Alpha Corporation

Items 1991 1990 1989

1 Major sources  Inventory  Net income
 Proceeds from sale of  A/R  Short term borrowing
depreciable assets  Asset sale  Long term debt
 Proceeds from long term debt  Sale of discontinued operations  Sale of assets
 Long term debt sale

Major Uses  Decrease in credit period  Investment in depreciable assets  Investment in depreciable assets
 Long term investments in assets  Payment of long and short term  Payment of long term debt
 Repayment of long term debt debt  Investment in working capital

2 CFO Vs. Net
Income (NI)
The Net income comes out to be a loss,
while the cash flow from operations is a
positive 125.
This implies that it is being financed by
the release of cash from the working
capital
The Net income comes out to be a loss,
while the cash flow from operations is a
positive 125.
This implies that it is being financed by
the release of cash from the working
capital
Net income and CFO both are positive.
NI>CFO implying utilization of income
in operation for investment in working
capital

3 CFO > CAPEX No No No

Capex > Depn. No No Yes
CFO > Capex + No, financed by sale of existing assets No, financed from sale of discontinued No, financed by long term and short
dividend. business and existing assets term debt and sale of assets
If no, source?
Dividend No Yes Yes
4 Excess cash Repayment of LT Debt Repayment of LT Debt No
invested
II Other major Payment of long term debt
items affecting
cash flows
III TRENDS
 Income Increase Decrease
CFO Increase Increase
Capex Decrease Decrease
Dividends Decrease Decrease
Net borrowings Decrease Decrease
Working Capital Decrease Decrease

Overall assessment:
 Beta Corporation
Items 1991 1990 1989
1 Major sources  Cash received from customers  Cash received from customers  Cash received from customers
 Sale of common stock  Proceeds from subordinated debt
Major Uses  Cash paid to suppliers  Cash paid to suppliers  Cash paid to suppliers
 Income tax paid  Interest paid  Interest paid
 Capex  Capex  Capex- 3650
 Purchase of marketable securities  Payment of working capital line of  Payment of working capital line of
 Payment of subordinated debt credit credit- 1248
2 CFO Vs. Net  3919 vs 6323  7000 vs 5201  3670 vs 417
Income (NI)  2701 depreciation  2231 depreciation and amortization
 4028 depreciation and amortization  810 increase in inventory  1550 increase in accounts
 10837 increase in cash receivable receivable
 5657 increase in accounts payable  762 increase in deposits
 2067 increase in accounts payable
3 CFO > CAPEX No Yes Yes
Capex > Depn. Yes Yes Yes
CFO > Capex + No – 3919 vs 6031 Yes Yes
dividend.
If no, source?
Dividend No No No
4 Excess cash Investing activities – capex + purchase Capex + payment of working capital Capex + payment under working capital
invested of marketable securities + payment of line of credit line of credit
subordinated debt
II Other major - - -
items affecting
cash flows
III TRENDS
Income Decrease Decrease
CFO Increase Decrease
Capex Decrease Decrease
Dividends Nil Nil
Net borrowings Decrease Increase
Working Capital Decrease Increase

Overall assessment:

CFO greater than Capex in the later years, and capex > depn. So cash flows look sustainable. Initially, funding through equity. Later used cash to pay
back the debt.
 Gamma Corporation
Items 1991 1990 1989
1 Major sources  Collection from A/R  Decrease in inventory  Proceeds from issuance of treasury
 Proceeds from issuance of treasury  Proceeds from issuance of treasury shares
shares shares  Proceeds from issuance of debt
 Proceeds from issuance of debt  Proceeds from issuance of debt

Major Uses  Payment to A/P  Investment in A/R  Investment in A/R

 Purchase of PPE
 Purchase of other assets (net)
 Purchase of Kienzle business
 Retirement of debt
 Purchase of treasury shares
 Purchase of PPE  Purchase of PPE
 Purchase of other assets (net)  Purchase of other assets (net)
 Retirement of debt  Retirement of debt
 Purchase of treasury shares  Purchase of treasury shares

2 CFO Vs. Net NI = -ve NI = -ve NI = -ve

Income (NI) CFO = +ve CFO = +ve CFO = +ve

Sources: Sources: Sources:

 Non-cash expenses  Non-cash expenses
 Provisions/Reserves  Provisions/Reserves
 Release of working capital
Uses:
 Investment in working capital
 Non-cash expenses
 Provisions/Reserves
Uses:
 Investment in working capital

3 CFO > CAPEX Yes Yes Yes

Capex > Depn. No Yes Yes
CFO > Capex + Yes Yes Yes
dividend.
If no, source?
Dividend No No No
4 Excess cash For acquiring other assets as well as No For retirement of debt
invested another business
II Other major
items affecting
cash flows
III TRENDS
Income Decrease Decrease
 CFO Decrease Decrease
Capex Decrease Decrease
Dividends N/A N/A
Net borrowings Increase Decrease
Working Capital Decrease Decrease

Overall assessment: Company isn’t performing well as evidenced by falling income and CFO over the years. Its CFO have directly been impacted by
the change in income and release of working capital in 1991 has not been enough to generate similar cash flows as 1990. The company has also
invested less in PPE in the current year which is partly due to the fact that it utilized its funds to purchase Kienzle business. Also, as the company has
retired debt in 1991, its overall cash flows have been negative.