Question
Flamingo, Inc. 2019 statement of comprehensive income ($ in millions) Net sales $1,384 Less: Cost of goods sold 605 Less: Depreciation 180 Earnings before interest
Flamingo, Inc. 2019 statement of comprehensive income ($ in millions) | |
Net sales | $1,384 |
Less: Cost of goods sold | 605 |
Less: Depreciation | 180 |
Earnings before interest and taxes | 599 |
Less: Interest paid | 80 |
Taxable income | 519 |
Less: Taxes | 156 |
Net income | $363 |
Addition to retained earnings | $254 |
Dividends paid | 109 |
Flamingo, Inc. 2018 and 2019 Statement of financial positions ($ in millions) | |||||
2018 | 2019 | 2018 | 2019 | ||
Cash | $100 | $121 | Accounts payable | $400 | $350 |
Accounts rec. | 350 | 425 | Notes payable | 390 | 370 |
Inventory | 440 | 410 | Total | $790 | $720 |
Total | $890 | $956 | Long-term debt | 500 | 550 |
Net fixed assets | 1,556 | 1,704 | Owners equity | ||
Common stock | 600 | 580 | |||
Retained earnings | 556 | 810 | |||
Total | 1,156 | 1,390 | |||
Total assets | $2,446 | $2,660 | Total liabilities | $2,446 | $2,660 |
Q1. Show detailed calculations of CFFA under two approaches (1)Cash Flow From Assets (CFFA) = Cash Flow to Bondholders + Cash Flow to Shareholders AND (2)Cash Flow From Assets = Operating Cash Flow Net Capital Spending Changes in NWC we have discussed in our class. (60 marks)
Q2. Comment on the cash flow performance of the company in the years of 2018 and 2019.(20 marks)
Q3. If you were to advise Flamingo Inc. for the year 2020, what recommendations would you propose regarding the capital structure of the company? Why? (20 marks)
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