I.
1. Alpha Corporation’s major sources of cash from 1989- 1991 were proceeds from cash from operations, disposal of obsolete assets, proceeds from disposing of discontinued operations, sale of common stock and proceeds from raising long term debt. Its major uses of cash were purchases of fixed assets, capitalized software and treasury stock, re-payment of long term debt and payment of dividend.
Major sources of cash for Beta Corporation were cash received from customers and proceeds from issue of common stock. The major uses were purchase of marketable securities and other capital expenditures, re-payment of subordinated debt and payments under working capital line of credit.
Major sources of cash for Gamma Corporation were cash from operating activities, proceeds from the issue of treasury stock and debt. The major uses were purchase of plant and property, treasury shares and re-payment of debt. It also used cash for purchasing Kienzle business in 1991.
2. Alpha Corporation’s net cash from operating activities was greater than its net income in each of the three years. This was because the company was not able to generate sufficient profits from its trading activates from 1989-1991 that could have borne the depreciation charges.
Beta’s Corporation’s cash flow from operations was less than its net income in 1991 majorly because there was a substantial increase in accounts receivable which resulted into a blockage of funds. In 1990 and 1989, its cash flows from operating activities were greater than its net income since funds were not blocked due to accounts receivables or payables.
Gamma Corp’s cash flows from operating activities were greater than its net income from 1989-1991 due to heavy depreciation costs and decrease in taxes.
3. Alpha was not able to generate enough cash flows from its operating activities to meet its capital expenditures in all the three years.
Beta was able to generate sufficient cash flows from operations to meet its capital expenditure needs in 1989 and 1990. It was however, unsuccessful in generating enough cash flows from operations in 1991.
Gamma was successful in generating enough cash flows from its operating activities from 1989 to 1991 to invest in property, plant and equipment.
4. Alpha’s net cash flows from operating activities were insufficient to meet its capital expenditures and dividends payments in each of the three years.
Beta did not pay dividends to its shareholders in the three years. It however, had sufficient cash flows from operations to cover its capital expenditures in 1989 and 1990 only.
Gamma did not pay dividends either but it had sufficient cash flows from its operations to cover capital expenditures in all the three years.
5. Beta invested its excess cash by making payments under working capital and equipment line of credit.
Gamma invested its excess cash to purchase assets, retiring debt and purchasing treasury shares.
6. Alpha covered its capital expenditure needs from disposing off depreciable assets and discontinued businesses, and by raising long term debt.
Beta issued common stock to cover its capital expenditures in 1991.
7. Working capital accounts were primarily sources of cash for Alpha.
Current Assets and Liabilities were users of cash for Beta.
Current Assets were users of cash and Current Liabilities were sources of cash for Gamma.
8. Interest receipts and payments and taxes were other items which were affecting cash in all the three firms.
II.
9. Alpha earned net losses from 1989 to 1991. They doubled in 1990 but halved in 1991.
Beta’s net income saw an increasing trend. It grew substantially from 1989 to 1990.
Gamma’s net income saw a decreasing trend from 1989 to 1991 and eventually turned into a loss in 1991.
10. Alpha’s net cash flow from operations had a rising trend from 1989 to 1991.
Beta’s cash flows from operations increased from 1989 to 1990 but decreased in 1991.
Gamma’s cash flow from operations saw a decreasing trend from 1989 to 1991.
11. Alpha’s capital expenditures decreased from 1989 to 1991.
Beta’s capital expenditures kept on increasing from 1989 till 1991.
Gamma’s capital expenditures kept on declining in the three years.
12. Alpha’s dividend payments kept declining till they were paid no more in 1991.
Beta and Gamma did not pay dividends at all.
13. Alpha had positive net borrowings in 1989 and negative in 1990 and 1991.
Beta’s debt proceeds were greater than debt repayments in 1989, equal in 1990 and lower in 1991.
Gamma’s net borrowings remained negative in all the three years. They however, decreased in 1990 but the re-payment of debt increased again in 1991.
14. Alpha’s working capital accounts mostly decreased from 1989-1991.
Beta’s working capital accounts mostly increased from 1989.
Gamma’s working capital accounts were mostly on a declining trend from 1989.
III.
Alpha Corporation has been incurring net losses since the last three years in spite of having positive cash flows from all activities. It can be noted that the firm is not utilizing enough cash flows to invest in fixed assets that might help it to attain profits. Losses can be attributed to the use of obsolete assets which the firm seems to be disposing off lately. Huge depreciation costs signify that the firm has began using newly purchased assets and profits are thus, foreseeable in the future. “Examining the cash expended for plant and equipment in comparison with the amount of depreciation expense and the amount of plant and equipment reported in the balance sheet can provide some idea of the rate of growth or contraction” (The Cash Flow Statement And Decisions 13).
Beta Corporation’s net income is on a rising trend due to increased utilization of cash flows for its capital expenditures. The company issued common stock in 1991 which is why it has sufficient cash flows to satisfy its external obligations and debt alongwith investing in fixed assets. The company has however, seen a decline in the net cash flows from operations in 1991 which is a warning sign for the firm. “A common rule followed by financial and credit analysts, is to avoid firms with rising net income but falling cash flow from operations” (Reporting And Interpreting Cash Flows 14).
Gamma Corporation incurred a loss in 1991 in spite of heavily investing in capital expenditures and its financing activities. Its net cash flow from operating activities has also decreased in 1991 which signifies financial trouble. It is worth to note here that acquisition of Kienzle business may not have been worthwhile for the firm after all.
Works Cited
Reporting And Interpreting Cash Flows. 2007. Web. 5 May 2016. <http://www.vbsca.ca/download/CEfa/Part%203%20-%20Interpretion%20of%20Cash%20Flow%20Patterns%20-%20Financial%20Accounting%20-%20Libby3ce_chapter05(original).pdf>
The Cash Flow Statement And Decisions. 2001. Web. 5 May 2016. <http://www.wiley.com/college/bcs/0471238236/king/ch13.pdf
