Prime Contractors
Case 3.2 Prime Contractors
Required:
a. A number of evidence demonstrated Prime’s strategic shift from the refuse services, which were the concentration of their business, and the majority of their sales during their 6th year with a percentage that exceeds %59 at a time when they did not provide the animal care service. By year 10 the animal care services reached over %70. They have shifted from a business of fixed assets to labor based. It is shown in the statement of cash flow where a huge portion of fixed assets were sold in the 9th and 10th years. And the amount that was spent to acquire fixed assets was declined dramatically from year 8 to year 10. It can only mean that they no longer concentrated on a business of fixed asset, which is the refuse service. In addition, the sudden decrease in long-term debt at the time of selling the fixed asset demonstrates the shift in business strategy of the company from the concentration of a one business to another. In this case, from the refuse service to animal care service. The decline on depreciation during the 9th and 10the year is another evidence that the fixed assets have been sold and the service of refuse requires fixed assets but it doesn’t exists any more therefore they must’ve shifted there business model.
b. Between year 6 and 8 depreciation was increasing which caused net income reduction but because depreciation does not provide cash and it represents only the value, a decline in net income would acquire but no change on cash. On the other hand, the increase of cash must have been by extending payments terms which could be seen on the account payables and reflected on the liabilities. And the reduced receivables mean company collected the cash but because of the payment extension cash was no spent therefore cash was increased.
c. In the years between 8 and 10 depreciation was declining do to the sale of assets. This decline could cause net income to increase due to the value it adds but no change on
Required:
a. A number of evidence demonstrated Prime’s strategic shift from the refuse services, which were the concentration of their business, and the majority of their sales during their 6th year with a percentage that exceeds %59 at a time when they did not provide the animal care service. By year 10 the animal care services reached over %70. They have shifted from a business of fixed assets to labor based. It is shown in the statement of cash flow where a huge portion of fixed assets were sold in the 9th and 10th years. And the amount that was spent to acquire fixed assets was declined dramatically from year 8 to year 10. It can only mean that they no longer concentrated on a business of fixed asset, which is the refuse service. In addition, the sudden decrease in long-term debt at the time of selling the fixed asset demonstrates the shift in business strategy of the company from the concentration of a one business to another. In this case, from the refuse service to animal care service. The decline on depreciation during the 9th and 10the year is another evidence that the fixed assets have been sold and the service of refuse requires fixed assets but it doesn’t exists any more therefore they must’ve shifted there business model.
b. Between year 6 and 8 depreciation was increasing which caused net income reduction but because depreciation does not provide cash and it represents only the value, a decline in net income would acquire but no change on cash. On the other hand, the increase of cash must have been by extending payments terms which could be seen on the account payables and reflected on the liabilities. And the reduced receivables mean company collected the cash but because of the payment extension cash was no spent therefore cash was increased.
c. In the years between 8 and 10 depreciation was declining do to the sale of assets. This decline could cause net income to increase due to the value it adds but no change on