Corp Finance Strategy Assignment

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MINICASE
a. Effects of expansion on sales & net income are:
* The Sales increased more than $ 2 Million
* Cost also increased as the sales increase
* Incurred net loss (negative net income)
* Caused a negative tax expense (tax refund) since it paid taxes of more than $63,424 for the past 2 years Effects of expansion on Asset side of the balance sheet:
* The total asset approximately doubled from the previous year because the net asset soared and the account receivables & inventories increased sharply. * The cash and short –term investment fell

Effects of expansion on Liability & Equity side of the balance sheet: * Total current liability increased which inferred that suppliers were financed some amount spent for expansion * Long-term debt also increase to help the expansion

* Only small amount of income that can be retained since it encounters a net loss and even it needs to pay the dividend.

b. Conclusion from the Cash Flow:
* Instead of contributing an inflow to the cash, the operating activity doesn’t generate a positive cash flow because they resulted a negative net income and increase in working capital * For expansion, the firm spent on fixed asset of total RM 711,950 therefore it also borrowed huge amount of money and sold its short-term investment because it doesn’t have enough cash * There’s still a negative flow (outflow) of cash after summing up all the activities in the cash flow statement.

c. Free Cash Flow is the amount of cash available from operations for distribution to all investors (including stockholders and debtholders) after making necessary investments to support operations. The Free Cash Flow (FCF) is important because a company’s value depends upon the amount of FCF it can generate. The 5 uses of FCF are:

* To pay interest on debt
* To pay back principal on debt
* To pay dividends
* To buy back stock
* To buy nonoperating assets (e.g. marketable securities, investments in other companies, etc.) d. Operating current asset are the current asset needed to support operations. Cash, inventory, and receivables are the items included in the operating assets while short-term investments are not included (because this is not operations part). Operating current liabilities are the current liabilities resulting as a normal part of operations. Operating cash liabilities include accounts payable and accruals while it excludes notes payable (because this is a source of financing, not part of operations). Operating Current Asset (CA)| =| Cash & Equivalent| +| Acc Receivables| +| Inventories| Operating Current Liabilities (CL)| =| Acc Payables| +| Accruals| | | Net Operating Working Capital (NOWC)| =| Operating CA| -| Operating CL| | | | | | | | | |

| | | | | | |
Operating CA (03)| =| Cash (2003)| +| Acc Receivable (03)| +| Inventory (03)|  | =| 7,282.00| +| 632,160.00| | 1,287,360.00|
 | =| 1,926,802.00|  |  |  |  |
| | | | | | |
Operating CL (03)| =| Acc Payables (03)|  | Accruals (03)| | |  | =| 324,000.00| +| 284,960.00| | |
 | =| 608,960.00|  |  | | |
| | | | | | |
NOWC (2003)| =| Operating CA (03)| -| Operating CL (02)| | |  | =| 1,926,802.00| -| 608,960.00| | |
 | =| 1,317,842.00|  |  | | |
| | | | | | |
Net Operating Capital| =| NOWC| | Net Fixed Assets| | | | | | | | | |
Net Operating Captial (2003)| =| NOWC (03)| +| Net FA (03)| | |  | =| 1,317,842.00| +| 939,790.00| | |
 | =| 2,257,632.00|  |  | | |
| | | | | | |
Operating CA (02)| =| Cash (2002)| +| Acc Receivable (02)| +| Inventory (02)|  | =| 9,000.00| +| 351,200.00| | 715,200.00|
 | =| 1,075,400.00|  |  |  |  |
| | | | | | |
Operating CL (02)| =| Acc Payables (02)|  | Accruals (02)| | |  | =| 145,600.00| +|...
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