Analyzing the Statement of Cash Flows

Analyzing the Statement of Cash Flows

Using the table below, explain the difference between net income and cash flow from operating activities for Techno in 2009 and analyze their cash flows for 2008 and 2009.

(in thousands) 2009 2008
Net income $ 316,354 $ 242,329
Noncash charges (credits) to income
Depreciation and amortization 68,156 62,591
Deferred taxes 15,394 22,814
$ 399,904 $ 327,734
Cash Provided (Used) by Operating Assets and Liabilities:
Receivables (288,174) (49,704)
Inventories (159,419) (145,554)
Other current assets (1,470) 3,832
Accounts payable, accrued liabilities 73,684 41,079
Total Cash Provided by Operations $ 24,525 $ 177,387
Investment activities
Additions to plant and equipment (94,1760) (93,136)
Other investment activities 14,408 (34,771)
Net investment activities ($ 79,768) ($ 127,907)
Financing activities
Purchases of treasury stock (45,854) (39,267)
Dividends paid (49,290) (22,523)
Net changes in short-term borrowing 125,248 45,067
Additions to long-term borrowings 135,249 4,610
Repayments of long-term borrowings (250,564)
Net financing activities $ 165,353 ($ 262,677)
Increase (decrease) in cash $ 110,110 ($ 213,197)
Beginning cash balance 78,114 291,311
Ending cash balance $ 188,224 $ 78,114

Discussion question 2

The Quality of Financial Information

Referencing this week’s readings and lecture, describe the quality issues related to reporting revenue. What is the importance of understanding various inventory valuation methods in determining the quality of reported profits?

Discussion question 3

Conflicts with GAAP

Even though firms follow the accounting rules (GAAP) when presenting their financial statements, it is still possible for conflicts of interest to exist between what management wants investors and creditors to see and the economic reality of transactions. Explain how this can occur.

Discussion 4

Financial Ratios

Referencing this week’s readings and lecture, what are the limitations of financial ratios? Classify your answer into at least the following categories: liquidity ratios, activity ratios, leverage ratios, and profitability ratios.

Discussion 5

Financial Analysis

R.E.C. Inc.’s staff of accountants finished preparing the financial statements for 2010 and will meet next week with the company’s CEO as well as the Director of Investor Relations and representatives from the marketing and art departments to design the current year’s annual report. Write a paragraph in which you present the main idea(s) you think the company should present to shareholders in the annual report. Why do you think those ideas should be included?

Each questions answer needs to be at least 250 words.


Last Updated on