(b) Discuss the key issues which the statement of cash flows highlights regarding the cash
题目
(b) Discuss the key issues which the statement of cash flows highlights regarding the cash flow of the company.
(10 marks)
参考答案和解析
正确答案: (b) Financial statement ratios can provide useful measures of liquidity but an analysis of the information in the cash flow statement, particularly cash flow generated from operations, can provide specific insights into the liquidity of Warrburt. It is important to look at the generation of cash and its efficient usage. An entity must generate cash from trading activity in order to avoid the constant raising of funds from non-trading sources. The ‘quality of the profits’ is a measure of an entity’s ability to do this. The statement of cash flow shows that the company has generated cash in the period despite sustaining a significant loss ($92m cash flow but $21m loss). The problem is the fact that the entity will not be able to sustain this level of cash generation if losses continue. An important measure of cash flow is the comparison of the cash from operating activity to current liabilities. In the case of Warrburt, this is $92m as compared to $155m. Thus the cash flow has not covered the current liabilities. Operating cash flow ($92 million) determines the extent to which Warrburt has generated sufficient funds to repay loans, maintain operating capability, pay dividends and make new investments without external financing. Operating cash flow appears to be healthy, partially through the release of cash from working capital. This cash flow has been used to pay contributions to the pension scheme, pay finance costs and income taxes. These uses of cash generated would be normal for any entity. However, the release of working capital has also financed in part the investing activities of the entity which includes the purchase of an associate and property, plant and equipment. The investing activities show a net cash outflow of $43 million which has been financed partly out of working capital, partly from the sale of PPE and AFS financial assets and partly out of cash generated from operations which include changes in working capital. It seems also that the issue of share capital has been utilised to repay the long term borrowings and pay dividends. Also a significant amount of cash has been raised through selling AFS investments. This may not continue in the future as it will depend on the liquidity of the market. This action seems to indicate that the long term borrowings have effectively been ‘capitalised’. The main issue raised by the cash flow statement is the use of working capital to partially finance investing activities. However, the working capital ratio and liquidity ratios are still quite healthy but these ratios will deteriorate if the trend continues.
更多“(b) Discuss the key issues which the statement of cash flows highlights regarding the cash ”相关问题