Question

The following cash flow statement of Friedrich Limited is presented to you:

Friedrich Limited

Cash flow statement for the year ended 31 June 2019

	R
Cash flow from operating activities	(255 000)
Operating loss	(280 000)
Adjustments
Depreciation	100 000
Profit before working capital changes	( 180 000)
Working capital changes	55 000
Increase in inventory	(200 000)
Increase in receivables	(175 000)
Increase/decrease in payables	?
Dividends paid	(60 000)
Interest paid	(70 000)
Cash flow from investing activities	(300 000)
Acquisition of plant and equipment	(300 000)
Cash flow from financing activities	450 000
Increase in long term loan (25%)	450 000
Net decrease/increase in cash	?
Cash balance (1 July 2018)	?
Cash balance (30 June 2019)	(160 000)

Required:

Calculate the following:

1.1 net increase/decrease in payables   

1.2 net increase/decrease in cash for the year   

1.3 cash balance on 1 July 2018   

1.4 Based on the cash flow information provided above, discuss Friedrich Limited’s performance. Refer to at least five (5) items appearing on the cash flow statement within your discussion.

1.5 The long term loan was increased during the financial year. Explain whether or not this was a wise decision clearly stating your reasons.                                                                          (3)

1.6 Comment on the dividend policy of the company.

1.7 Suggest two ways in which the company can improve its liquidity.

1.8 Explain why depreciation was included in computing the cash flow from operating

activities.   

Answer 1