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Accounting For Business Decision
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Review the statement of cash flows for the most recent year and indicate the following:
1. Net cash inflow (outflow) from operating activities
Analyse the Cash Flow Statements for the last 2 years and comment on the cash position of the company.
Cash Flow from Operating Activities
Cash Flow from operating activities measures the cash generated by a company's main business activities. Operating cash flow is required to maintain its current level of operation. If cash flow is sufficiently positive, it can also finance for company’s growing operations. Further, operating cash flows helps us in getting the true picture about the financial position of the company (Davies & Crawford, 2012).
On comparing cash flow of given two years, one can easily say that situation has worsened as cash outflow from operating activities has increased by $ 52,814. That means, Company is not able to generate sufficient cash from its main activities to finance its costs. In year 2014, cash generation was already negative to the extent of $188,662. This negative cash flow has increased to $241,476 in year 2015. Cash flow has gone down by approx. 25%. It is a very bad signal for company’s operating performance. On analyzing further, following points were noted:
1. Receipts from Customers – Receipts from customers have gone down by more than 60% in year 2015. It is merely one-third when compared to previous year 2014. There could be two reason behind that,
Cash Flows from Investing Activities
It refers to the cash investment in the fixed assets by the company. Overall, cash inflow from investing activities has increased by manifold, in amount terms; it has increased by $ 341,284. It has been main source of cash generation in current year. Let us analyze its components:
1. Proceeds from held for trading investments - It has gone down to zero in current year from $34,553 from previous year. It means company has not sold any trading investments in the current year. Either, the company is hardly having any trading investment in current year to sell off or it does not feel the need to sell off its investments. However, this activity has caused the cash flows to fall in current year by a big margin.
Cash Flow from Financing Activities
Overall cash flow from financing activities has been positive during the year. During the year, borrowings have increased by approx. $50,200. It is one of the sources which have increased the cash flow in current year. However, to improve the cash flow situation, use of finance activity should be avoided. Use of financing activities is suggested only for expansion plan (Choi & Meek, 2011).
Overall, it can be seen that company has not been able to generate cash from its operating activities. To cover up the deficiency of cash flow, company had to sell off its investment and had to borrow funds from outside. Immediately company needs to take urgent action to improve its operating performance (Graham & Smart, 2012).
Net increase/ decrease in cash
Year ended 30th Jun-2015
Net cash outflow from operating activities
Net cash inflow from financing activities
Net cash inflow from investing activities
Net increase in cash during the year
Comments: On comparing the two years’ cash flow in totality, one can say that company has improved in the year 2015. However, on investigation it shows that there was a net increase in cash during the year that means the amount left with the company.
Choi, R.D. and Meek, G.K 2011, International accounting, Pearson.
Davies, T. and Crawford, I 2012, Financial accounting, Harlow, England: Pearson.
Graham, J. and Smart, S 2012, Introduction to corporate finance, Australia: South-Western Cengage Learning.
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