Question

Below is the Statement of Cash Flows for Sintern Ltd for the financial year ending 30 June 2022 (prepared using the Direct method):

		$ 000’s
Cash flows from operating activities
Receipts from customers		676 000
Payments to suppliers and employees		(605 000)
Cash generated from operations		71 000
Interest paid		(4 000)
Income tax paid		(21 000)
Net cash from operating activities		46 000
Cash flows from investing activities
Cash paid for plant		(25 000)
Net cash used in investing activities		(25 000)
Cash flows from financing activities
Proceeds from borrowings		40 000
Dividend paid		(23 000)
Net cash from financing activities		17 000
Net increase in cash and cash equivalents
		38 000
Cash and cash equivalents at beginning of year		30 000
Cash and cash equivalents at end of year		68 000

REQUIRED:

1. In your own words, and using the information provided in the above Statement of Cash Flows, outline what you have learnt about Sintern’s activities throughout the year and how they led to Sintern’s current cash position.
2. Explain what is meant by the term “Cash or Cash Equivalents” as required in a Statement of Cash Flows.

Answer 1

Summary of conclusions drawn from Sintern's cash flow statement-

1. The company has a positive cash flow from operations. Hence, the company is a profitable company and may continue to fetch similar profits in coming future.

2. The company has invested close to 54% of cash operating profits in plant and machinery. This is also a positive sign for expansion of the company.

3. The company has received loan during the year.

4. The company has more equity as compared to its debt, as it pays higher dividends than interest. Hence, this company is very sound.

5. The company has a positive net cash flow from all its activities. This is a positive sign for the growth of the company in upcoming years.

Meaning of term cash and cash equivalents-

The term cash and cash equivalents includes-
cash in hand, cash at bank, petty cash, and all marketable securities and deposits which is easily convertible to cash at any point of time.