Part b

The company did the not manage its non-cash working capital efficiently. This is due to the fact
that Alton is increasing its accounts receivable and inventory while simultaneously decreasing its
accounts payable. Lenders may find this worrying due to the excessive risk posed by the inability
to collect receivables (by making too many sales on credit) and not selling its entire inventory in
the future. (excessive credit risk).

Part c

In addition to the reasons mentioned above, the company’s banker has every right to be worried.
Addressing the cashflow statement, the company’s worries can be fixated on their poor
attainment of cashflow from operating activities. The $520,000 purchase of land was made up of
nearly entirely debt. Although some cash was on hand after the liquidation of the land, the
purchase was mostly financed by debt.

Other concerns
Over-paying of dividends (3x net earnings)
Wastage of cash on repos
Complete depletion of cash, and the next-most liquid asset, short-term deposits
Future net earnings will weigh-down on service of debt (solvency and therefore, going-concern
issues)
Future lower EPS (despite repos)