Discussion Questions Answers

3) The Cash flow statements tells us how much cash is going in and out of the company at a certain
period of time such as measured in quarter or year .The statement is very important to investors,
analysts, creditors and managers to take business decisions based on whether company is able to
generate cash or how much actual cash the company has generated within the period. One of the
most important traits investors seek is the ability to generate cash. Many companies might show
good income but if there is no sufficient cash coming in and out that means the company’s rocky
times are ahead.

Investors should look closely at how much cash a firm generates from its operating activities because
it paints the best picture of how well the business is producing cash that will ultimately benefit
shareholders.

2) Cash equivalents means all the short term investments that can be readily converted into cash
without decline in their value. i.e. with insignificant risk of decrease in value. Cash equivalents are
often held for the purpose of meeting short-term cash commitments rather than for investment.
Cash equivalents can be.
A. Cash flow from operating activities  Bank’s
Profit before tax 2.04
acceptance
Adjustments for:
 Commercial
Depreciation and amortization 0.32
Interest income 0.26 paper
Trade Receivables -0.07  Treasury bills
Cash and cash Equivalents 0.15  Short term
Proceeds before borrowing -0.03 maturity
Increase in other financial assets and bank balance 1.03 bonds
Increase in other current liabilities -0.11
Increase in inventories 0.01
Decrease in trade receivables 0.07
Income tax paid 0.76
Decrease in trade payables 0.06
Other financial liabilities 0.06
Decrease in employee benefit obligations 0.02
Net cash inflow from operating activities 0.30
Cash generated from operations 1.06
B. Cash flow from Investing activities
Increase in current other assets 0.12
Interest received on bank deposits 0.22
Net loss on disposal of PPE 0.01
Proceeds from sale of PPE 0.01
Payment for acquisition of PPE 0.24
Net cash flow from Investing activities 0.01
C. Cash flow from financing activities
Dividend distribution tax -0.03
Dividend payments to shareholders 0.13
Finance costs 0.01
Interest and other borrowing cost paid 0.01
Net cash outflow from financing activities 0.14

Net Increase(decrease) in cash and cash equivalents due to A+B+C 0.15

Starting Cash and Cash equivalents Balance 0.12
Ending Cash and Cash equivalents 0.27
Mini Case 6

6) Pioneer Distillers Limited

a) Statement for cash flow for the periods September 30, 2002 and March 31, 2001

From the table we can observe that during this year the there was an increase in net cash from
operations. But the cash flow from investment activities decreased, whereas the financing activities
increased. Overall, there was no considerable change in the Closing balance during this period and
so a fair rating of 4 can be given which is a sign of no growth from the previous year.

Statement for cash flow for the periods March 31, 2006 and March 31, 2005

From the table we can observe that during this year the there was a high increase in net cash from
operations. The cash flow from investment activities also increased considerably, whereas the
financing cash flow decreased to a certain extent. Overall, there was a considerable change in the
Closing balance during this period . There was an increase of 17 Lakhs and so a fair rating of 8 can be
given which is a sign of good growth from the previous year. The company financials have improved
significantly.

Statement for cash flow for the periods March 31, 2009 and March 31, 2010

From the table we can observe that during this year the there was a decrease in net cash from
operations. The cash flow from investment activities increased considerably, whereas the financing
cash flow increased impressively. Overall, there was a considerable change in the Closing balance
during this period . There was an increase of 21 Lakhs and so a fair rating of 9 can be given which is a
sign of good growth from the previous year. The company financials have improved significantly and
the future of the company can be assumed as good.

b) No, there are no notable possible structural changes in the company business. Operationally the
company has fared well in maintaining the operational activities and cutting the costs. The
statement of cash flow for the first two periods in terms of operating activities has been satisfactory
compared to the previous year barring the third period. Financially, the company has no notable
changes but the company has been able to maintain its financials well. The first and the third period
has witnessed tremendous growth whereas the 2 nd year growth was somewhat dull. Overall, the
company has been able to manage its finances and company looks profitable in near future.

c) Yes considering the performance of the company during the last two periods I would definitely like
to invest further in the company. If we can observe that the cash has also increased by significant
margin in last two periods. As a company’s health is measured by the amount of cash it’s operating
in. It is safe to consider that the company can function smoothly and thus be profitable.

I would divest from the company if the closing balance of cash flow decreases. If the cash flow
decreases in all the three statements. It indicates that the company is facing hard times to generate
cash. Or if the company is keeping excess cash in vault and is not investing further, because excess
cash if kept in bank or vault will generate no revenue and thus it will not be profitable.

d) The company is being able to pay off it’s interest on borrowed loan from period to period as
observed. So, I as a lender will be interested in lending loan as the financials of the company seems
to be good. The net cash generated from operating, financing and investing activities has grown over
the period which is a sign of a healthy company.