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Cash Flow Analysis

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1

Cash Flow Analysis

Signal Cable Company

When Jay Smith took the job of Assistant to the President, two years ago, things were going rather well at the Signal Cable Company. The company was on an expansionary path and had branched into the fiber optics business. The prospects looked good and the economy was strong. The threat of competition was not too severe. Due to the expectation of increased demand for fiber optic communications, the company had established two additional manufacturing facilities, and significantly increased its inventory.
Signal Cable had enjoyed quite a run up in profits over the past few years. However, when the accounting statements were prepared for the current year, the results showed a lower net profit margin. More importantly, there was a severe drop in the cash balance of the company and the stock price had recently fallen from $7 to $5.50 per share.
Jay knew that the shareholders would be very concerned and possibly irate. He was also sure that his boss, Joe Mathis, would have to

2 Case 1 Signal Cable Company

come up with some feasible answers and suggestions as to how the liquidity problems could be alleviated. This concern was primarily important since the firm had been expecting to raise some short-term capital in the immediate future. Jay's expectations were fulfilled when Joe called him up and asked him to prepare a report explaining the financial condition of the irm. Table I and 2 present the Income Statement and Balance Sheet for the recent two years.

Table l

Income Statement

| 2012 | 2011 | Net Sales | 2,050,000 | 1,678,894 | Cost of Goods sold | 1,537,500 | 1,343,115 | Depreciation | 79,000 | 51,000 | Selling & Administrative Expenses | 40,000 | 32,945 | Earnings Before Interest and Taxes | 393,500 | 251,833.8 | Interest Paid | 155,000 | 44,000 |...

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