Balance Sheet (in thousands)

31-Dec-09

31-Dec-10

Cash

385

$330

Accounts Receiveable

3,310

4,720

Inventories

3,500

4,800

Prepaid Expenses

0

0

Net fixed assets

1,430

1,595

Total Assets

$8,625

$11,445

Short-term debt

$570

$2,100

Accounts payable

1,760

2255

Accrued expenses

286

385

Long term debt

1,180

1370

Owner's equity

4,829

5335

Total Liabilities and owner's equity

$8,625

$11,445

Note: The company did not sell any fixed assets in 2010

						2010
Net Sales						$34,760
Cost of goods, sold						27,610
Selling, general, and administrative expenses						5,500
Depreciation						165
Earnings before interest and tax						1,485
Net interest expense						286
Earnings before tax						1,199
Income tax expense						473
Earnings after tax						726
Dividends						220

					Managerial Balance Sheet (in thousands)
					31-Dec-09			31-Dec-10
Invested Capital
Cash					?			?
Working capital requirement					?			?
Net fixed assets					?			?
Total Invested Capital					$0			$0
Capital Employed
Short-term debt					?			?
Long term financing					?			?
Long term debt					?			?
Owner's equity					?			?
Total capital employed					$0			$0

Cash flows Statement
Cash flows from operating activities
(+) Net sales						?
(-) Cost of goods sold						?
(-) Selling, general and administrative expenses						?
(-) Tax Expense						?
(-) Change in working capital requirement						?
A Net operating cash flow (NOCF)							$0
Cash flows from investing activities
(+) Sale of fixed assets						?
(-) Capital Expenditures						?
B Net cash flow from investing activities							$0
Cash flows from financing activities
(+) Increase in long-term borrowings						?
(+) Increase in short-term borrowings						?
(-) Long-term debt repaid						?
(-) Interest payments						?
(-) Dividend payments						?
C Net cash flow from activities							$0
D Total net cash flow (A+B+C)							$0
E Opening cash							$0
F Closing cash (E+D)							$0
See the Excel spreadsheet Problem Set 7 and the tab labeled Balance Sheets. Using this information prepare a managerial balance sheet by filling in the blanks in the tab labeled Managerial Balance Sheet. Use your constructed managerial balance sheet to answer the following questions: What is the Working Capital Requirement at the end of Dec/2009 ? $3,764,000 $4,764,000 $5,764,000 $6,764,000 None of the above What is the Working Capital Requirement at the end of Dec/2010 ? $3,880,000 $4,880,000 $5,880,000 $6,880,000 None of the above What was the biggest reason why the Invested Capital increased from Dec/2009 to Dec/2010 ? Cash increased Working Capital Required increased Net fixed assets decreased None of the above How was the majority of the change in Invested Capital financed ? Short term debt was increased Long term debt was decreased Owners equity was decreased (by a stock buy-back, for example) None of the above If you were managing the company, you would (circle all that apply): Be asking questions about why the working capital increased so much Be asking questions about the interest rate on the short term debt Be thinking that everything is going fine and you dont need to ask any questions Be happy that the cash decreased Problem 2 See the Excel spreadsheet Problem Set 7 and the tab labeled Income Statement. Using this information along with the Balance Sheet/Managerial Balance Sheet you prepared, complete the Cash Flow Statement in the tab labeled Cash Flow Statement. Use your constructed Cash Flow Statement to answer the following questions: When the Working Capital increases from year-end 2009 to year-end 2010 , the cash flow term in the Operating Activities section of the Cash Flow Statement is: Negative because cash is consumed and to pay for the working capital increase Positive because cash is released due to the increase in working capital An imaginary number Who really knows ?? The Net Operating Cash Flow (NOCF) from Operating Activities is: $939,000 ($939,000) $739,000 ($739,000) Did the business use cash to purchase capital (equipment etc) in 2010 ? Yes because the net assets increased from 2009 to 2010 and there was also depreciation No because the net assets increased from 2009 to 2010 and there was also depreciation It is not possible to determine this When a business sells a capital asset (for example, they sell one of the chemical plants they own), it makes the capital expenditure term in the Cash Flow from Investing Activities be: A positive term to indicate cash flowed back into the businesss from the sale A negative term to indicate cash flowed back into the business from the sale It all depends on the marginal tax rate None of the above What was the change in short term borrowings ? An increase of $1,530,000 An increase of $2,530,00 An increase of $550,000 An increase of $750,000 None of the above The reason why this term is positive in the Cash Flow statement is that: The business borrowed the cash bringing cash into it The business bought back stock The business paid a dividend The business went bankrupt What was the closing cash position of the business at the end of 2010 ? It decreased to $330,000 It increased to $530,000 It decreased to $200,000 It increased to $330,000 It appears the business increased its working capital and also closed the year with a small decrease in its cash position. Which statement might best summarize your concern about the business based on looking at the Managerial Balance Sheet and the Cash Flow Statement ? You are not concerned at all You are pleased that the cash flow from the operating activity of the business is positive before accounting for the change in working capital but wondering why the working capital increased so much You are pleased that the cash flow from the operating activity of the business is positive before the change in working capital but wondering why the working capital increased so much along with whether there are plans to reduce it in the future. And you also want to know how convinced the business they will make money on the additional capital they spent during 2010.