Premium Essay

Cash Flow Analysis

In: Computers and Technology

Submitted By liweitian
Words 722
Pages 3

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 |...

Similar Documents

Premium Essay

Financial Statements and Cash Flow Analysis

...Chapter 2 Mini Case: “Financial Statement and Cash Flow Analysis” Jennifer L. Hatch Professor Edward Strafaci Advanced Financial Management January 28, 2015 Chapter 2 Mini Case: “Financial Statement and Cash Flow Analysis” Introduction According to the mini case, Jaeden Industries has provided their account balances as of December 31, 2010. In order to determine the company’s free cash flow, liquidity, debt and profitability ratios, and market ratios, the following are required: dividend payout ratio of 25%, tax rate of 34%, stock price on December 31, 2009 was $42.39 and the stock price on December 31, 2010 was $56.82. Below are the calculations required in order to obtain a cash flow analysis on Jaeden Industries. Jaeden’s Free Cash Flow Free cash flow involves the following acronyms that are to be applied to the first party of the formula: net operating profits after taxes (NOPAT), earning before interest and taxes (EBIT), T = corporate tax rate, and operating cash flow (OCF). In order to calculate the free cash flow (FCF), two steps are required. The first step is to calculate the OCF, and then the free cash flow can be determined....

Words: 1673 - Pages: 7

Premium Essay

Mt 482 Cash Flow Analysis

...As a result, a reconciling item is created between net income and operating cash flows because the cash outflow to cover the reserve will occur in the next period when a portion of the sold items is actually returned. 3. Free cash flow =...

Words: 395 - Pages: 2

Premium Essay

Solution to Polaroid Cash Flow Statement Analysis

...Debt – Perhaps | |this suggest an inability to borrow due to weak cash flow from operations and profits. | |Cash dividend is paid all three years. In 98 and 99, the dividend is paid when there is not adequate cash...

Words: 287 - Pages: 2

Premium Essay

Pro Forma Analysis Cash Flow Forecasting

...Pro forma analysis cash flow forecasting Apartment Investment Case Study Scenario An investor is considering buying an apartment building with 140 units offered for sale at $16,500,000. The subject apartment building has the following unit mix: Additionally, the following assumptions are also being made by the investor in order to construct a 5-year cash flow pro forma: Vacancy and Credit Loss In the current market, vacancy and credit losses are running at 9%. Due to the improving market conditions as well as the investor’s prior experience leasing and operating multifamily buildings, it’s expected that vacancy will steadily decline over the next 5 years to 5%. Potential Rental Income Potential rental income is based on the above unit mix. The 1-bedroom and studio rental rates are expected to increase at 1% annually. The 2-bedroom units are expected to increase at 2% annually. Financing After a preliminary discussion with a relationship manager at a local bank it’s determined that a loan can be extended based on the lesser of a 1.25x debt service coverage ratio or 80% loan to value. Additionally, assuming the underwriting process doesn’t reveal any red flags, it’s expected that the loan will be based on a 20 year amortization and a 6% interest rate. Operating Expenses The following table breaks out historical operating expenses for the property as well as projected increases over the holding period....

Words: 1486 - Pages: 6

Premium Essay

Cash Flow Analysis – Signal Cable Company

...TOPIC : CASH FLOW ANALYSIS – SIGNAL CABLE COMPANY Introduction The Signal Cable Company is a cable manufacturer for analog and digital interconnects, speaker, video and home theater cables. It is located in Tarrytown, New York. The company is well known for “highest standard in quality and customer service” and their “superior design” and “No-Hype approach resulted in one of the best price/performance ratio in the industry”. After Signal Cable had enjoyed quite a run up in profits over the past few years, the management decided to enter in the fiber optic communications business. The market was growing, the demand increased and the competition was not too severe. Eventually, the company established two additional manufacturing facilities and increased its inventory to meet the needs. Current Situation Despite Signal Cable had enjoyed profits in past few years, the accounting statements showed a lower net profit margin. Furthermore, the cash balance and the stock price had fallen recently. Jay Smith, Assistant to the President, has now the challenge to prepare some feasible answers and suggestions for his boss, Joe Mathis, who has to inform the shareholders about the current situation. Questions of the Case Study 1. Why has the stock price fallen despite the fact that the net income has increased? A company’s stock price is depend on its demand and supply in the stock market....

Words: 1585 - Pages: 7

Free Essay

Fin 370 Week 4 Cash Flow Analysis

...Other topics in the class are as follows: FIN 370 WEEK 4 CASH FLOW ANALYSIS FIN 370 FINAL EXAM (NEWEST) FIN 370 WEEK 1 COMPLETE FIN 370 WEEK 2 COMPLETE FIN 370 WEEK 3 COMPLETE FIN 370 WEEK 4 COMPLETE FIN 370 WEEK 5 COMPLETE Want to check other classes..?? Visit...

Words: 279 - Pages: 2

Premium Essay

Ch 2 Financial Statement and Cash Flow Analysis

...Chapter 2—Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory ANS: C DIF: E REF: 2.1 Financial Statements 2. If you only knew a company’s total assets and total debt, which item could you easily calculate? a. Sales b. Depreciation c. Total equity d. Inventory ANS: C DIF: E REF: 2.1 Financial Statements 3. How do we calculate a company’s operating cash flow? a. EBIT - taxes + depreciation b. EBIT - taxes - depreciation c. EBIT + taxes + depreciation d. EBIT - Sales ANS: A DIF: E REF: 2.2 Cash Flow Analysis 4. Holding all other things constant, which of the following represents a cash outflow? a. The company sells a machine. b. The company acquires inventory. c. The company receives a bank loan. d. The company increases accounts payable. ANS: B DIF: E REF: 2.2 Cash Flow Analysis 5. Which of the following is a liquidity ratio? a. Quick ratio b. P/E- ratio c. Inventory turnover d. Equity multiplier ANS: A DIF: E REF: 2.3 Analyzing Financial Performance Using Ratio Analysis NARRBEGIN: Bavarian Sausage, Inc. Bavarian Sausage, Inc. Bavarian Sausage, Inc. posted the following balance sheet and income statement....

Words: 5588 - Pages: 23

Premium Essay

Solution Case 3-1 Cash Flow Analysis – Orthodontic Centers of America

...PURWANINGRUM CASE 3-1 Cash Flow Analysis – Orthodontic Centers of America 1. Actual cash collection for year 1998 to 2000:   | 2000 | 1999 | 1998 | Total Receivables | 3.535.000 | 87.563.000 | 66.477.000 | net change | (84.028.000) | 21.086.000 | 66.477.000 |   |   |   |   | Patient prepayments | - | - | 4.326.000 | net change | - | (4.326.000) | 4.326.000 |   |   |   |   | Net Revenue | 268.836.000 | 226.290.000 | 171.298.000 | Less: change in account receivable | 84.028.000 | (21.086.000) | (66.477.000) | Plus: change in advances | - | (4.326.000) | 4.326.000 | Actual Cash Collections | 352.864.000 | 200.878.000 | 109.147.000 | 2....

Words: 1039 - Pages: 5

Premium Essay

The Beasley Custom Picture Frame Company

...Introduction The cash-flow analysis is the study of your business’ cash inflows and outflows. The Beasley Custom Picture Frame Company will tell about the components that one would need to be able to create a cash-flow analysis report. We will also explain the advantages and the disadvantages of the cash-flow statement. From there we will go on to explain the different benefits of a cash flow statement and any problems that could arise if the cash-flow statement is not conducted in a timely manner. Lastly, The Beasley Custom Picture Frame Company will provide our cash-flow statement for our third year of operation. Components “To prepare a cash-flow statement, you need three things: a starting balance sheet, an ending balance sheet and an income statement for the time in between.” (Statements of Cash Flow & Analysis of Ratios, paragraph 2, page 49) To go into further detail, the “cash-flow analysis involves examing the components of your business that affect the cash flow, such as accounts receivable, inventory, accounts payable, and credit terms.” (Ward, 2011, paragraph 3) The Beasley Custom Picture Frame Company’s starting balance sheet is the first balance sheet we have for our business, since it is just a new business. Therefore, our ending balance sheet that is needed for the cash-flow statement will include our second year in business and the estimated third year account balances....

Words: 659 - Pages: 3

Premium Essay

Financial Statement Analysis

...Types of Financial Analysis On the basis of modus operandi: Horizontal analysis. Vertical analysis. Types of Financial Analysis On the basis of modus operandi : Horizontal analysis. • Comparison of financial data of a company for several years. The figures for this type of analysis are presented horizontally over a number of columns. The figures of the various years...

Words: 3529 - Pages: 15

Premium Essay

Financial Analytical Tools

...FINANCIAL ANALYTICAL TOOLS Financial analysis involves evaluating the current financial statements of an organization in order to access the current profitability and also compare same with past performance (time series analysis) and the performance of other players within the industry. In other words, analyzing the financial statements assesses the financial health of a company. The major statistical tools used in financial analysis are ; • Ratio Analysis • Cash Flow Analysis • Common Size Analysis Ratio Analysis Investopedia describes ratio analysis as , ‘A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements’....

Words: 1243 - Pages: 5

Free Essay

Real Options Analysis Thesis

...Tools which are popular for valuing financial  options, such as Black Scholes analysis, can be used to determine the value of real options.  However, Black Scholes analysis has been criticized for its unintuitive approach to real  options and also for its difficulty in determining the volatility of an investment. The purpose  of this thesis is to investigate whether or not a second order moment approach can...

Words: 13382 - Pages: 54

Premium Essay


...MODULE - 6A Analysis of Financial Statements Cash Flow Statement Notes 30 CASH FLOW STATEMENT In the previous lesson, you have learnt various types of analysis of financial statements and its tools such as comparative statements, common size statement and trend analysis, etc. You have also learnt various kinds of accounting ratios such as liquidity, activity, profitability, solvency, etc. You have learnt that accounts are mainly maintained on accrual basis but cash also plays significant role. Cash is mainly generated for operating activities which is buying assets and discharging liabilities. Cash is also raised from the issue of shares and debentures or loans but adequate cash should be available for use in time and no cash should remain idle. For this another tool of analysis is used which is cash flow statement.. In this lesson, you will learn about cash flow statement and its methods of preparation. OBJECTIVES After studying this lesson, you will be able to : state the meaning of cash flow statement; explain objectives of cash flow statement; explain the method of preparing cash flow statement as per format; state the limitations of cash flow statement. 30.1 MEANING AND OBJECTIVES Cash plays a very important role in the economic life of a business. A firm needs cash to make payment to its suppliers, to incur day-to-day expenses and to pay salaries, wages, interest and dividends etc....

Words: 6659 - Pages: 27

Premium Essay

Business Finance

...Project cash flow; accounting income b. Incremental cash flow; sunk cost; opportunity cost; externality; cannibalization; expansion project; replacement project c. Net operating working capital changes; salvage value d. Stand-alone risk; corporate (within-firm) risk; market (beta) risk e. Sensitivity analysis; scenario analysis; Monte Carlo simulation analysis. f. Risk-adjusted discount rate; project cost of capital g. Decision tree; staged decision-tree analysis; decision node; branch h. Real options; managerial options; strategic options; embedded options i. Investment timing option; growth option; abandonment option; flexibility option a. Project cash flow: The process of inflow or outflow of cash in any project is called cash flow. In project cash flow the increase in income results cash inflow on the other hand, expenditure results cash outflow. Accounting income: Accounting income is the result after deducting the total sales revenue from its expenses. The result of accounting income and cash flow differs in the financial statement because accounting income makes records of both cash and non cash transaction. While in cash flow only pure cash transaction are recorded. b) Incremental cash flow: Incremental cash flow is the additional cash that company may receive by taking a new project. If a company sees positive incremental of cash flow then it means the company can get additional cash flow in future, if new project is accepted....

Words: 1697 - Pages: 7

Premium Essay

Financial Analysis

...o Provide a record of the past operating, investing and financing decisions and their cash flow effects o Provide a beginning point for forecasting the future Chapter 1 Equity Valuation and Analysis Page 2 of 5 Equity Analysis Process Step 1 - Understading the Past Step 2- Forecasting the Future Step 3 - Valuation • Information Collection • Understanidng the Business • Accounting Analysis • Financial Ratio Analysis • Cash Flow Analysis • Structured Forecasting • Income Statement Forecasts • Balance Sheet Forecasts • Cash Flow Forecasts • Cost of Capital • Valuation Models • Residual Income • Cash Flow • Valuation Ratios • Complications • Negative Values • Value Creation and Destruction through Financing Transactions Chapter 1 Equity Valuation and Analysis Page 3 of 5 Understanding the Past o Information Collection – SEC reports, press releases, industry and economic analysis o Understanding the Business – What is the company’s strategy, who are its...

Words: 468 - Pages: 2