Author Question: Using the statements of cash flows for JAJ Enterprises: a. prepare a summary analysis of the ... (Read 58 times)

hubes95 · **on:** Jul 6, 2018

Using the statements of cash flows for JAJ Enterprises:

a. prepare a summary analysis of the statement of cash flows,
b. analyze cash flow from operating activities, and
c. analyze the cash inflows and cash outflows.

JAJ Enterprises
Statement of Cash Flows
For the Years Ended December 31, 2015 and 2014

(in thousands) 2015 2014
Cash flows from operating activities (CFO):
Net income 8,100 6,800
Adjustments to reconcile net income to CFO:
Depreciation and amortization 3,100 1,600
Deferred income taxes 900 700
Other non-cash items (600) (700)
(Increase) decrease in operating assets and liabilities:
Accounts receivable (7,800) (2,300)
Inventories (2,100) 1,700
Other current assets (900) 2,000
Accounts payable (1,300) 4,100
Income taxes payable 400 (800)
Accrued liabilities 1,700 700
Net CFO 1,500 13,800
Cash flows from investing activities:
Purchases of property and equipment (800) (1,200)
Net cash used by investing activities (800) (1,200)
Cash flows from financing activities:
Proceeds from common stock sales 4,700 4,600
Proceeds (repayments) of short-term debt 100 (1,100)
Repayment of long-term debt (200) (3,300)
Net cash provided by financing activities 4,600 200
Net increase in cash 5,300 12,800
Beginning cash balance 30,600 17,800
Ending cash balance 35,900 30,600

Question 2

Compare and contrast payroll Forms 940 and 941.

pikon · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

a.
JAJ Enterprises
Summary Analysis of the Statements of Cash Flows

2015 2014
Inflows:
Cash from operations 1,500 24 13,800 75
Proceeds from common stock sales 4,700 75 4,600 25
Proceeds from short-term debt 100 1 0 0
Total Inflows 6,300 100.0 18,400 100.0
Outflows:
Purchases of property and equipment 800 80 1,200 21
Repayment of short-term line of credit 0 0 1,100 20
Repayment of long-term debt 200 20 3,300 59
Total Outflows 1,000 100.0 5,600 100.0

Change in cash 5,300 12,800
b. JAJ Enterprises has generated an increasing amount of net income, but a decreasing amount of cash from operations (CFO) from 2014 to 2015 . In 2014,decreases in inventories and other current assets and increasing accounts payablescaused CFO to be higher than net income, despite increasing accounts receivables. In 2015, accounts receivables increased significantly along with increases in inventories and other current assets, whileaccounts payables were decreasing. These changes all caused CFO to be much lower than net income. This pattern is generally seen in companies unable to manage their working capital well, or in firms that are new or expanding. The net income increasing is a positive sign that may signal expansion.

c. JAJ Enterprises generated 75 of cash from operations and 25 from sales of common stock in 2015 . Proceeds from stock sales have contributed around the same dollar amount to cash inflows in both 2014 and 2015, but in percentage terms the amount increased in 2015 due to the low amount of CFO. A small amount of short-term debt was used in 2015 . JAJ needs to sell inventories and collect on accounts receivables to reverse this trend.

The firm has spent cash on purchases of property and equipment and repayment of both short and long-term debt. These are all appropriate uses of cash.

The trend is upward for net income and the ending cash balance which is an adequate amount. It is important for JAJ to reverse the trend of declining CFO to continue to do well in the future.

Answer to Question 2

Compare: Payroll taxes for employer. Both pay to federal government.
Contrast: The 940 form is to report unemployment liability annually. The 941 form is to report both the employee and employer FICA and federal income tax withheld quarterly.