Question

Light, Inc. Consolidated Statements of Cash Flows ($ thousands) For the year ended December 31, 2019 2018 2017 Cash flows from X activities Net income $ 1,629 2,813 4,240 Adjustments to reconcile net income to net cash from X activities: Depreciation 705 747 706 Amortization 15 27 10 Gain/Loss on disposal of property, plant and equipment 3 1 (5) Gain/Loss on sale of short-term securities 50 (70) (60) Changes in certain working capital components: Change in accounts receivable 270 187 426 Change in inventories (800) (1,255) 231 Change in prepaid expenses (203) 35 (120) Change in accounts payable and accrued liabilities (1,525) 1,515 (158) Net cash from X activities 144 4,000 5,270
Cash flows from Y activities Short-term securities (2,937) (1,783) (1,928) Short-term securities 2,072 2,950 2,423 Property, plant and equipment (2,419) (1,950) (1,105) Property, plant and equipment 5 3 13 Other Y activities (34) (25) (805) Net cash from Y activities (3,279) (631) Cash flows from Z activities Long-term debt - 1,482 Long-term debt (280) (300) (320) Notes payable 50 (70) (27) 60 (23) Capital lease (17) Treasury shares (2,286) (2,223) (1,000) (1,900) Dividends - common and preferred (1,133) (1,332) (3,995) Net cash from Z activities (3,163) (2,161) Change in cash and cash equivalents (7,130) 32 2,478 Cash and cash equivalents at the beginning of the year 8,648 8,616 6,138 Cash and cash equivalents at the end of the year 1,518 8,648 8,616
Kindly answer the following questions: 1- Analyze the operating cash flow trend over the three years (in amounts and percentages). How does it compare to net income in each year (include differences in amounts)? From where the difference (between operating cash flow and net income) comes in each year (use $100 thousand as a threshold for your analysis – include in your analysis whether the item has increased or decreased during the year)? 2- What are the main non-operating sources and uses of cash over the past three years? Specifically analyze where management has generated or used cash under non-operating activities in each year (use $100 thousand as a threshold for your analysis – include in your analysis of each year the amount of cash used or generated and identify the cause and the non-operating activity of each amount). 3- Analyze the changes in cash and cash equivalents over the three years (in amounts and percentages). What actions (at least two) would you suggest for management to take in 2020 to avoid a substantial decrease in cash and cash equivalents? 4- What are the free cash flows of years 2017, 2018 and 2019? Show all calculations. Analyze each and every year's free cash flows.

Answer 1

1)
		2019	2018	2017
		($ in thousands)
(a)	Operating Cashflow (X activities)	144	4000	5270
(b)	Operating CF Increased over last year in amount	-3856	-1270	0
(c )	Increased over last year (%)	-96.40%	-24.10%	0
(d)	(-3856/4000) and (-1270/5270)
(e )	Net Income	1629	2813	4240
(f=a/e)	Operating Cashflow to net income	8.84%	142.20%	124.29%
(g=e-a)	Difference of Net Income over Operating CF	1485	-1187	-1030
(h)	After analysing it is seen that difference between net income	-Depreciation	-Depreciation	-Depreciation
	and operating CF comes from	- Reduction in AR	- Reduction in AR	- Reduction in AR
		- Enhanced Inventory	- Enhanced Inventory	- Reduction in Inventory
		- Enhanced A/C Payable	- Reduction A/C Payable	- Enhanced A/C Payable
		- Enhanced prepaid		- Enhanced prepaid
2)
		2019	2018	2017
		($ in thousands)
	Main Non operating sources:
	Short term securities	2072	2950	2423
	Long term debt	0	0	1482
	Main Non operating uses:
	Short term securities	2937	1783	1928
	PPE	2419	1950	1105
	Long term debt	280	300	320
	Treasury shares	2286	1000	2223
	Dividends	1332	1900	1133
3)		2019	2018	2017
		($ in thousands)
	Cash and cash equivalents at the end of the year	1518	8648	8616
	Changed over last year	-7130	32
	(1518-8648) or (8648-8616)
	Changed over last year (%)	-82.45%	0.37%
	(-7130/8648) or (32/8616)
	Suggestion against decreased cash are:
	> Need to focus on effective working capital management
	> Avail discount given by creditors but take benefits of available credit period, means don’t pay very early pay on due date
	> If no needed postponed capital investment
4)	Free cash flow = Operating Income after tax + Non cash expenses - Change in working capital - Capital Expenditure
		2019	2018	2017
		($ in thousands)
	Operating Income after tax	1629	2813	4240
	Depreciation	705	747	706
	Amortization	15	27	10
	Change in working capital	-2258	482	379
	Capital Expenses-PPE	-2419	-1950	-1105
	FCF	-2328	2119	4230