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Chapter 3 - Solutions
Overview:
Problem Length Problem #’s {S} 1, 3 {M} 2, 7, 8, 12, 13 {L} 4 - 6, 9 - 11, 14, 15
1.{S}a. Palomba Pizza Stores
Statement of Cash Flows
Year Ended December 31, 2000 $ 250,000 (85,000) (45,000) (10,000) 38,000 (30,000) (14,000) (25,000) (35,000) $ 110,000 (6,000) (60,000) $ 44,000 50,000 $ 94,000 Cash Flows from Operating Activities: Cash Collections from Customers Cash Payments to Suppliers Cash Payments for Salaries Cash Payments for Interest Net Cash from Operating Activities Cash Flows from Investing Activities: Sales of Equipment Purchase of Equipment Purchase of Land Net Cash for Investing Activities Cash Flows from Financing Activities: Retirement of Common Stock Payment of Dividends Net Cash for Financing Activities Net Increase in Cash Cash at Beginning of Year Cash at End of Year
b.
Cash Flow from Operations (CFO) measures the cash generating ability of operations, in addition to profitability. If used as a measure of performance, CFO is less subject to distortion than net income. Analysts use the CFO as a check on the quality of reported earnings, although it is not a substitute for net income. Companies with high net income and low CFO may be using overly aggressive income recognition techniques. The ability of a firm to generate cash from operations on a consistent basis is one indication of the financial health of the firm. Analysts search for trends in CFO to indicate future cash conditions and potential liquidity or solvency problems.
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Cash Flow from Investing Activities (CFI) reports how the firm is investing its excess cash. The analyst must consider the ability of the firm to continue to grow and CFI is a good indication of the attitude of management in this area. This component of total cash flow includes the capital expenditures made by management to maintain and expand productive capacity. Decreasing CFI may be a forecast of slower future growth.
Cash Flow from Financing (CFF) indicates the sources of financing for the firm. For firms that require external sources of financing (either borrowing or equity financing) it communicates management's preferences regarding financial leverage. Debt financing indicates future cash requirements for principal and interest payments. Equity financing will cause future earnings per share dilution.
For firms whose operating cash flow exceeds investment needs, CFF indicates whether that excess is used to repay debt, pay (or increase) cash dividends, or repurchase outstanding shares.
Cash payments for interest should be classified as CFF for purposes of analysis. This classification separates the effect of financial leverage decisions from operating results. It also facilitates the comparison of Palomba with other firms whose financial leverage differs.
c.
d. The change in cash has no analytic significance. The
change in cash (and hence, the cash balance at the end of the year) is a product of management decisions regarding financing. For example, the firm can show a large cash balance by drawing on bank lines just prior to year end. e. and f. There are a number of definitions of free cash flows.
In the text, free cash flow is defined as cash from operations less the amount of capital expenditures required to maintain the firm’s current productive capacity. This definition requires the exclusion of costs of growth and acquisitions. However, few firms provide separate disclosures of expenditures incurred to maintain productive capacity. Capital costs of acquisitions may be obtained from proxy statements and other disclosures of acquisitions (See Chapter 14).
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In the finance literature, free cash flows available to equity holders are often measured as cash from operations less capital expenditures. Interest paid is a deduction when computing cash from operations as it is paid to creditors. Palomba’s free cash flow available to equity holders is calculated as follows:
Net cash flow from operating activities less net cash for investing activities:
$110,000 - $6,000 = $104,000
The investment activities disclosed in the problem do not indicate any acquisitions.
Another definition of free cash flows, which focuses on free cash flow available to all providers of capital, would exclude payments for interest ($10,000 in this case) and debt. Thus, Palomba’s free cash flow available to all providers of capital would be $114,000.
2.{M}a. 1996 $ --- --- 30 $ --- 1997 $ 140 7 40 $ 123 1998 1999 2000 2001 $150 7 50 $133 $165 8 60 $147 $175 10 75 $150 $195 10 95 $165 Sales Bad debt expense Net receivables Cash collections1
b. 1 Sales - bad debt expense - increase in net receivables
Bad debt expense/sales Net receivables/sales Cash collections/sales
c.
1997 5.0% 28.6 87.9 1998 4.7% 33.3 88.7 1999 4.9% 36.4 89.1 2000 5.7% 42.8 85.7 2001 5.1% 48.7 84.6 The bad debt provision does not seem to be adequate. From 1997 - 2001 sales increased by approximately 40%, while net receivables more than doubled, indicating that collections have been lagging. The ratios calculated in part b also indicate the problem. While bad debt expense has remained fairly constant at 5% of sales over the 5 year period, net receivables as a percentage of sales have increased from 29% to 49%; cash collections relative to sales have declined. Other possible explanations for these data are that stated payment terms have lengthened or that Stengel has allowed customers to delay payment for competitive reasons.
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3.{S}Niagara Company Statement of Cash Flows 2001 Cash collections Cash inputs Cash expenses Cash interest paid Income taxes paid Cash from Operations Purchase of fixed assets Cash Used for Investing Increase in LT debt Decrease in notes payable Dividends paid Cash Used for Financing Net Change in Cash Cash Balance 12/31/00 Cash Balance 12/31/01 1 Can also be used to calculate cash inputs, decreasing that outflow to $645 while increasing cash expenses
$ 980 (670) (75) (40) (30) $ 165 (150) (150) 50 (25) (30) (5) $ 10 50 $ 60 [Sales - ? Accounts Receivable] [COGS + ? Inventory [Selling & General Expense - ? Accounts Payable1] [Interest Expense - ? Interest Payable] [Income Tax Expense - ? Deferred Tax] [Depreciation Expense + ? Fixed Assets (net)] [Net Income - ? Retained earnings] to $100.
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4.{L}a. G Company
Income Statement, 2000 ($ thousands) $ 3,841 3,651 15 41 42 $ 92 [receipts from customers + increase in accounts receivable] [payments - increase in inventory + increase in accounts payable] [increase in accumulated depreciation] [payments] [payment + increase in tax payable] [check = change in retained earnings as there are no dividends] Sales COGS + operating expenses1 Depreciation Interest Taxes Net income 1
Note that these two items cannot be calculated separately from the information available.
b. M Company
Cash Receipts and Disbursements, 2000 ($ thousands) [Sales - increase in receivables] [Increase in account] [Increase in liability] [Increase in liability] [COGS + operating expense + increase in inventory + decrease in accounts payable] [Expense - increase in tax payable] [Expense] [Income + increase in retained earnings] [Change in PP&E] Cash receipts from: $ 1,807 Customers 3 Issue of stock 62 Short-term debt 96 Long-term debt $ 1,968 Total Cash disbursements: COGS and operating $ 1,843 expenses 3 Taxes 51 Interest 22 Dividends 33 PP&E purchase $ 1,952 Total $ 16 Change in cash Note: This is not a true receipts and disbursements schedule as
it shows certain amounts (e.g., debt) on a net basis rather than gross. Such schedules (and cash flow statements) prepared from published data can only show some amounts net, unless supplementary data are available.
财务报表分析与运用杰拉尔德课后答案英文版第三章
