Question

Use the 2015 income statement and balance sheet (next page) to construct a statement of cash flows for Laguna Surf Board Company. Determine the amount of financing they will need to raise in the capital markets. Remember to calculate subtotals for operating activities, investing activities and financing activities.

Laguna Surf Board 2015
	Income Statement
$M
Sales	700
Less COGS	400
Gross Profit	300
Depreciation	40
Operating Expenses	105
EBIT (Operating Profit)	155
Interest	25
EBT (Pretax Income)	130
Taxes	30
Net Income	100
Dividends Paid	10
Addition to Retained Earnings	90

  

			Balance Sheet
$M	2015	2014			2015	2014
Assets:				Liabilities:
Cash	30	25		Accrued Wages and Taxes	35	20
Accts rec	120	65		Accounts Payable	65	10
Inventory	50	90		Notes Payable < 1 year	140	95
Total Current Assets	200	180		Total Current Liabilities	240	125
Gross Equipment	520	375		Bonds Payable (Long Term Debt)	110	190
Less Depreciation	50	10		Total Debt	350	315
Net Equipment	470	365		Stockholder's Equity:
Other long term assets	340	300		Preferred stock	110	95
Total PP&E	810	665		Common Stock & paid in capital	150	125
				Retained Earnings	400	310
				Total	660	530
Total Assets	1010	845		Total Liab and Equity	1010	845

Answer 1

CASH FLOW STATEMENT- INDIRECT METHOD
Cash flow from operating activities:
Net Income	100
Adjustments
Depreciation	40
Interest	25
Taxes	30
Change in Working Capital
Increase in Accounts Receivable	-55
Decrease in Inventories	40
Increase in Accounts Payable	55
Increase in Notes Payable	45
Increase in Accrued Wages and tax	15
Operating Cash flow before interest and taxes	295
Interest	-25
Taxes	-30
Net Cash Provided by Operating activities (A)		240
Cash flow of Investing activities
Purchase of Equipment	-145
Acquisition of Other long term assets	-40
Net Cash Used for Investing activities (B)		-185
Cash flow of Financing activities
Common Stock Issued	25
Preferred stock Issued	15
Payment of Long-term debt	-80
Dividend Paid	-10
Net Cash Used for Financing activities (C)		-50
Change in Cash (A+B+C)		5
Cash balance December 31, 2014		25
Cash balance December 31, 2015		30
		5

Amount of financing they will need to raise in the capital markets=

Current Liability-Current Assets= 240-200= $ 40

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