– Statement of Cash Flows Nick Ltd is the founder and owner of a health club. Hi
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Question
– Statement of Cash Flows
Nick Ltd is the founder and owner of a health club. His club operates in Toronto, Ontario and has been in the same location since 2014. The health club offers a variety of services to its members (group classes, personal training etc.). The club also will put on special “fitness” events. The fitness facility has everything - free weights, squat racks, cardio machines (treadmills, bikes and ellipticals), yoga mats, stability balls, pull-up bars, etc. Since Nick charges a premium for the membership to the club, he is constantly looking at updating and expanding the fitness equipment. This past year he purchased a number of weighted battle ropes, new rowing machines a number of additional kettle bells. You have been presented with the following summarized information from his statement of cash flows for the year ended December 31, 2017:
Cash from operations
46,250
Cash from investing activities
(26,250)
Cash from financing activities
24,300
What was the net change in cash for the period?
Explain each type of cash flow and provide an example of the types of transactions that make up the operating, investing and financing section of Nick’s cash flow statement.
Examine the cash flow pattern for Nick Ltd. What does this pattern say about the situation the company is in?
Cash from operations
46,250
Cash from investing activities
(26,250)
Cash from financing activities
24,300
Explanation / Answer
Net change in cash for the period = 46,250 - 26,250 + 24,300 = 44,300 positive
Cash from operations/Operating cash flow
Cash generated/used from regular daily operations would fall in this category. For Nick's business it would be service revenue from a variety of services to its members (group classes, personal training etc.) and from special “fitness” events.
Cash from investing activities
Cash generated/used in long term investments/fixed assets purchases would fall in this category. For Nick's business it would be purchases of weighted battle ropes, new rowing machines a number of additional kettle bells etc.
Cash from financing activities
Cash inflow from loans mainly falls in this category. For Nick's business it would be borrowings.
Nick has sufficient cash flow from operating activities to meet his investing needs, there is no need to borrow from the market which is depicted in financing activity inflow. Rather he should invest his operating surplus to generate more revenue.
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