Statement of Cash Flows: Three

Examples

PART I
Major Sources and Uses of Cash

Is CFO > Net Income? Comment

Was CFO enough to pay CAPEX?
Did CFO Cover both CAPEX and Dividends?
If Yes, How did the firm invest its excess cash?
If No, How did firm source cash?
Were the Working Capital Accounts Primary Sources of Cash?

Other Major Items that affected cash flows

Alpha Corporation
ALPHA CORPORATION (All figures in $ millions)
Sources
1991
Increase in short term borrowings
Proceeds from disposable of depreciable and other assets
Proceeds from the sale of discontinued operation
Proceeds from long term debts
Proceeds from sale of class B common stock
Other
Uses
Investment in depreciable assets
Investment in capitalized software
Other
Decrease in short term borrowings
Payment of long term debt
Dividend paid
Purchase of treasury of stock

1990

1989

157.00
25.30
44.40
5.00
-

242.00
407.30
167.70
8.70
-

139.80
94.10
305.00
17.50
14.20

1991

1990

1989

(129.70)
(27.80)
(6.00)
(2.60)
(126.50)
(0.30)

(174.40)
(43.10)
(13.00)
(222.60)
(554.80)
(7.20)
(0.60)

(303.60)
(59.50)
(91.70)
(26.00)
(18.80)

Beta Corporation
BETA CORPORATION (All figures in $ thousands)
Sources
1991

1990

1989

Cash received from operating sales

Proceeds of subordinate debt
Proceeds from the issuance of common stock
Uses
Capital expenditure
Marketable securities purchases
Net payments under working capital line of credit

83865
23082
1991
(6031)
(8000)
-

73273
141
1990
(4600)
(2000)

51110
4400
639
1989
(3650)
(860)

Net payments under equipments line of credit

Principal payment under capital lease obligation
Payments of subordinated debt

(985)

(126)

(388)

(169)
(5000)

(213)
-

(276)
-

Gamma Corporation
GAMMA CORPORATION (All figures in $ thousands)
Sources
1991
1990
Proceeds from issuance of debt
14,249
17,661
Issuance of treasury shares, including tax benefits
239,653 296,225
Uses
1991
1990
Payments to retire debt
(112,426) (20,896)
Purchase of treasury shares
(240,719) (270,231)
Purchase of plant, property and equipment
(737,548) (1,027,625)
Increase of other asset net
(55,782) (75,489)
Purchase of Kinley business
(233,261)
-

1989
40,425
230,733
1989
(153,245)
(814,958)
(1,223,038)
(67,642)
-

PART I
Major Sources and Uses of Cash

Is CFO > Net Income? Comment

Was CFO enough to pay CAPEX?
Did CFO Cover both CAPEX and Dividends?
If Yes, How did the firm invest its excess cash?
If No, How did firm source cash?
Were the Working Capital Accounts Primary Sources of Cash?

Other Major Items that affected cash flows

IS CFO>Net Income? Comment

ALPHA CORPORATION (in $millions)
Net income
Net income from operating activities

1991
($377.90)
$125.20

1990
($623.50)
$89.30

1989
($320.60)
$46.80

Answer YES
Difference is attributed to (1991)
Depreciation: Non Cash, hits Net Income
Inventory
Accounts Receivable
Restructuring and Other Unusual Items, Net

IS CFO>Net Income? Comment

BETA CORPORATION (in $thousands)
Net income
Net income from operating activities

1991
$6,323
$3,919

1990
$5,201
$7,000

1989
$417
$3,670

Answer NO(1991), YES (1990 & 1989)

Difference is attributed to (1989)
Depreciation & Amortization : Non Cash, hits net
income
Decrease in Inventory : Increase in net cash
Increase in Accounts Payables & Accrued Expenses

IS CFO>Net Income? Comment

GAMMA CORPORATION (in $thousands)
Net income
Net income from operating activities

1991
($617,427)
$1,040,901

1990
($74,393)
$1,434,074

1989
($1,072,610)
$1,479,391

Answer YES
Difference is attributed to (1991)
Depreciation: Non Cash, hits Net Income
Decrease in Accounts Receivable
Increase in Deferred Revenue and Customer Advances
Increase in Restructuring Reserve
Increase in Other Liabilities

PART I
Major Sources and Uses of Cash

Is CFO > Net Income? Comment

Was CFO enough to pay CAPEX?
Did CFO Cover both CAPEX and Dividends?
If Yes, How did the firm invest its excess cash?
If No, How did firm source cash?
Were the Working Capital Accounts Primary Sources of Cash?

Other Major Items that affected cash flows

Alpha Corporation
Particulars
Operating activities
Capital expenditure
1)Investment in depreciable assets
2) Investment in capitalize software
3) Other

1991
$125.20
($163.50)
($129.70)
($27.80)
($6.00)

1990
$89.30
($230.50)
($174.40)
($43.10)
($13.00)

1989
$46.80
($348.90)
($303.60)
($59.50)
$14.20

No, the firm was not able to generate cash from operating activities because there was
a huge investment made in depreciable assets

Beta Corporation
Particulars
Operating activities
Capital expenditure

1991
1990
1989
$3,919.00 $7,000.00 $3,670.00
($6,031.00) ($4,600.00) ($3,650.00)

The firm was not able to generate enough cash in 1991.

In years 1990 & 1989, it was successful in raising enough cash from operating activities
for making capital expenditures

Gamma Corporation
Particulars
Operating activities
Capital expenditure
1)Purchase of plant, property and equipment
2)Purchase of Kienzle business

1991
1990
1989
$1,040,901.00 $1,434,074.00 $1,479,391.00
($970,809.00) ($1,027,625.00) ($1,223,038.00)
($737,548.00) ($1,027,625.00) ($1,223,038.00)
($233,261.00)

Yes, the firm was successful in generating enough cash for its CAPEX

PART I
Major Sources and Uses of Cash

Is CFO > Net Income? Comment

Was CFO enough to pay CAPEX?
Did CFO Cover both CAPEX and Dividends?
If Yes, How did the firm invest its excess cash?
If No, How did firm source cash?
Were the Working Capital Accounts Primary Sources of Cash?

Other Major Items that affected cash flows

ALPHA CORPORATION (All figures in $ millions)

Particulars
1991
1990
Operating activities
$125.20
$89.30
Capital expenditure
($163.50)
($230.50)
1)Investment in depreciable assets
($129.70)
($174.40)
2) Investment in capitalize software
($27.80)
($43.10)
3) Other
($6.00)
($13.00)
Dividend paid
($7.20)
BETA CORPORATION (All figures in $ thousands)
Particulars
1991
1990
Operating activities
$3,919.00
$7,000.00
Capital expenditure
($6,031.00)
($4,600.00)
Excess cash
$2,400.00
In 1990&89, The company utilized excess cash to make:

Net payments under working capital line of credit-(2000)

Net payments under equipment line of credit-(126)

Principal payment under capital lease obligation-(213)

1989
$46.80
($348.90)
($303.60)
($59.50)
$14.20
($26.00)
1989
$3,670.00
($3,650.00)
$20.00

GAMMA CORPORATION (All figures in $ thousands)

Particulars
1991
1990
1989
Operating activities
$1,040,901.00 $1,434,074.00 $1,479,391.00
Capital expenditure
($970,809.00) ($1,027,625.00) ($1,223,038.00)
1)Purchase of plant, property and equipment ($737,548.00) ($1,027,625.00) ($1,223,038.00)
2)Purchase of Kienzle business
($233,261.00)
Excess cash
$70,092
$406,449
$256,353
Cash generated from:
Proceeds from issuance of debt and treasury shares

NO, 1991: The

company borrowed.

Proceeds from Long

Term Debt (44.4)
Proceeds from sale
of Class B Common
Stock(5)
Sale of Asset (CFI)

In 1991, The
company borrowed.
Issuance of
Common Stock
(23082)

The company utilized

excess cash for:
1. Payments to retire
debt in 1990 (20896)
2. Purchase of
treasury shares in the
year 1990(270,231)

PART I
Major Sources and Uses of Cash

Is CFO > Net Income? Comment

Was CFO enough to pay CAPEX?
Did CFO Cover both CAPEX and Dividends?
If Yes, How did the firm invest its excess cash?
If No, How did firm source cash?
Were the Working Capital Accounts Primary Sources of Cash?

Other Major Items that affected cash flows

Alpha Corporation
ALPHA CORPORATION (All figures in $ millions)
Particulars
1991
1990
Current Assets
1)Accounts receivable
$160.80
$73.40
2)Inventory
$80.20
$100.90
3)Other current assets
$17.00
($1.20)
CA Total
$258.00
$173.10
Current Liabilities
1)Accounts payable
($91.30)
($21.30)
2)Others
$2.80
$14.10
CL Total
($88.50)
($7.20)
(CA-CL)
346.5
180.3

1989
($45.20)
($3.00)
($13.00)
($61.20)
$41.00
($10.50)
$30.50
($91.70)

Comment : For 1991 & 1990, the working capital account were primary sources of
cash whereas, for 1989 , it was users of cash

Beta Corporation
BETA CORPORATION (All figures in $ thousands)
Particulars
1991
1990
Current Assets
1)Accounts receivable
($10,837.00)
($613.00)
2)Inventory
($951.00)
($810.00)
3)Other current assets
($665.00)
$366.00
Total ($12,453.00)
($1,057.00)
Current Liabilities
1)Accounts payable
$5,657.00
($310.00)
Total $5,657.00
($310.00)
(CA-CL) ($18,110.00)
($1,367.00)
Comment: The working capital account were the Primary Users of Cash

1989
($1,550.00)
$1,043.00
($762.00)
($1,269.00)
$2,067.00
$2,067.00
($3,336.00)

Gamma Corporation
GAMMA CORPORATION (All figures in $ thousands)
Particulars
1991
1990
1989
Current Assets
1)Accounts receivable
$105,977.00
($241,357.00)
($373,248.00)
2)Inventory
$18,616.00
$99,743.00
($62,942.00)
3)Prepaid Expenses
($47,339.00)
($90,602.00)
$18,965.00
Total $77,354.00
($232,216.00)
($417,225.00)
Current Liabilities
1)Accounts payable
($17,694.00)
$107,001.00
$30,645.00
2)Customer advances
$92,222.00
$69,207.00
$105,847.00
3)Other liabilities
$1,263.00
$285,175.00
$26,576.00
4)Restructuring reserve
$593,160.00
$443,544.00
Total $668,951.00
$904,927.00
$163,068.00
(CA-CL) $746,305.00
($1,137,143.00) ($580,293.00)

Comment : Although, the recent account acted as the source of cash, the last two
years accounts acted as the users of cash

PART I
Major Sources and Uses of Cash

Is CFO > Net Income? Comment

Was CFO enough to pay CAPEX?
Did CFO Cover both CAPEX and Dividends?
If Yes, How did the firm invest its excess cash?
If No, How did firm source cash?
Were the Working Capital Accounts Primary Sources of Cash?

Other Major Items that affected cash flows

Alpha Corporation

OTHER MAJOR ITEMS

The purchase of treasury stocks and effect
of changes in foreign exchange are other
users of cash.

Beta Corporation

The other major sources of cash were

proceeds from issuance of common stock.
Similarly, the other major users of cash
were net payments towards working capital
line and equipment line of credit. Similarly,
payments towards capital lease obligations
is also an user of cash.

Gamma Corporation

The other major items affecting cash flow

are: proceeds from issuance of debt,
purchase of treasury shares and issuance of
treasury shares.

PART II
Trend In: Net Income, Cash Flow From Operations, Capital
Expenditures, Dividends, Net Borrowings, Working Capital Accounts

Alpha Corporation
Beta Corporation
Gamma Corporation

PART III
To Comment on the Quality of Earnings

Alpha Corporation
ALPHA CORPORATION (All figures in $ millions)
1991
1990
Net Income
($377.90)
($623.50)
Cash Flow from (continuing) operations
$120.30
$85.80
Capital Expenditures
($163.50)
($230.50)
Proceeds from disposable of assets
$157.00
$242.00
Proceeds from the sale of discontinued ops
$25.30
$407.30
Dividends
($7.20)
Net Borrowings (1+2+3)
(84.70)
(599.70)
Short Term Borrowings (1)
($2.60)
($222.60)
Proceeds from long term debt (2)
$44.40
$167.70
Payments of long term debt (3)
($126.50)
($544.80)
Working Capital Accounts
346.5
180.3

1989
($320.60)
$76.50
($348.90)
$94.10
($26.00)
353.10
$139.80
$305.00
($91.70)
($91.70)

Comment:
CFO is increasing, not able to meet CAPEX
Capex Decreasing, Company is selling assets too. Sale of assets is funding the payoff of
debt
Increase in WC is a good sign

PART II
Trend In: Net Income, Cash Flow From Operations, Capital
Expenditures, Dividends, Net Borrowings, Working Capital Accounts

Alpha Corporation

Beta Corporation
Gamma Corporation

PART III
To Comment on the Quality of Earnings

Beta Corporation
BETA CORPORATION (All figures in $ thousand)
1991
1990
1989
Net Income
$6,323.00
$5,201.00
$417.00
Cash Flow from (continuing) operations
$3,919.00
$7,000.00
$3,670.00
Capital Expenditures
($6,031.00) ($4,600.00) ($3,650.00)
Issuance of Common Stock
$23,082.00
$141.00
$639.00
Dividends
Net Borrowings (1+2+3+4)
($6,154.00) ($2,339.00) $2,876.00
Net Payments for WC line of credit (1)
($2,000.00) ($860.00)
Net payments equipment line of credit (2)
($985.00)
($126.00)
($388.00)
Principal Payments under capital lease (3)
($169.00)
($213.00)
($276.00)
Proceeds of subordinated debt (4)
($5,000.00)
$4,400.00
Working Capital Accounts
($18,110.00) ($1,367.00) ($3,336.00)

Comment:
Increasing Net Income is a good sign
CFO in latest year is less Not able to pay off its capex unlike previous years
Increasing CAPEX Positive about future, hence investing
Major funding from Common Stock which suggests that the company is increasing its
risk exposure by borrowing equity and paying off debt

PART II
Trend In: Net Income, Cash Flow From Operations, Capital
Expenditures, Dividends, Net Borrowings, Working Capital Accounts

Alpha Corporation

Beta Corporation
Gamma Corporation

PART III
To Comment on the Quality of Earnings

Gamma Corporation
GAMMA CORPORATION (All figures in $ thousand)
1991
1990
1989
Net Income
($617,427)
($74,393)
($1,072,610)
Cash Flow from (continuing) operations
$1,040,901.00 $1,434,074.00
$1,479,391.00
Capital Expenditures
($970,809.00) ($1,027,625.00) ($1,223,038.00)
Dividends
Net Borrowings (1+2)
(98177.00)
(3235.00)
(112820.00)
Proceeds from issunace of debt (1)
$14,249.00
$17,661.00
$40,425.00
Payments to retire debt (2)
($112,426.00)
($20,896.00)
($153,245.00)
Working Capital Accounts
$746,305.00 ($1,137,143.00) ($580,293.00)

Comment:
Company has paid off its account payables and current liabilities(WC increase) which
led to a decrease in CFO.
Pay off of net borrowings is funded by CFO
Despite having additional cash, it is not expanding its capex or investing enough

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