The case brings to light the statement of cash flow through the use of three instances of multi-year statements of cash flows, which arise from unnamed companies.
Exhibits 1, 2 and 3 contain cash-flow statements from three companies. Each cash-flow statement has three years of data. Examine the contents of these cash flow statements carefully.
Answer the following questions about each of the three cash-flow statements.
For each of the years on the Statement of Cash Flows:
What were the firm’s major sources of cash? Its major uses of cash?
Was the firm able to generate enough cash from operations to pay for all of its capital expenditures?
Did the cash flow from operations cover both the capital expenditures and the firm’s dividend payments, if any?
If it did, how did the firm invest its excess cash?
If not, what were the sources of cash the firm used to pay for the capital expenditures and/ or dividends?
Were the working capital (current asset and current liability) accounts other than cash and cash equivalents primarily sources of cash, or users of cash?
What other major items affected cash flows?
What was the trend in:
Cash flow from (continuing)
Net borrowing (proceeds less payments of short- and long-term debt?
Working capital accounts?
Based on the evidence in the Statement of Cash Flows alone, what is your assessment of the financial strength of this business? Why?