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Please analyze the given cash flow statement. Anderssen Inc. Statement of cash Flow For the month...

Question:

Please analyze the given cash flow statement.

Anderssen Inc. Statement of Cash Flow
For the month ended Dec 31,2016
Particulars Debit Credit
Net income 6,200
Adjustment for depreciation expenses 500
Operating profit before working capital change 6,700
Increase in Accounts Payable 800
Increase in accounts receivable (500)
Increase in merchadise inventory (6,900)
Increase in accrued liability 100
Increase in tax payable 300
cash generated from operating activity 500 500
Cash flow from investing activities
Purchase of the equipment (700)
Long Term investment (300)
Cash generated from investing activities (1,000) (1,000)
Cash flow from Financing activities
Long term Debts 200
Issue of shares of common stock 2,600
cash generated from financing activities 2,800 2,800
Net increase in cash and cash equivalents 2,300
Operaing cash balance 1,000
Closing Cash balance 3,300

Cash Flow Statement:

There are three primary financial statements in the annual report; they are the balance sheet, income statement and cash flow statement. The cash flow statement is a bridge between the balance sheet and the income statement. It also provides an overview of the sources and uses of company cash.

Answer and Explanation:

Based on the cash flow statement, this company had a decent amount of income at $6,200, however, the bulk of that cash is tied up in inventory purchases, which dragged down cash flow from operations to only $500.

The good news is that the company can support itself based on its own cash flow. However, it also made a $1,000 investment in capital investments, which forced it to seek external funding to cover the difference.

The company obtained $2,800 in external financing from debt and stock issuance. So, ultimately, the company has more than enough cash to cover itself.

Based on the cash flow statement, this appears to be a healthy company.


Learn more about this topic:

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Using the Statement of Cash Flows for Decision Making

from Accounting 101: Financial Accounting

Chapter 12 / Lesson 5
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