Cash Flow

The Assignment

Exhibits 1, 2, and 3 contain cash-flow statements from three companies. Each cash-flow

statement has three years of data. Examine the contents of these cash-flow statements carefully.

Answer the following questions about each of the three cash-flow statements.

I.

For each of the years on the Statement of Cash Flows:

1.

What were the firm’s major sources of cash? Its major uses of cash?

2.

Was cash flow from operations1 greater than or less than net income?2 Explain in

detail the major reasons for the difference between these two figures.

3.

Was the firm able to generate enough cash from operations to pay for all of its

capital expenditures?3

1 Sometimes called net cash provided by operating activities, or cash flow from continuing operations.

2 Alternatively referred to as income or loss from continuing operations.

3 Also called investments in depreciable assets, or purchases of plant, property, and equipment.

4

Statements of Cash Flows: Three Examples

4.

Did the cash flow from operations cover both the capital expenditures and the

firm’s dividend payments, if any?

5.

If it did, how did the firm invest its excess cash?

6.

If not, what were the sources of cash the firm used to pay for the capital

expenditures and/or dividends?

7.

Were the working capital (current asset and current liability) accounts other than

cash and cash equivalents primarily sources of cash, or users of cash?

8.

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What other major items affected cash flows?

II. What was the trend in:

9.

Net income?

10.

Cash flow from (continuing) operations?

11.

Capital expenditures?

12.

Dividends?

13.

Net borrowing (proceeds less payments of short- and long-term debt)?

14.

Working capital accounts?

III. Based on the evidence in the Statement of Cash Flows alone, what is your assessment of the

financial strength of this business? Why?