts payable Net margin trading activity Other trading activities Other, net Net cash flows from operating activities (19) 746 768 (134) (49) (135) 987 1 464 (1,764) (2.349) 173 198 (753) (3,363) 339 (455) 2,899 541 (555) (566) 127 Cash flows from investing activities Capital expenditure Equity investments Sale of non-traded investments Business acquisition Other investing activities Net cash flows from investing activities (1,584) (1,172) 1,711 (82) (239 (1,366) (1,539) (1,343) 222 (773) (147) (3,580) Cash flows from financing activities Issue of long-term debt Repayment of long-term debt Net increase in short-term borrow ings Issue of common stock Payment of dividends Net acquisition / ( disposal) of treasury stock Other financing activities Net cash flows from financing activities Net increase (decre as e) in cash Cash at beginning of year Cash at end of year 4,060 (3,903) 2,365 199 (394) (398) (49) 1,880 (239) 1,240 1,001 2,725 (579) 1,694 182 (396) 354 (107) 3,873 420 333 753