Identify two significant cash flow issues within Operating Activities. Which of
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Question
Identify two significant cash flow issues within Operating Activities. Which of these two issues is the primary problem creating larger cash out flow?
1. What action was taken to acquire badly needed cash? What analytical tool(s) best measure finding? Summarize finding by associating with analytical tool(s)
2. What was reason for negative cash flow in Investing activities? What analytical tool(s) best measures finding? Summarize finding by associating with analytical tool(s)
Case 4-4 Submission Requirements
You are provided complete financial reports, Balance Sheet, Income Statement and Cash Flow Statement. No additional statements or reports are required of student.
1. This case presents a minimum of seven findings.
You must identify three of the seven findings.
Findings can be found within Cash Flow Statement
Next each finding must be measured/supported by relevant ratios.
Finally: Provide a summary analysis of each finding
2. Aforementioned (a) findings, (b) measurement/ratio, and (c) summary analysis must be delineated within related paragraph order. Example:
State finding #
Identify while connecting dots to cash flow statement and relevant
2. Then move onto the next finding.
3. Then move onto the next finding.
Company: Hydrogenics Stock Symbol HYGS Stock Exchange: NASDAQ Statement Tear-end Dates: 12/31/13 12/31/12 Financial Reports rounded to: Thousands Supplemental Ratio Requirements: 2013 2012 Rent expense(in thousands) $845 $906 Dividends per share: End of year stock price(adjusted for splits) $19.15 $6.77 Check Figures Balance Sheet Current Assets $31,649 $34,607 Total Assets $40,070 $41,877 Current Liabilities $22,528 $26,054 Total Stockholders' Equity $6,161 $4,307 Income Statement Gross Profit $12,061 $5,249 Operating Profit $6,783 $12,225 Net Profit $8,908 $12,797 Cash Flow Net Flows from Operations $9,197 $1,163 Net Flows from Investing Activity $971 $400 Net Flows from Financing Activity $8,669 A Annual Consolidated Statement of Cash Flow 31-Dec-13 31-Dec-12 Cash Flow from Operating Activities Income(loss) from Continuing operations $(8,908) $(12,797) Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization $712 $870 stock-based compensation $631 $577 Restructuring and impalement charges Increase(decrease)in provision for deferred income taxes (Gain) loss on sales of investments, acquisitions, and securities $2,065 $438 (Gain) loss on sales of property, plant and equipment $3 $7 Other non-cash items, net $5,179 $(1,889) Changes in assets and liabilities: (Increase) decrease in receivables $384 $(1,632) (Increase) decrease in inventories $(973) $(2,678) Increase(decrease) in other current assets $(47) $(181) Increase(decrease) in accounts payable, accrued liabilities and income taxes payable $(1,614) $984 Increase(decrease) in deferred liabilities $(6,629) $15,138 Other assets and liabilities, net Net cash provided by (used in) operating activities $(9,197) $(1,163) Cash flows from Investing Activities: Purchase of property, plant and equipment $(939) $(424) Sales of property, plant and equipment $26 Purchases of marketable securities and short-term investments Sales of marketable securities and short-term investments Acquisitions, net of cash acquired Other investing activities, net $(32) $(2) Net Cash provided by (used in) operating activities $(971) $(400) Cash flows from Financing Activities Short-term borrowings, net Proceeds from long-term borrowings $1,782 $1,621 Payment of long-term borrowings $(393) $(308) Proceeds from sales of common stock $7,280 $5,178 Repurchase of common stock/treasury stock Dividends to shareholders Other financing activities, net Net cash provided by (used in) financing activities $8,669 $6,491 Net cash provided by (used for) discontinued operations Effect of exchange rate change on cash, net $302 $307 Net increase(decrease) in cash and equivalents for period $(1,197) $5,235 Cash and equivalents, beginning of period $13,020 $7,785 Cash and equivalents, end of period $11,823 $13,020 Supplemental disclosures of cash flow information Cash paid during the year for: Interest 8 3 Income taxes(refunded) 31-Dec-13 31-Dec-12 Cash Flow from Operating Activities Income(loss) from Continuing operations $(8,908) $(12,797) Depreciation and amortization $712 $870 stock-based compensation $631 $577 Restructuring and impalement charges Increase(decrease)in provision for deferred income taxes (Gain) loss on sales of investments, acquisitions, and securities $2,065 $438 (Gain) loss on sales of property, plant and equipment $3 $7 Other non-cash items, net $5,179 $(1,889) (Increase) decrease in receivables $384 $(1,632) (Increase) decrease in inventories $(973) $(2,678) Increase(decrease) in other current assets $(47) $(181) Increase(decrease) in accounts payable, accrued liabilities and income taxes payable $(1,614) $984 Increase(decrease) in deferred liabilities $(6,629) $15,138 Other assets and liabilities, net Purchase of property, plant and equipment $(939) $(424) Sales of property, plant and equipment $26 Purchases of marketable securities and short-term investments Sales of marketable securities and short-term investments Acquisitions, net of cash acquired Other investing activities, net $(32) $(2) Short-term borrowings, net Proceeds from long-term borrowings $1,782 $1,621 Payment of long-term borrowings $(393) $(308) Proceeds from sales of common stock $7,280 $5,178 Repurchase of common stock/treasury stock Dividends to shareholders Other financing activities, net Net cash provided by (used for) discontinued operations Effect of exchange rate change on cash, net $302 $307 Net increase(decrease) in cash and equivalents for period $(1,197) $5,235 Cash and equivalents, beginning of period $13,020 $7,785 Cash paid during the year for: Interest 8 3 Income taxes(refunded) 31-Dec-13 31-Dec-12 Inflows $ % $ % Proceeds from operating activities Sales of property, plant and equipment $26 0.4% Sales of marketable securities and short-term investments Divestiture of acquisitions, net of cash acquired Proceeds from other investing activities, net Proceeds from short-term borrowings, net Proceeds from long borrowings, net $1,782 19.0% $1,621 22.7% Proceeds from sales of common stock $7,280 77.8% $5,178 72.6% Proceeds from other financing activities, net Proceeds from discontinued operations Gains from the effect of exchange rate changes on cash, net $302 3.2% Total Inflows $9,364 100.0% $7,132 100.0% Outflows Losses from operating activities $9,197 87.1% $1,163 61.3% Purchase of property, plant and equipment $939 8.9% $424 22.4% Purchases of marketable securities and short-tem investments Acquisitions, net of cash acquired Losses from other investing activities, net $32 0.3% $2 0.1% Payment of short-term borrowings, net Payment of long-term borrowings $393 3.7% $308 16.2% Repurchase of common stock/treasury stock Payment of dividends to shareholders Payment of other financing activities, net Losses from discontinued operations Losses from effect of exchange rate changes on cash, net Total Outflows $10,561 100.0 $1,897 100.0 Net increase(decrease) in cash and cash equivalents $(1,197) $5,235 Identify two significant cash flow issues within Operating Activities. Which of these two issues is the primary problem creating larger cash out flow? 1. What action was taken to acquire badly needed cash? What analytical tools best measure finding? Summarize finding by associating with analytical tool(s 2. What was reason for negative cash flow in Investing activities? What analytical tool(s) best measures finding? Summarize finding by associating with analytical tool(s) Case 4-4 Submission Requirements You are provided complete financial reports, Balance Sheet, Income Statement and Cash Flow Statement. No additional statements or reports are required of student. ·This case presents a minimum of seven findings. You must identify three of the seven findings. Findings can be found within Cash Flow Statement Next each finding must be measured/supported by relevant ratios. Finally: Provide a summary analysis of each finding 2. Aforementioned (a) findings, (b) measurement/ratio, and (c) summary analysis must be delineated within related paragraph order. Example: State finding # Identify while connecting dots to cash flow statement and relevant 1. 2. 3. Then move onto the next finding. Then move onto the next finding.Explanation / Answer
The cash flow from operating activities brings in net income from the income statement, adds back non cash expenditures and the cash obtained by changes in net working capital. Hence, the net income is primarily affected by the cash flows from operating activities. Net income may increase or decrease depending on the usage of cash to increase assets or reduce liabilities. Net income is a direct reflection of the sales and business margins of the company. If we keep on purchasing assets for future benefits, it involves spending a lot of cash. The cash spend on the assets may take longer time to recover, due to which the profitability in that particular period gets reduced.
The next issue of the operations section of the cash flow statement is with the efficiency of the company. More precisely, it is about how the company maintains the inventory in an efficient manner. The changes in beginning and ending inventory affects the changes in the net working capital. If the working capital management is not done properly, it may negatively efficiency ratios such as inventory turnover, asset turnover, days sales outstanding and days payable outstanding. If inventories are not maintained properly, the level of inventories on the balance sheet may increase increasing the usage of cash to maintain the inventory. This usage of cash reduces the cash flow from operating activities.
Of the two, change in the efficiency of the company causes greater cash out flow than any other factors. Operating activities can be optimized only if inventory levels are maintained at an optimum level and credit is timely collected from the suppliers.
The debt-to-equity ratio is the ratio of total debt to shareholders' equity, which is the difference between total assets and total liabilities. Higher D/E ratio indicates a higher level of debt for the company in their capitalization mix.
The debt-to-total assets ratio is the ratio of total debt to total assets. It tells you how well you utilize your assets.
The primary finding we notice in the given financial statement is the huge increase in the income losses from operating activities. This is an indicator that the efficiency of the company has gone down. The inventory maintenance level has gone down due to lower asset turnovers and increased liability on the company. Income from continuing operations has gone down from (12797) in 2012 to (8,908) in 2013. Therefore, the company’s new operations are posing threat to the operating cash flows.
Second is the increase in assets for the company. Current ratio is an indicator of the assets in relation to the current liabilities. The ratio of current assets to current liabilities is called current assets. The current assets has increased from 1.32 in 2012 to 1.40 in 2013. Thus, increased purchase of assets has reduced the cash in hand for the company, ultimately affecting the net income.
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