Professional Documents
Culture Documents
Adjustments for
Adjustments for
Inventory 70 000
(b) The company’s performance for the year 2019 is not remarkable since they recorded a loss of $450
000. It is majorly because of the sales done on credit of $400 000, repayment of loan of $685 000 and
redemption of preference shares worth $800 000. The repayment of loan and redemption of preference
stock is although a cash outflow but it will a positive impact on the company in the long run since the
money can be kept intact in the reserves for future use instead of paying it as dividend and it will also
reduce the interest expense of the company.
The major cash inflow is from the sale of inventory and motor vehicle and electronic equipment. The
sale of fixed asset produced a total inflow of $1500 000 but it will have a negative impact on the
company. The increase in bond payable and account payable is also an inflow but it increases the
current and long term liability of the company.
(c) I would suggest the new investor to invest in the company although the current year recorded a loss
but the retained earnings in the last year was almost double than the current years indicating
remarkable performance previously. The company also paid back most of the long term liability, most
prominently the preference stocks, without issuing further common stocks which mean that the profit
generated in the upcoming year will be distributed between less shareholders and the earning per share
might also increase. However, the dividend was not paid this year but it is expected to be paid as soon
as the company starts generating profit.