Part One Statement Of Cash Flows Analysis

Part One Statement Of Cash Flows Analysisyou Are Given The Following

Part One: Statement of Cash Flows Analysis You are given the following information for Barko Industries: Barko Industries Balance Sheet (Partial) Year 3 Year 4 Cash $70,000 $9,640 AR 70,000 85,000 Inventories 87,000 84,000 Accounts Payable 48,000 51,000 Barko Industries Income Statement For the Year Ending December 31, Year 4 Sales $560,000 Operating Expenses $420,000 Depreciation Expense 46,000 Income Before Taxes $94,000 Income Tax Expense $37,600 Net Income $56,400 Other Data: Barko Industries sold an asset and recorded a loss on the sale of $8,700. The sale price was $220,000 and the asset was originally purchased for $360,000. Dividends paid in Year 4 were $22,460. Required: Prepare a statement of cash flows for the year ending December 31, Year 4 using the indirect method. What conclusions could you arrive at regarding the cash position of the firm? What information was provided in the statement of cash flows that was not evident if just the balance sheet and the income statement were examined? Part Two: Final Project Week 3: Investing and Financing Activities; Interim Presentation of Findings Examine the statement of cash flows for the companies you selected which is ( United Continental Holdings and Delta Air Lines ) in Week 1 for the most recent year. Address the following concerns: What are the two largest investing activities and financing activities for each firm? Compare and contrast the investing and financing activities of the two companies. Evaluate the investing and financing strategies of the two firms? Provide a rationale for your opinion as to the effectiveness of each of the strategies. Required: Address the above-noted questions. Prepare a Microsoft PowerPoint presentation of 5-10 slides that summarizes your findings for the two companies for Weeks 1 to 3 of the Final Project.

Paper For Above instruction

Introduction

The statement of cash flows is an essential financial statement that provides insights into a company's cash inflows and outflows over a specific period. It complements the balance sheet and income statement by revealing how a firm manages its cash position, financing, and investing activities. This analysis focuses first on Barko Industries’ cash flow statement for Year 4, prepared using the indirect method, then extends to a comparative review of United Continental Holdings and Delta Air Lines’ cash flow strategies for recent years.

Part One: Cash Flow Analysis of Barko Industries

The cash flow statement for Barko Industries offers critical insights beyond the scope of the balance sheet and income statement. In Year 4, Barko's cash position decreased significantly from $70,000 at the end of Year 3 to just $9,640, indicating substantial cash outflows. The decrease in cash can be attributed to operational activities, investing activities, and financing decisions during that period.

Operating Activities

The indirect method begins with net income of $56,400. Adjustments for non-cash expenses, such as depreciation totaling $46,000, increase cash flows. Changes in working capital, exemplified by increases in accounts receivable from $70,000 to $85,000 and inventories from $87,000 to $84,000, affect cash flow. The increase in accounts receivable signifies higher sales on credit, reducing cash, whereas inventories experienced a slight decrease, which might suggest improvements in inventory management.

Investing Activities

Barko sold an asset originally purchased for $360,000 at a sale price of $220,000, recording an $8,700 loss, which impacts non-cash adjustments. The sale generated cash inflow of $220,000. The loss on sale decreases net income but is added back in the cash flow statement as it is a non-cash expense, indicating that despite the sale, cash increased by the sale proceeds.

Financing Activities

Dividends paid of $22,460 further decreased cash. There is no explicit mention of new debt or stock issuance, but the overall decrease in cash illustrates the net effect of these financing activities.

Conclusion

The depletion of cash from the beginning to the end of Year 4 signals that Barko's operational and investing activities led to a net cash outflow. The significant decrease in cash balances suggests potential liquidity challenges or strategic decisions to invest or return value to shareholders through dividends.

Additional Information Provided by Cash Flows

The statement explicitly details cash movements, which are not apparent from the income statement or balance sheet alone. For instance, net income does not account for non-cash expenses like depreciation or losses on asset sales. Moreover, it captures timing differences in cash collections and payments and reveals how the company finances its operations—information critical to assessing liquidity.

Part Two: Comparative Analysis of Investing and Financing Activities

The second part of the analysis involves examining the cash flow statements of United Continental Holdings and Delta Air Lines for their most recent fiscal year, focusing on their major investing and financing activities.

United Continental Holdings

The primary investing activities typically involve aircraft acquisitions or disposals. For example, if United invested heavily in new aircraft, this would be reflected as cash outflows in the investing section. On the financing side, large debt issuances or repayments and stock buybacks are typical.

Delta Air Lines

Similarly, Delta’s largest investing cash flows are often associated with aircraft purchases or disposals. On the financing side, significant borrowings or repayments and dividend payments shape its cash flow profile.

Comparison and Contrast

Both companies tend to have substantial investing activities related to fleet management, reflecting their capital-intensive nature. However, their strategies may differ; for example, one may focus more on debt financing to fund aircraft acquisitions, whereas the other may prioritize equity issuance or dividend payments.

Strategies and Effectiveness

The effectiveness of these strategies can be evaluated based on their ability to balance growth with financial stability. Heavy investment in new aircraft suggests a focus on expanding capacity or replacing aging fleets, while financing strategies impact liquidity and long-term solvency. For instance, Delta’s approach to balancing debt levels with revenue growth may prove sustainable if airline industry conditions remain favorable. Conversely, excessive reliance on debt could risk financial stability during downturns.

Conclusion

The analysis of cash flows provides crucial insights into the operational health and strategic priorities of airlines like United and Delta. Both rely heavily on investing activities involving fleet management, with financing strategies tailored to their growth ambitions and risk appetites. While their approaches differ, the overall effectiveness hinges on their ability to generate sufficient cash flow from operations to support investments and fund liabilities. This comparison underscores the importance of liquidity management and strategic financial planning in capital-intensive industries.

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