Assignment 1

Q1. Major sources of cash

1991 1990 1989

Alpha Corporation Accounts receivable, Proceeds from sale of Proceeds from long term
Proceeds from disposal discontinued debts.
of depreciable and operations, Proceeds Short term borrowings.
other assets, from disposal of Restructuring and other
Restructuring and depreciable and other unusual items.
other unusual items. assets,
Restructuring and
other unusual items.
Beta Corporation Cash received from Cash received from Cash received from
customers, proceeds customers, customers, proceeds of
from the issuance of Depreciation subordinate debt,
common stock
Gamma Corporation increase in increase in the issuance of treasury
restructuring reserve, restructuring reserve, shares, including tax
the issuance of the issuance of benefits
treasury shares, treasury shares,
including tax benefits including tax benefits

Major uses of cash

1991 1990 1989

Alpha Corporation Investment in Investment in Investment in
depreciable assets, depreciable assets, depreciable assets,
Payments of long term Payments of long term Payment of long term
debts, debts, short term debt.
borrowing, invest in capitalized
software
Beta Corporation Cash paid to suppliers Cash paid to suppliers Cash paid to suppliers
and employees, and employees, Capital and employees, Capital
Marketable security expenditure. expenditure.
purchases, increase in
accounts receivable,
Capital expenditure.
Gamma Corporation Purchase plant, Purchase plant, Purchase plant, property
property and property and and equipment, purchase
equipment, purchase equipment, purchase of treasury shares,
of kienzle business, of treasury shares, increase in accounts
purchase of treasury increase in accounts receivables
shares receivables

Q2. Cash flow from operation

 1991 1990 1989
Alpha Corporation Cash from operations is Cash from operations is Cash from operations is
greater than net profit greater than net profit greater than net profit
which is negative. Net which is negative. which is negative.
income is shown at the Major reasons is Major reasons is
top and is labeled as depreciation, decrease depreciation,
loss from continuing in inventory, gain from restructuring and other
operations. Major sale of investment and unusual items, which are
reasons is depreciation, other assets and non operating and some
decrease in A/R, restructuring and other are non cash activity
increase in A/P, and unusual items, which which is count in
restructuring and other are non operating and computation of net
unusual items, which some are non cash income. Changes in
non operating and activity which is count working capital is not
some are non cash in computation of net considered in net
activity which is count income. income.
in computation of net
income.
Beta Corporation Cash from operations is Cash from operations is Cash from operations is
less than net profit. greater than net profit. greater than net profit.
Because of Because of Because of depreciation
depreciation and depreciation and and amortization and
amortization and amortization and changes in working
changes in working changes in working capital specially in
capital specially in A/R capital inventory, A/R and A/P.
and A/P
Gamma Corporation Cash from operations is Cash from operations is Cash from operations is
greater than net profit. greater than net profit. greater than net profit.
depreciation and depreciation and Major reason is
amortization and amortization and depreciation and
changes in changes in amortization and changes
restructuring reserve, restructuring reserve, in restructuring reserve,
other adjustment to account receivable, accounts receivable.
income. taxes, other liabilities.

Q3.

Alpha Corporation: The firm was not able to generate enough cash flow from operations to pay all of its
expenditures. Proceeds from disposal of depreciable and other assets and from sales of discontinued
operations add ups to supplement cash flow from operations to pay all its expenditures.

Beta Corporation: Cash flow from operations in 1989 and 1990 was enough to pay for capital
expenditures but in the year 1991 cash flow from operations was insufficient to pay for capital
expenditures.
Gamma Corporation: The firm was able to pay for its capital expenditures through cash flow from
operations in all the years.

Q4.

Alpha Corporation: The firm was not able to generate enough cash flow from operations to pay all of its
expenditures and dividend paid. Proceeds from disposal of depreciable and other assets and from sales
of discontinued operations add ups to supplement cash flow from operations to pay all its expenditures.
Also, proceeds from long-term debt and sale of class B common stock might be used to pay off dividends
in years 1989 and 1990.

Beta Corporation: Cash flow from operations in 1989 and 1990 was enough to pay for capital
expenditures but in the year 1991 cash flow from operations was insufficient to pay for capital
expenditures. There was no dividend payment in any of the given years.

Gamma Corporation: The firm was able to pay for its capital expenditures through cash flow from
operations in all the years. There was no dividend payment in any of the given years.

Q5.
Alpha Corporation: In this exhibit the capital expenditures were more than the net cash flow provided
so there was no excess cash.

Beta Corporation: For this exhibit, in 1991 the firm spent $8,000 in marketable securities with its excess
cash. There was no more investing done other than that.

Gamma Corporation: This company bought a total of $1,325,908 in treasury shares over a three year
period with their excess cash. They also used their cash to pay back debt with a total of $286,567 over
the three year period. Also, they purchased Kienzle business in 1991.

Q6.
Alpha Corporation: This company used their disposal of depreciable and other assets of $157 and also
the proceeds of sale of discontinued operations to be able to pay for their capital expenditures.

Beta Corporation: This firm was able to use its excess cash to pay for their capital expenditures.

Gamma Corporation: This firm was also able to use its excess cash.

Q7.
Were the working capital (current assets and current liability) accounts other than cash and cash
equivalents primarily sources of cash, or users of cash?
Alpha Corporation: This company used a lot of cash for investing in depreciable assets over the three
year period. Over the period it seems that this company’s assets and liabilities were mainly users of
cash.

Beta Corporation: In the financing activities for this company, they used their cash to pay off a lot of
things including net payments under working capital line of credit, net payments under equipment line
of credit, principal payments, and payment of subordinated debt. It's safe to say this company mainly
used their cash.

Gamma Corporation: This company's assets and liabilities definitely flip flopped from year to year on
users or sources of cash. Most of the accounts in Net Cash by Operating Activities, use
“(Increase)/Decrease in most columns. For instance, Accounts Receivable was negative the first two
years, and positive for the last. The other accounts including inventories, prepaid expenses, accounts
payable, etc. do the same thing in changing from year to year.

Q8.
Alpha Corporation: In this exhibit, the amortization of capitalized software and also investment in
depreciable assets affect cash flows tremendously. Also, in 1990 they spent 222.6m in their short-term
borrowings.

Beta Corporation: The major account that affected the cash flows in this exhibit was their cash paid to
suppliers and employees. Looking at the statement, you can see that is where the vast majority of their
capital is going.

Gamma Corporation: As noted earlier, with so much money going to their purchase of treasury shares
that is the main place their cash flows are going. They also purchased the Kienzie business in 1991
which was a large bit of their cash flow for that year.

II. What was the trend in:

Q9. Net income?
Alpha Corporation: Net income for Alpha Corporation saw a substantial decrease from 1989-1990 and
then a slight increase from 1990-1991.

Beta Corporation: Increasing Steadily. Net income for Beta Corp increased by nearly $5,000 from ‘89-90
and then another $1,000 from 1990-1991.

Gamma Corporation: net income has fallen drastically from 1989 to 91, having plunged into negative in
1991.

Q10. Cash flow from operations?

Alpha Corporation: Cash flow from operations has increased a lot, having more than doubled from 1989
to 90 and almost 50% increase in 1991.

Beta Corporation: cash flow from operations has increased in 1990 from 1989, approximately double
but decrease in 1991 by 45% approximately.
Gamma Corporation: cash flow from operations has decreased through all years. It decreased by 3%
from 1989 to 1990 and 27% around from 1990 to 1991.

Q11. Capital expenditures?

Alpha Corporation: Steadily decreasing.

Beta Corporation: Increasing steadily.

Gamma Corporation: Decreasing steadily.

Q12. Dividends?
Alpha Corporation: Dividend paid decrease over years. It was 26 million in 1989, 7.2 million in 1990, and
0 in 1991.

Beta Corporation: No dividends paid and received.

Gamma Corporation: No dividends paid and received.

Q13. Net borrowing?

Alpha Corporation: This company is borrowing both short and long term debts. Where Long term
borrowings decreased over period and short term borrowing decreased over period. Company also paid
long term borrowings over the period.

Beta Corporation: It was positive in 1989 but became negative in 1990 and 1991.

Gamma Corporation: Company proceeds debt but at decreasing level. Also payment of debts was
higher in 1989 and decrease in 1990 and again increase in 1989.

Q14. Working capital accounts?

Alpha Corporation: The working capital accounts for Alpha Corporation shows an increase in each year
following 1989.

Beta Corporation: The working capital accounts for Beta Corporation have increased over all three
years, with a little decrease being shown in 1990.

Gamma Corporation: Gamma Corporation’s working capital accounts increased from ‘89-90 and then
saw a decrease from ‘90-91.

III Assessment pf the financial strength of this business.

As part of your assessment of the financial strength of each business, rank the three companies from
strongest to weakest. - Based on all of the information that was provided for these three firms, we
concluded that Exhibit 2 appeared to show the greatest financial strength based on their Statement of
Cash Flows. Exhibit 2 shows that this company has continued to provide positive cash flow from
operating activities for the past three years, and the company has also had negative cash flow for
investing activities which is a good sign that they’re continuing to grow their company by adding more
capital expenditures. In addition, we can see that this firm was able to have a growing positive net
income for all three years. - Exhibit 3 also showed promising signs for a firm which is what led us to
believe that this is the second strongest firm. This company’s operations had positive cash flow for all
three years, and they had negative cash flow for investing activities because the company is continuing
to grow. As an example, this company acquired another business in 1991 to support their continued
growth. Over the years, this firm has been purchasing large amounts of treasury shares which was most
likely done to support their investments. - Finally, Exhibit 1 appeared to be the weakest company based
on the three Statements of Cash Flow provided. This is due to some signs that this company may be
shrinking operations or even divesting. We see evidence of this in the investing section because the
company appears to have positive cash from this section due to the disposal of a large amoun