Cash Flow Review

Assignment Questions

Exhibit 1, 2, and 3 contain cash-flow statements from three companies (Alpha, Beta, and Gamma). Each CF statement has three years of data. Examine the contents of these cash-flow statements carefully. Answer the following questions about each of the three CF statements.

1. For each of the years on the Statement of CFs:

a. What were the firm's major sources of cash? Its major uses of cash?

b. Was CF from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures?

c. Was the firm able to generate enough cash from operations to pay for all its capital expenditures?

d. Did the CF from operations cover both the capital expenditures and the firm's dividend payments, if any?

e. If it did, how did the firm invest its excess cash?

f. If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends?

g. Were the working capital (current asset or current liability) accounts other than cash and cash equivalents primarily sources of cash, or uses of cash?

h. What other major items affected cash flows?

2. What was the trend in:

a. Net income?

b. Cash flow from (continuing operations?

c. Capital expenditures?

d. Dividends?

e. Net borrowing (proceeds less payments of short- and long-term debt)?

f. Working capital accounts?

3. Based on the evidence in the Statement of CFs alone, what is your assessment of the financial strength of this business? Why?

see attach document please

Cash Flow Review Assignment Questions Exhibit 1, 2, and 3 contain cash-flow statements from three companies (Alpha, Beta, and Each CF statement has three years of data. Examine the contents of these cash-flow st carefully. Answer the following questions about each of the three CF statements. 1. For each of the years on the Statement of CFs: a. What were the firm's major sources of cash? Its major uses of cash? b. Was CF from operations greater than or less than net income? Explain in detail the m the difference between these two figures? c. Was the firm able to generate enough cash from operations to pay for all its capital ex d. Did the CF from operations cover both the capital expenditures and the firm's dividen any? e. If it did, how did the firm invest its excess cash? f. If not, what were the sources of cash the firm used to pay for the capital expenditures dividends? g. Were the working capital (current asset or current liability) accounts other than cash a equivalents primarily sources of cash, or uses of cash? h. What other major items affected cash flows? 2. What was the trend in: a. Net income? b. Cash flow from (continuing operations? c. Capital expenditures? d. Dividends? e. Net borrowing (proceeds less payments of short- and long-term debt)? f. Working capital accounts? 3. Based on the evidence in the Statement of CFs alone, what is your assessment financial strength of this business? Why? Exhibit 1 Alpha Corporation, Consolidated Statements of Cash Flows ($ millions) Year Ended Jun 2016 Operating Activities Loss from continuing operations Depreciation Amortization of capitalized software Gain from sale of investments and other assets Restructuring and other unusual items, net Changes in other accounts affecting operations Accounts receivable Inventory Other current assets Accounts payable and other current liabilities Other Net cash provided by continuing operations Net cash provided by (used in) discontinued operations Net cash provided by operating activities ($377.9) 168.4 41.4 (16.6) 135.5 160.8 80.2 17.0 (91.3) 2.8 120.3 4.9 125.2 Investing Activities Investment in depreciable assets Proceeds from disposal of depreciable and other asset Proceeds from the sale of discontinued operations Investment in capitalized software Other Net cash provided by (used in) investing activities (129.7) 157 25.3 (27.8) (6.0) 18.8 Financing Activities (Decrease) increase in short-term borrowings Proceeds from long-term debt Payments of long-term debt Proceeds from sale of Class B common stock Purchase of treasury stock Dividends paid Net cash provided by (used in) financing activities Effect of changes in foreign exchange rates Increase (decrease) in cash equivalents Cash and equivalents at beginning of year Cash and equivalents at end of year (2.6) 44.4 (126.5) 5.0 (0.3) (80.0) 0.1 64.1 169.1 $233.2 I1 Major Sources Disposal of assets Operations Long-Term Debt I1 Major Uses Capital Expenditures Repaid of LT debt (net use) I2 CF from operations (CFO) compared to net income (NI) CFO > O; CFO > NI Reasons: Depreciation + Software amortization Restructuring + unusual items A/R down BUT A/P down Loss on asset sales I3 CFO > capital expenditures (CAPEX) No Capex Capex + dividend No (dividend eliminated) I5 Excess cash invested N/A I6 Sources of cash for dividends + capex Sold assets I8 Other Major items affecting cash flows (Use) Investing in software (Source) Sold Class B common (Use) Purchase treasury stock II Trends 1. Income 2. CFO (continuing) 3. Capex 4. Dividends 5. Net Borrowing 6. Working Capital Recovering Up Down ($12.97mm) Eliminated Net repayer Almost all source (except A/P) Year Ended June 30, 2015 2014 ($623.5) 220.1 58.2 (119.0) 384.1 ($320.6) 263.4 39.1 125.3 73.4 100.9 (1.2) (21.3) 14.1 85.8 3.5 89.3 (45.2) (3.0) (13.0) 41.0 (10.5) 76.5 (29.7) 46.8 (174.4) 242 407.3 (43.1) (13.0) 418.8 (303.6) 94.1 (59.5) 14.2 (254.8) (222.6) 167.7 (544.8) 8.7 (0.6) (7.2) (598.8) 1.1 -89.6 258.7 $169.1 139.8 305 (91.7) 17.5 (18.8) (26.0) 325.8 (3.9) 113.9 144.8 $258.7 e amortization Exhibit 2 Beta Corporation, Consolidated Statements of Cash Flows ($ thousand) Year Ended December 31, 2016 2015 2014 Cash Flows from Operating Activities: Cash received from customers Cash paid to suppliers and employees Interest received Interest paid Income taxes paid Net cash generated by operating activities $83,865 (77,820) 643 (536) (2,233) 3,919 $73,273 (65,480) 355 (1,046) (102) 7,000 $51,110 (46,589) 132 (908) (75) 3,670 Cash Flows from Investing Activities: Capital expenditures Marketable securities purchases Net cash used in investing activities (6,031) (8,000) (14,031) (4,600) (4,600) (3,650) (3,650) Cash Flow from Financing Activities: Net payments under working capital line of credit Net payments under equipment line of credit Principal payments under capital lease obligations Proceeds (payment) of subordinated debt Proceeds from the issuance of common stock Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (985) (169) (5,000) 23,082 16,928 (4) 6,812 5,375 $12,187 (2,000) (126) (213) 141 (2,198) 14 216 5,159 $5,375 (860) (388) (276) 4,400 639 3,515 3,535 1,624 $5,159 $6,323 $5,201 $417 99 4,028 208 17 40 47 2,701 324 9 85 98 2,231 68 58 - (10,837) (951) (665) (613) (810) 366 (1,550) 1,043 (762) 5,657 (2,404) $3,919 (310) 1,799 $7,000 2,067 3,253 $3,670 Reconciliation of Net Income to Net Cash Generated by Operating Activities: Net income Adjustments to Reconcile Net Income to Net Cash Consumed by Operating Activities: Bad debt provision Depreciation and amortization Amortization of original issue discount Loss on disposition of assets Compensation expense related to stock grants Changes in Assets and Liabilities: (Increase) in accounts receivable (Increase) decrease in inventory (Increase) decrease in deposits and other assets Increase (decrease) in accounts payable and accrued expenses Total adjustments Net cash generated by operating activities Exhibit 3 Gamma Corporation, Consolidated Statements of Cash Flows ($ thousand) June 29, 2016 Cash Flows from Operating Activities: Net income/(loss) Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and amortization Other adjustments to income (Increase)/decrease in accounts receivable (Increase)/decrease in inventories (Increase)/decrease in prepaid expenses Increase/(decrease) in accounts payable (Decrease) in taxes Increase in deferred revenues and customer advances Increase in restructuring reserve Increase in other liabilities Total adjustments Net cash flows from operating activities Years Ended June 30, 2015 ($617,427) 828,560 189,077 105,977 18,616 (47,239) (17,694) (105,614) 92,222 593,160 1,263 1,658,328 1,040,901 July 1, 2014 $74,393 $1,072,610 796,201 92,329 (241,357) 99,743 (90,602) 107,001 (201,560) 69,207 443,544 285,175 1,359,681 1,434,074 686,738 49,702 (373,248) (62,942) 18,965 30,645 (75,502) 105,847 26,576 406,781 1,479,391 Cash Flows from Investing Activities: Purchase of plant, property, and equipment (Increase) of other assets, net Purchase of Kienzle business Net cash flows from investing activities Net cash flows from operating and investing activities (737,548) (1,027,625) (1,223,038) (55,782) (75,489) (67,624) (233,261) (1,026,591) (1,103,114) (1,290,662) 14,310 330,960 188,729 Net Flows from Financing Activities: Proceeds from issuance of debt Payments to retire debt Purchase of treasury shares Issuance of treasury shares, including tax benefits Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 14,249 17,661 40,425 (112,426) (20,896) (153,245) (240,719) (270,231) (814,958) 239,653 296,225 230,733 (99,243) 22,759 (697,045) (84,933) 353,719 (508,316) 2,008,983 1,655,264 2,163,580 $1,924,050 $2,008,983 $1,655,264