In: Finance
Take a look at this new companies projected cash flow statement. Analyze and describe the health of the company.
2020 |
2021 |
2022 |
|
Net Cash Flow from Operations |
|||
Net Profit |
$72,379 |
$88,903 |
$481,724 |
Depreciation & Amortization |
$96,000 |
$96,000 |
|
Change in Accounts Receivable |
($54,538) |
($29,542) |
($54,536) |
Change in Inventory |
|||
Change in Accounts Payable |
$11,437 |
$45,802 |
$31,380 |
Change in Income Tax Payable |
$18,095 |
($12,539) |
$24,551 |
Change in Sales Tax Payable |
$11,537 |
$7,866 |
$12,585 |
Change in Prepaid Revenue |
|||
Net Cash Flow from Operations |
$58,911 |
$196,490 |
$591,704 |
Investing & Financing |
|||
Assets Purchased or Sold |
($96,000) |
($96,000) |
|
Investments Received |
$514,650 |
||
Change in Long-Term Debt |
$20,000 |
($20,000) |
$0 |
Change in Short-Term Debt |
$0 |
$0 |
$0 |
Dividends & Distributions |
|||
Net Cash Flow from Investing & Financing |
$534,650 |
($116,000) |
($96,000) |
Cash at Beginning of Period |
$0 |
$593,561 |
$674,051 |
Net Change in Cash |
$593,561 |
$80,490 |
$495,704 |
Cash at End of Period |
$593,561 |
$674,051 |
$1,169,755 |
Cash flow is an important statement of accounts which describes the overall performance of the company. The statement records all the cash outflows and inflows of the company. It is always advisable for a firm to have sufficient cash to make it profile liquid. Some of the important factors to look in to it is how much the company is actually generating from its operations and is a better measure of a company's performance than it Net income.
Net Cash flow from Operating activities has been increasing for the company from $58911 in Year 1 to $591704 in year 3. Increase in net operating cash flow indicates that the company has been managing its operating activities well and has been able to generate enough cash from its sale. Another measure to look into is the Free cash flow of the company, free cash flow is the cash available to the company after its capital expenditures. There has not been any capex investment by the company indicating there are not much investments in the future growth projects, and therefore the company has enough cash to which can be used to create shareholder wealth through dividend payout or share buybacks. The company has high free cash flow and since there are no major funding by the company the free cash flow has increased in proportion to the net operating cash. Also, the company has paid off its long term debt in Year 2 which indicates the company has been cutting down on its leverage.
The company overall has good cash balance available and good cash management as well which has improved over the years. However, one thing to note is that even with high cash balance available the company has not paid out dividends thus it can be considered to be a disadvantage and that the company should focus on leveraging its high cash balance to create shareholder wealth.