Question

10. Analyze the following cash inflows and cash outflows.

Star Pharmaceuticals

Statement of Cash Flows

For the Years Ended December 31, 2015 and 2014

(in millions)	2015	2014
Cash flows from operating activities (CFO):
Net income	$5,800	$3,300
Adjustments to reconcile net income to CFO:
Depreciation and amortization	550	360
Deferred income taxes	10	(580)
Stock-based compensation	590	170
(Increase) decrease in operating assets and liabilities:
Accounts receivable	(490)	(380)
Inventories	(6,900)	(1,960)
Other current assets	410	(480)
Accounts payable	700	690
Income taxes payable	250	140
Accrued liabilities	170	(290)
Net CFO	1,090	970
Cash flows from investing activities:
Purchases of property and equipment	(740)	(750)
Acquisitions	0	(350)
Net cash used by investing activities	(740)	(1,100)
Cash flows from financing activities:
Proceeds from common stock sales	2,000	580
Repayment of short-term line of credit	0	(140)
Repayment of long-term debt	(70)	(70)
Net cash provided by financing activities	1,930	370
Net increase in cash	2,280	240
Beginning cash balance	980	740
Ending cash balance	$3,260	$980

Answer 1

The cash flow statement speaks a lot about the cash position of the company. By the given cash flow statement we can see that the net income has increased substantially from $3,300 mm in 2014 to $5800 mm in 2015. The depreciation and amortization expenses have increased which are added back to the net income since they are not cash flows. Deferred income taxes are also added back and so is the stock based compensation. After bringing in the impact of increase and decrease in operating Assets and liabilities the net cash from operations has increased from 970 million dollars in 2014 to 1090 million dollars in 2015. This implies that that has been an increase in the cash that the company has been able to generate simply from its operations.

The net cash used by investing activities has decreased from 1100 million dollars in 2014 to 740m million dollars in 2015. This is primarily due to lesser purchase of property and equipment and no acquisitions made in 2015.

The cash from financing activities has increased substantially from 370 million dollars in 2014 to 1930 million dollars in 2015. This is due to issuance of common stock to the amount of 2000 million dollars. There has been no repayment of short term line of credit and the repayment of long term has remained the same.

Finally the net increase in cash has increased from 240 million dollars in 2014 to 2080 million dollars in 2015 which has resulted in increase in the ending cash balance of the company and improved its overall cash position.