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Statements of Cash Flows Three Examples Case Solution

Solution Id Length Case Author Case Publisher
2515 1761 Words (7 Pages) William J. Bruns, Julie H. Hertenstein Harvard Business School : 193103
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The statements of cash flows for Alpha, Beta, and Gamma provide granular information regarding the operating, investing, and financing activities of each of the three companies. The information that is contained within these cash flow statements provides an all-encompassing summary of the ways in which the company generates and utilizes funds. The Statements of Cash Flows offer information that is current and accurate regarding the fundamental internal procedures that are responsible for the distribution of cash. The cash distribution trends can be easily identified by doing an examination of the companies' Statements of Cash Flows and determining the percentage change from one year to the next. The analysis reveals that each of the organizations is currently facing a unique set of financial challenges, which is evident from the data.

Following questions are answered in this case study solution:

  1. 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?

  2. Was cash flow from operations greater than or less than net income Explain in detail the major reasons for the difference between these two figures.

  3. Was the firm able to generate enough cash from operations to pay for all of its capital expenditures?

  4. Did the cash flow from operations cover both the capital expenditures and the firm's dividend payments, if any?

  5. Were the working capital (current assets and current liability) accounts other than cash and cash equivalents primarily sources of cash, or users of cash?

    Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures

Case Study Questions Answers

1. What were the firm’s major sources of cash? Its major uses of cash?

Exhibits 1, 2, and 3 show, respectively, how the three companies Alpha, Beta, and Gamma make their money and the primary things they buy with it in a variety of ways that reflect their unique circumstances. The proceeds from long-term debt and (a) an increase in short-term borrowings were Alpha Corporation's primary sources of cash during the fiscal year 1989. These activities also accounted for the majority of Alpha Corporation's cash inflows. The majority of Beta's available capital was put to use in the form of investments in 1989, primarily in the purchase of depreciable assets. In 1990, the activities of investing were the primary drivers of cash inflows, while activities related to finance were the primary drivers of cash outflows. In 1991, the primary activities that generated cash were operating activities, while the primary activities that used cash were investment activities.

In 1989, the primary operations that brought in cash for Beta were its operating activities, while the primary activities that used cash were its investing activities. In 1990, the primary activities that generated cash were operating activities, while the primary activities that used cash were investment activities. In 1991, the primary activities that contributed to Beta Corporation's cash reserves were its financial operations, while the company's primary uses of cash were its investment endeavors.

In 1989, the primary operations that contributed to Gamma Corporation's cash reserves were its operating activities, while the primary activities that contributed to its cash outflows were its finance activities. In 1990, the operations of running the business were the primary drivers of cash inflows, while activities related to financing were the primary consumers of cash. In conclusion, the most important cash generators for Gamma Corporation in 1991 were its operating activities, whereas the most important cash eaters for the company were its finance activities.

2. Was cash flow from operations greater than or less than net income Explain in detail the major reasons for the difference between these two figures.

Alpha:

The cash flow from operations in 1989 was higher than the net profits that year. There are two factors that have a significant impact on each of these. Depreciation is the first one, and it is the one that reduces the value of the net income but does not affect the cash flow. The second thing is the restructuring, which results in a decrease in net income but has no effect on cash flow. The cash flow from operations in 1990 was higher than the net profits that year. There are four different factors that have an effect on them. Depreciation is the first one, and it is the one that reduces the value of the net income but does not affect the cash flow. The second thing is the restructuring, which results in a decrease in net income but has no effect on cash flow. Because of depreciation, inventory, and accounts receivable, cash flow from operations in 1991 was higher than the company's net income for the year.

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