FINANCIAL REPORTING AND ANALYSIS CASES CP5-4 Using Financial Reports: Analyzing the Statement of Cash Flows of Big Rock Brewery Inc. L05-2.5-3,054,5-5, 5-6 Big Rock Brewery Inc. Big Rock Brewery Inc. is a leading Canadian craft brewer that produces premium, all-natural craft beers. Its statements of cash Pinge 305 flows for fiscal years 2018, 2017 and 2016 are shown below: BIG ROCK BREWERY INC. Consolidated Statements of Cash Flows For the Years Ended December 30 (in thousands of Canadian dollars) 2018 2017 2016 OPERATING ACTIVITIES S 360 S (1.020) $ (453) Net income (loss) for the year Items not affecting cash: Depreciation and amortization Loss (gain) on sale of assets 3.201 2.942 2.559 (29) 20 (65) Share-based payments 68 459 385 32 42 5 . 13 6 333 (173) 233 (352) 927 (220) (418) (119) $ 158 (209) 145 41 1.209 (464) 67 Lease incentive Amortized debt issue costs Deferred income tax expense (recovery) Change in non-cash working capital related to operations Accounts receivable Inventory Prepaid expenses Accounts payable and accrued liabilities Income taxes payable Share-based payment liabilities Cash provided by operating activities FINANCING ACTIVITIES Repayment of finance case Proceeds from long-term debt Increase (decrease) in bank indebtedness Repayment or long-term debt 197 (160) (51) (19) 85) 4,608 1.414 3.543 (330) (323) 1.000 2.467 79 (2.759) 1.596 (403) (352) (355) 583 Proceeds from issuance of shares Cash provided by (nised in) financing activities (654) (1.851) 3,708 (2,013) (1.690) (391) (7,691) (36) (348) 141 2.479 143 INVESTING ACTIVITIES Purchase of property, plant, and equipment Purchase of intangibles Proceeds from sale of property, plant, and equipment Cash provided by used in) investing activities Net increase (decrease) in cash Cash, beginning of year Cash, end of year (2,220) 398 (7.584) 1.734 (39) (333) 168 207 540 $ 1.902 S 168 $207 S 327 314 Supplemental cash-flow information: Interest paid Taxes paid (recovered) $ 357 (226) 57 Required: 1. The cash flows from operating activities show that depreciation and amortization are added to net income (loss) for the year. Is depreciation and amortization a source of cash? Explain 2. Was the cash collected from customers during fiscal year 2018 higher or lower than Big Rock's sales revenue for that year? Explain 3. Did Big Rock expand during 2017 and 2018? If so, how did the company pay for its expansion? Explain. 4. Compute and analyze Big Rock's quality of earnings ratio, capital expenditures ratio, and free cash flow for 2017 and 2018 5. Analyze the company's pattern of cash flows from operating investing, and financing activities over the three years. What conclusion can you draw from the changing pattern of cash flows? Explain 6. Obtain a copy of Big Rock's statement of cash flows for the year 2019 through the company's website (www.bigrockbeer.com) Page 300 or the SEDAR service (www.sedar.com). Did the company's cash flow situation in 2019 improve or deteriorate relative to previous years? Explain 7. As a potential investor in Big Rock's shares, what additional information would you need before making your decision as to whether or not to invest in this company's shares