Financial Statement Interpretation: Cash Flow Effects
Sigma Designs is a diversified graphic systems corporation. Its statement of cash flows is summarized as follows:
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Sigma Designs, Inc. Statement of Cash Flows For the Years Ended January 31, 1995 and 1994 |
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1995 |
1994 |
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Cash Flows from Operating Activities |
(Dollars in thousands) |
|
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Net loss |
$(8,773) |
$(29,546) |
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Adjustments to reconcile net loss to net cash |
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provided by operating activities |
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(summary of all net adjustments) |
(110) |
15,885 |
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Net cash provided by (used for) operating activities |
(8,883) |
(13,661) |
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Cash Flows from Investing Activities |
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Purchases of marketable securities |
(25,350) |
(22,542) |
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Sales of marketable securities |
22,296 |
33,355 |
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Equipment additions |
(721) |
(612) |
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Software development costs (capitalized) |
(1,255) |
(494) |
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Other asset transactions |
0 |
183 |
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Net cash provided (used for) investing activities |
(5,030) |
9,890 |
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Cash Flows from Financing Activities |
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|
Common stock sold |
13,201 |
493 |
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Repayment of long term obligations |
1,710 |
0 |
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Other financing transactions |
(1,925) |
0 |
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Net cash provided (used for) financing activities |
12,986 |
493 |
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Decrease in cash and equivalents |
$ (927) |
$ (3,278) |
Required
a. What does the category of cash flows shown as “Software development costs (capitalized)”represent? Who has received these cash payments?
b. Do these “Software development costs” payments seem material, relative to the size of Sigma Designs? How would your views change if the cash payment was $3,000,000 each year?