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Flamingo, Inc. 2019 statement of comprehensive income ($ in millions) Net sales $1,384 Less: Cost of...

Flamingo, Inc.
2019 statement of comprehensive income
($ in millions)

Net sales

$1,384

Less: Cost of goods sold

605

Less: Depreciation

180

Earnings before interest and taxes

599

Less: Interest paid

80

Taxable income

519

Less: Taxes

156

Net income

$363

Addition to retained earnings

$254

Dividends paid

109

Flamingo, Inc.
2018 and 2019 Statement of financial positions
($ in millions)

2018

2019

2018

2019

Cash

$100

$121

Accounts payable

$400

$350

Accounts rec.

350

425

Notes payable

390

370

Inventory

440

410

Total

$790

$720

Total

$890

$956

Long-term debt

500

550

Net fixed assets

1,556

1,704

Owner’s equity

Common stock

600

580

Retained
earnings

556

810

Total

1,156

1,390

Total assets

$2,446

$2,660

Total liabilities

$2,446

$2,660

Q1. Show detailed calculations of CFFA under two approaches (1)Cash Flow From Assets (CFFA) = Cash Flow to Bondholders + Cash Flow to Shareholders AND (2)Cash Flow From Assets = Operating Cash Flow – Net Capital Spending – Changes in NWC we have discussed in our class.

Q2. Comment on the cash flow performance of the company in the years of 2018 and 2019.(20 marks)

Q3. If you were to advise Flamingo Inc. for the year 2020, what recommendations would you propose regarding the capital structure of the company? Why?

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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