Question

examine Microsoft's statement of cash flows. Assume you work for this company and the CEO approached you and asked for advice on how to improve the cash position of the company. Provide at least two recommendations you would offer and discuss how these could directly impact cash flow.

                                                                       June 30, 2019,                               June 30, 2018

Changes in operating assets and liabilities         3,866                                                        20,467

Adjustments to reconcile net income to             12,945 27,313

net cash from operations

Net cash from operations                                     52,185    43,884

Net cash from (used in) financing (36,887)                                                        (33,590)

Net cash used in investing    (15,773)                                                          (6,061)

Net change in cash and cash equivalents            (590)                                                              4,283

Cash and cash equivalents, end of period           11,356                                                              11,946

Answer 1

Particulars	June 30,2019	June 30,2018	Difference	Percentage
Changes in operating assets and liabilities	3866	20467	16601
Adjustments to reconcile net income to net cash from operations	12945	27313	14368
Net cash from operations	52185	43884	-8301
Net cash from (used in) Financing activities	-36887	-33590	3297	-9.82
net cash used in Investing activities	-15773	-6061	9712	-160.24
Net change in cash & cash equivalents	-590	4283	4873
Opening Cash & cash Equivalents	11946	7663	-4283
Cash and Cash equivalents, end of period	11356	11946	590
Calculation of Net Income
Net cash from operations	52185	43884
LESS : Changes in operating assets and liabilities	3866	20467
LESS : Adjustments to reconcile net income to net cash from operations	12945	27313
Net Income	35374	-3896
Reasons for decease in cash and cash equivalence
Changes in operating assets and liabilities	It might have been decreased due to the one or combination of the below stated reasons
	1) Increase in current assets like receivables, Inventory, prepaid expenses etc.,
	2) Decrease in current liabilities like payments to sundry creditors, vendors etc.,
Adjustments to reconcile net income to net cash from operations	It might be decreased due to depreciation on fixed assets, amortisation of intangabile assets, treatment of deferred tax items etc.,
Recommendations for Increasing Company's cash flow
1) Although the Compnay reported a Net Income of 35374 against loss of 3896 in previous year the companys cash and cash equivalents balance has been decreased
2) The Company should recover account receivables at earliest and lower credit periods should be allowed for trade receivables.
3) The Company should manage Inventory effectively as per Demand and Supply equation and over stocking or too much investing in Inventory should be reduced considerably and Prepaid Expenses if any paid should be reduced to the maximum possible extent.
4) The Company's net cash used in financing activities has increased nearly 10% from previous year which might be due to repayment of debt or taking of additional loans, which can be avoided by effective utilisation of funds available and following recommendations No.2 & 3
5) The Company's net cash used in Investing activities has increased nearly 160% from previous year. If the Investment is in fixed assets and as per the companys expansion program, it is allowable. But there is a rapid increase in expenditure of 160 % as compared to previous year. The company should ensure that the benefits of this expenditure should increase cash flows from Operating activities and considerably reduce unnecessary cash outflows
6) The Company's has used totally exhausted cash from Operating activities and used 475 extra for financing and investing activities. It is a better practise to utilise 85 to 90 % of amount only for Investing and financing activities and earnmark the remaining amount for meeting working capital requirements. Complete utilisation of net cash generated from operating activities is highly not recommendable.