Below are the summarised cash flow statements for two other fashion manufacturer
ID: 2450467 • Letter: B
Question
Below are the summarised cash flow statements for two other fashion manufacturers. In your own words, comment on which one has a healthier cash flow situation.Justify your answer by explaining the significance of each of the three types of cash flows for each business:
Hermione Designs
Simply Luna
Cash flow from Operating Activities
915
(460)
Cash flow from Investing Activities
(785)
300
Cash flow from Financing Activities
500
420
Net increase / (decrease) in cash held
630
260
Cash at the beginning of the year
50
100
Cash at the end of the year
680
360
[Approximately 200 words expected in your answer]
Hermione Designs
Simply Luna
Cash flow from Operating Activities
915
(460)
Cash flow from Investing Activities
(785)
300
Cash flow from Financing Activities
500
420
Net increase / (decrease) in cash held
630
260
Cash at the beginning of the year
50
100
Cash at the end of the year
680
360
Explanation / Answer
Hermion designs has a heathier cash flow situation. It has (positive) cash generated from its day-to day operations for the amount invested (Cash used- up in Investing activity). Cash flow from financing activity also shows a posit ive figure indicating that cash has been generated by issuing stocks/bonds,etc. Hermione Designs Simply Luna Diff Cash flow from Operating Activities 915 -460 1375 Cash flow from Investing Activities -785 300 -1085 Cash flow from Financing Activities 500 420 80 Net increase / (decrease) in cash held 630 260 370 Cash at the beginning of the year 50 100 -50 Cash at the end of the year 680 360 320 Hermion generates more cash from operating & financing activities and invests them which in turn may generate income. Thus the cash flow is maintained. Positive generation of cash is a sign of activities and builds confidence.
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