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Hi how would you explain the cashflows once you have compiled it?
can you sat if net operating activities are positive, you can say that increase in payables i.e you have not paid your suppliers therefore you are holding cash, decrease in inventories you have sold goods leading to an increase of cash. what other things can you mention?
For investing activities can you say that it is negative which is a good sign as it suggests that you have acquired assets to utilise the profit, dont know really stuck at this part.
For financing activities can you say that increase in loans etc, is a good sign as you can use it to purchase PP&E to generate profit, also company pays dividend which is a good sign.
I think it would depend on each individual line item and what is written in the notes…
Karen – you really have to let the figures tell their own story! Let them speak to you. None of these figures exists in isolation – they are all a part of a bigger picture.
You could say that an enormous investment in TNCA has been substantially financed by the cash surplus generated from operating activities and these replacement capital assets appear to have been acquired just in time as the TNCA brought forward appeared to be near to the end of their useful lives.
The company is continuing to avoid using the availability of finance leasing preferring to fasten its cash resources up in assets rather than take the alternative course of action whereby, so long as the company can continue to service the debt and finance lease creditors, that would leave some of the surplus cash available for other investment hopefully generating even further growth
I could go on endlessly – remember, each reasonable comment is potentially going to score you one more point.
This sub-topic is “Interpretation” and, at this stage in your examination progression, you really should be able to look at figures and, using your imagination, dream up a scenario that fits the figures.
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