Cash Flow Impact on Shareholders’ Equity

Sigma Designs is a high tech software development company specializing in imaging and multimedia computer applications. Sigma Designs’ statement of cash flows is presented below:

Sigma Designs, Inc.

Statement of Cash Flows

For the Years ended January 31, 1995 and 1994

(Dollars in thousands)

1995

1994

Cash flows from operating activities

Net loss

$(8,773)

$(29,546)

Adjustments to reconcile net loss to net

cash provided by operating activities

(summary of all adjustments, net)

(110)

15,885

Net cash provided by (used for)

operating activities

(8,883)

(13,661)

Cash flows from investing activities

Purchases of marketable securities

25,350)

(22,542)

Sales of marketable securities

22,296

33,355

Equipment additions

(721)

(612)

Software development costs (capitalized)

(1,255)

(494)

Other asset transactions

0

183

Net cash provided (used for)

investing activities

(5,030)

9,890

Cash flows from financing activities

Common stock sold

13,201

493

Repayment of long term obligations

1,710

0

Other financing transactions

(1,925)

0

Net cash provided (used for)

financing activities

12,986

493

Decrease in cash and equivalents

$ (927)

$ (3,278)

Required

a. If the majority of payments included in the caption “Other financing transactions” in 1995 was made for repurchasing common stock owned by officers and their family members, how would this new information affect an investor’s views of Sigma Designs?

b. Under what circumstances would a banker loan money to Sigma Designs? Why or why not?

c. How would these conclusions change if the repurchases of stock were $100,000?

d. If Sigma planned to repurchase shares for $2,000,000 and needed to sell more shares or borrow to accomplish this objective, how would this information affect an investor’s views of Sigma Designs?