You will now have the opportunity to test your understanding of the process via a short case study. Start by reading the following scenario.

Jaggy Cheese AG

The board of directors of Jaggy Cheese AG met to review the company's financial statements for Year 2 (shown in the appendix below).

'Its an unusual report,' said Sophie Wengen, the chief executive officer. 'I thought that, with all the investment in new sales outlets and inventory, our cash position would have worsened. Yet it appears that the opposite has occurred. Well done, Gerry.'

Sophie and Gerry Murren, the company's finance director, usually argued a lot at board meetings, but this was not to be one of those occasions.

'It's not all Gerrys work,' interrupted Angela Thun, the operations director. 'We've installed a new purchasing system that is streamlining our relationships with suppliers.'

'Yes, you're right, Angela,' added Irina Laken, the marketing director. 'And there are also the new agreements that I set up with our distributors in Australia and the US. They've really boosted our sales volumes.'

'You're all quite correct,' agreed Gerry. 'Without your contributions, our cash flow position would have been considerably different. There are other factors that have also played a part, so I will prepare a full cash flow statement to allow you to measure your relative contributions.'

Appendix: Jaggy Cheese AG financial statements

Income statement
	Year 2 (SwFr'000)	Year 1 (SwFr'000)
Revenue	33,360	23,640
Cost of sales	11,910	7,230
Gross profit	21,450	16,410
Other expenses	13,272	11,070
Operating profit	8,178	5,340
Interest	624	144
Profit before taxation	7,554	5,196
Taxation	1,806	1,482
Profit after taxation	5,748	3,714
Dividends	900	300
Retained profit for the year	4,848	3,414

Statement of financial position
	Year 2 (SwFr'000)	Year 1 (SwFr'000)
Non-current assets
Property	3,450	1,500
Machinery	9,300	4,710
Vehicles	2,670	1,110
	15,420	7,320
Current assets
Inventory	7,170	2,682
Debtors	3,600	5,916
Cash and cash equivalents	10,212	5,922
	20,982	14,520
Current liabilities
Creditors (see Note 4)	4,818	2,100
Net current assets	16,164	12,420
Total assets less Current liabilities	31,584	19,740
Non-current liabilities
Long-term loan	5,496	900
	26,088	18,840
Equity
Ordinary share capital	2,400	600
Share premium	900	300
Retained profits	22,788	17,940
	26,088	18,840

The following additional information is available.

1. The annual depreciation charges for the year (SwFr'000) were:

Machinery	630
Vehicles	294

There was no depreciation charge on property during Year 2.

2. There were no disposals of either property or vehicles during Year 2.

3. Some items of machinery were sold during Year 2 (SwFr'000):

Proceeds from sale of machinery	3,060
Profit on disposal	720

4. Creditors comprise:

	Year 2 (SwFr'000)	Year 1 (SwFr'000)
Trade creditors	3,012	318
Dividends payable	0	300
Taxation payable	1,806	1,482
	4,818	2,100

5. During the year, loan repayments (SwFr'000) were:

Loan repayments	240

6. Ordinary share capital comprises ordinary shares with a nominal value of SwFr1 per share.

Prepare the company's cash flow statement for Year 2. You may use whatever medium you wish to, for example, Excel or on paper.

Once you've done this, scroll down to view the video solution.