Reading 34: Understanding the Cash Flow Statement - LOS f, class, black, following, company, border

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29.An analyst has gathered the following information about a company:

Income Statement 2005
Sales				$650
Expenses
	COGS		$445
	Depreciation		10
	Selling, General & Admin.		112
	Interest		10
		Total expenses		577
Pre-tax income				$73
Taxes				29
Net income				$44

 

Balance Sheet
Assets	2004	2005		Liabilities	2004	2005
Cash	50	35		Accts. Payable	115	90
Accts. Rec.	120	140		Wages Payable	55	50
Inventories	75	70		Bonds	100	90
Fixed Assets	215	190		Common Stock	50	20
Accum. Depr.	(95)	(105)		Retained Earnings	45	80
Total	365	330			365	330

Note: the dividend payout ratio equals 20 percent.

What is the net increase or decrease in cash?

A)   +$15.

B)   +$43.

C)   -$43.

D)   -$15.

30.A firm has net cash sales of $3,500, earnings after taxes (EAT) of $1,000, depreciation expense of $500, cost of goods sold (COGS) of $1,500, and cash taxes of $500. Also, inventory decreased by $100, and accounts receivable increased by $300. What is the firm's cash flow from operations?

A)   $1,200.

B)   $1,800.

C)   $2,000.

D)   $1,300.

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答案和详解如下：

29.An analyst has gathered the following information about a company:

Income Statement 2005
Sales				$650
Expenses
	COGS		$445
	Depreciation		10
	Selling, General & Admin.		112
	Interest		10
		Total expenses		577
Pre-tax income				$73
Taxes				29
Net income				$44

 

Balance Sheet
Assets	2004	2005		Liabilities	2004	2005
Cash	50	35		Accts. Payable	115	90
Accts. Rec.	120	140		Wages Payable	55	50
Inventories	75	70		Bonds	100	90
Fixed Assets	215	190		Common Stock	50	20
Accum. Depr.	(95)	(105)		Retained Earnings	45	80
Total	365	330			365	330

Note: the dividend payout ratio equals 20 percent.

What is the net increase or decrease in cash?

A)   +$15.

B)   +$43.

C)   -$43.

D)   -$15.

The correct answer was D)

There are two ways to approach this problem. The easier way is to just take the difference in cash from the two years: $35 - $50 = -$15.

The harder way is to create a statement of cash flows:

CFO = Net Income (44) + (Depreciation) (10) – (increase in Accounts Receivable) (20) + (decrease in Inventory) (5) – (decrease in Accounts Payable) (25) – (decrease in Wages Payable) (5) = $9.

CFI = $25 (fixed assets decreased by $25 representing a source of cash)

CFF = Dividends paid ((.20)*(44)) = -9 – (decrease in bonds) (10) - (decrease in common stock) (30) = -$49.

The net change in cash = 9 + 25 – 49 = -$15, or a decrease of $15.

30.A firm has net cash sales of $3,500, earnings after taxes (EAT) of $1,000, depreciation expense of $500, cost of goods sold (COGS) of $1,500, and cash taxes of $500. Also, inventory decreased by $100, and accounts receivable increased by $300. What is the firm's cash flow from operations?

A)   $1,200.

B)   $1,800.

C)   $2,000.

D)   $1,300.

The correct answer was D)

Indirect Method
EAT	+1,000
Depreciation	+500
Change in Inv.	+ 100 a source
Change in Accts. Rec.	(300) a use
CFO	1,300

 

Direct Method
Net Sales	+3,500
Change in Accts. Rec.	(300) a use
COGS	(1,500)
Cash Taxes	(500)
Change in Inv.	+100 a source
CFO	1,300