Comparative Statements of Income & Balance Sheets For Scottsdale Machined Parts,

Question

Comparative Statements of Income & Balance Sheets For Scottsdale Machined Parts, Inc., are as follows: Scottsdale Machined Parts, Ind Consolidated Statements of Income For the Last Two Fiscal Years of Operations (000' s ) Net Sales Cost of Sales 20x3 $582,500 285, 000 297,500 Gross Profit Operating Expenses Depreciation Expense Other Expenses 20,750 132,400 153,150 Operating Profit G (L) on Sale of Assets 144, 350 5,125) Income Before Taxes Provision for Taxes 139,225 24,250 Net Income $114,975 Additional Information for 20x3: 20x3 Cost of Equipment Sold During the Year Accumulated Depreciation of Equipment Sold Cash Received for Equipment Solod Loss on the Sale of Equipment $ 46,875 30,125 11,625 5,125 Purchased Equipment During the Year Cash Paid for Purchased Equipment Long-Term Note Payable for Balance of Equipment 96, 375 30,000 66,376 Borrowed Cash by Signing Short-Term Note Pay Paid Cash to Reduce Long-Term Note Payable Issued 2,500 Shares of Common Stock for Cash Declared and Paid Cash Dividends 4,000 50,125 50,000

Explanation / Answer

Part II)

Going through the Cash Flow Statement for Scottsdale machined Parts, Inc., which has observed " net decrease in cash" during the last Fiscal year, it has been analysed that the company is not taking enough credit either from its creditor or stockholders.

a) Accounts Payable : Company has to make good payment to the creditors for the supplies made by them. The company must ask the creditors for some credit period according to the cash cycle of the company. If the company gets credit from their creditors, it will have additional cash to float.

b) Inventory: The company must organise its inventory management in a way that minimum level of inventory is kept which will involve less cash blockage in inventory. Lesser inventory level will get additional cash to float.

c) Dividend : When the company is going through with the cash crunch, then the payment of dividend to the Stockholder could be delayed and carry forward which will give additional cash to the company for its operations.

If the company take action on the above three points then it will able to save a lot of cash to float in its operation which will clear its negative cash flow in the business/operation.

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