The Warf Mini Case requires you to complete 2 Cash Flows. The Financial Cash Flow from the 3 sources, OCF, Cap Ex, and change in WC, is $876 which goes to Debt or Equity holders. The Accounting Cash Flow Statement is try to get to a change in Cash of $73. The 3 sources, Cash Flow from Operations, Investing Activity, and Financing Activity is $73.

Mini Case Cash Flows at Warf Computers, Inc. Warf Computers, Inc., was founded 15 years ago by Nick Warf, a computer programmer. The small initial investment to start the company was made by Nick and his friends. Over the years, this same group has supplied the limited additional investment needed by the company in the form of both equity and short- and long-term debt. Recently the company has developed a virtual keyboard (VK). The VK uses sophisticated artificial intelligence algorithms that allow the user to speak naturally and have the computer input the text, correct spelling and grammatical errors, and format the document according to preset user guidelines. The VK even suggests alternative phrasing and sentence structure, and it provides detailed stylistic diagnostics. Based on a proprietary, very advanced software/hardware hybrid technology, the system is a full generation beyond what is currently on the market. To introduce the VK, the company will require significant outside investment. Nick has made the decision to seek this outside financing in the form of new equity investments and bank loans. Naturally, new investors and the banks will require a detailed financial analysis. Your employer, Angus Jones & Partners, LLC, has asked you to examine the financial statements provided by Nick. Here are the balance sheets for the two most recent years and the most recent income statement: Q VA s WARF COMPUTERS INCOME STATEMENT ($ IN THOUSANDS) Sales $9,068 Cost of goods sold 5,347 Selling, general, and administrative expense 848 Depreciation 298 Operating income $2,575 90 Other income EBIT $2,665 Interest expense 164 Pretax income $2,501 Taxes 625 Current: $559 Deferred: $66 Net income $1,876 Dividends $ 688 Retained earnings $1.188 EBIT $2,665 Interest expense 164 Pretax income $2,501 Taxes 625 Current: $559 Deferred: $66 Net income $1,876 Dividends $ 688 Retained earnings $1,188 Nick also has provided the following information: During the year the company raised $274,000 in new long-term debt and retired $238,000 in long-term debt. The company also sold $19,000 in new stock and repurchased $79,000 in stock. The company purchased $1,778,000 in fixed assets and sold $514,000 in fixed assets. Angus has asked you to prepare the financial statement of cash flows and the accounting statement of cash flows. He also has asked you to answer the following questions: 1. How would you describe Warf Computers's cash flows? 2. Which cash flow statement more accurately describes the cash flows at the company? 3. In light of your previous answers, comment on Nick's expansion plans. WARF COMPUTERS BALANCE SHEETS ($ IN THOUSANDS) 2018 2019 2018 2019 Current assets Current liabilities Cash and equivalents Accounts payable Accounts receivable $ 469 $ 542 802 859 795 769 Accrued expenses $ 582 $ 623 481 296 $1,063 $ 919 Inventories Total current liabilities Other 94 110 Long-term liabilities Total current assets $2,160 $2,280 Deferred taxes $ 191 $ 257 Fixed assets 1,379 1,415 Property, plant, and equipment $3,815 $4,978 $1,570 $1,672 Long-term debt Total long-term liabilities Stockholders' equity Preferred stock Less accumulated depreciation 1,310 1,608 Net property, plant, and equipment $2,505 $3,370 Intangible assets and others 851 953 $ 25 $ 25 Common stock 151 155 Total fixed assets $3,356 $4,322 Capital surplus 934 949 Accumulated retained earnings Less treasury stock 1,924 3,112 151 230 $2,883 $4,011 $5,516 $6,602 Total equity Total liabilities and shareholders' equity Total assets $5,516 $6,602