Case 3.19

Yifei Xi

3.19

a. As we know. The sales decline in the Year 5, and I think the declining sales in a major problem of the operating problem. According to the Year 5 cash flow, we can easily find that the accounts receivable and inventories are increasing instead of decreasing. From the cash flow statement, we can also see that the cash flow from operations in Year 5 is 81.5, clearly it is less than the cash flow from investing (107.4), so it is unable to finance its investing needs. In year 5, Sunbeam sold 65.3 million of its business, showing that it recognized the need to change its business and reconstructing. In year 5, the company only has the shoring term borrowing, showing that Sunbeam do not has a healthy debt, it may have a difficulty of having long-term financing.

b.First, the company has a net loss of 228.3 million, I think it is due to the company’s reconstructing and asset impairment charges.Well,the sales in year 6 decreased more rapidly than that in year 5, but the accounts receivable and inventories continue to increase in year 6. The cash flow from operations for year 6 is 14.2, compared to that of year 5, it has decreased significantly. It is still unable to finance the investing need. When we see the short-term and long-term, we can find Sunbeam has a combination of both short-term and long-term debt, however, the short-term debt still plays a more important part. This shows the company has a bad financial health.

C. In year 7, the net income has increased rapidly, amounting to 109.4 million, most of it is due to the 18.7 increase in sales. However, we can find that the cash flow from operations is negative. And in year 7, accounts receivable and inventories are also increasing very rapidly. I think the increase in accounts receivable is consistent with recording an unusually high level of sales at the end of Year 7. The large increase in inventories also might indicate that the firm did not recognize an appropriate amount for cost of...