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Category: Business and Industry
Date Submitted: 10/03/2010 07:51 PM
Memo to Shareholders – Carpino Company
To: Shareholders, Carpino Company Inc.
From: Vice President, Finance and Accounts
Subject: First Year Performance of Carpino Company
Introduction
It is with pleasure that I present to you the Cash Flow Statement for Carpino Company for the period ended January 31, 2007. The statement presents in detail the various cash flow activities of the organization under three categories: operating activities, investing activities and financing activities.
Analysis of Cash Flow Statement
Despite the challenges faced during the period under review, it is pleasing to report that the company showed a net increase in cash of $105,000. A larger part of the cash generated during the period under review resulted from sale of merchandise and capital stock ($380,000 and $420,000 respectively). You will also note that the company also gained $6,000 as interest on investment in its first year of operations. Scholars could interpret this to mean that Carpino Company can pay dividends and meet its future obligations. It is also an indication that future cash flow generation, once the company stabilizes, will not be an issue for the company (Kieso, Weygandt and Warfield, 2007).
However, consistent with usual practice for any new company, you will note that a substantial part of its start-up funds was used to purchase fixtures and equipment ($330,000) and for the purchase of merchandise ($258,000) which was resold for a profit. The necessity of hiring capable hands and setting up a befitting work environment also incurred operating expenses of $160,000. Most of these expenses are one-time expenses and are not likely to affect future Cash Flow Statements of the organization. The company also reports a loss of net income of $30,000 (kindly refer to the attached net income statement for the period under review).
According to Kieso, Weygandt and Warfield (2007), also consistent with companies at the introductory stage of growth, the...