Case Study Statement of Cash Flow: Three Example
1. Was cash flow from operating activities greater than or less than net income (income or loss from continuing operations). Explain in detail the major reasons for the difference between these two figures.
Alpha Corporation, during the last three years, loss from continuing operations is negative while the net cash provided by operating activities are always positive. For 1989, concludes that certain adjustments are made, except for the cash. This adjustment tend to reverse the negative trend, it should be noted clearly that is affected by the increase in assets and decrease in liabilities. In 1990, we conclude that the depreciation adjustment doesn’t change the negative outcomes, as a result, reduce overall current assets. Finally, in 1991 happens something similar to 1990 to the company. This tends to reverse the outcome.
In the case of the Beta Corporation, those variations depend on the year. In 1989 and 1990, operating activities were higher than net income; however, it was not the same for 1991. This statement is due to the increase of receivables, for this reason cash flow should be reduced. It is vital to note that in all cases, the depreciation adjustment has great impact in increasing net income. In 1991, the income tax to earnings creates a large change in accounts payable to the previous year.
Finally, Gamma Corporation we can notice that every year. The operating cash flow is greater than net income. In 1989, operating cash flow is greater than the profit or loss. Then in 1990, the results are positive and adjustments on depreciation will benefit greatly the cash flow. Lastly, in 1991, the net loss ends up being a gain due to depreciation.
2. Did the cash flow from operations cover both the capital expenditures and the company’s dividend payments, if any? If it did, how did the company invest its excess cash? If not, what were the sources of cash the company used to pay for the...