Question
At the beginning of 2011, Mary Abrahams purchased a small business, the Maitz Company, whose income statement and balance sheets are shown below. Income Statement
At the beginning of 2011, Mary Abrahams purchased a small business, the Maitz Company, whose income statement and balance sheets are shown below.
Income Statement for the Maitz Company for 2011
Sales $175,000
Cost of goods sold (105,000)
Gross profits $ 70,000
Operating expenses:
Depreciation $ 5,000
Administrative expenses 20,000
Selling expenses 26,000
Total operating expenses $ (51,000)
Operating profits $ 19,000
Interest expense (3,000)
Profits before taxes $ 16,000
Taxes (8,000)
Net profits $ 8,000
Balance Sheets for the Maitz Company for 2010 and 2011
assets 2010 2011
Current assets:
Cash $ 8,000 $ 10,000
Accounts receivable 15,000 20,000
Inventory 22,000 25,000
Total current assets $45,000 $ 55,000
Fixed assets:
Gross fixed assets $50,000 $ 55,000
Accumulated depreciation (15,000) (20,000)
Net fixed assets $35,000 $ 35,000
Other assets 12,000 10,000
TOTAL ASSETS $92,000 $100,000
Debt (Liabilities) and equity
Current debt:
Accounts payable $10,000 $ 12,000
Accruals 7,000 8,000
Short-term notes 5,000 5,000
Total current debt $22,000 $ 25,000
Long-term debt 15,000 15,000
Total debt $37,000 $ 40,000
Equity $55,000 $ 60,000
TOTAL DEBT AND EQUITY $92,000 $100,000
The firm has been profit table, but Abrahams has been disappointed by the lack of cash flows. She had hoped to have about $10,000 a year available for personal living expenses. However, there never seems to be much cash available for purposes other than business needs. Abrahams has asked you to examine the financial statements and explain why, although they show profit ts, she does not have any discretionary cash for personal needs. She observed, I thought that I could take the profit ts and add back depreciation to find out how much cash I was generating. However, that doesnt seem to be the case. Whats happening?
question 1 Given the information provided by the financial statements, what would you tell Abrahams? (As part of your answer, calculate the firms cash flows.)
question 2 How would you describe the cash flow
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External Quality Audit Has It Improved Quality Assurance In Universities
Authors: Mahsood Shah, Chenicheri Sid Nair
1st Edition
1843346761, 978-1843346760
