Interpreting Financial Statements: Cash Flow Effects
A condensed version of Micro byte Corporation’s consolidated statements of cash flows for 1999 and 2000 are shown below (dollars in thousands):
|
2000 |
1999 |
|
|
Cash flows from operating activities: |
||
|
Cash received from customers |
$164,177 |
$82,152 |
|
Cash paid to suppliers and employees |
(142,336) |
(69,507) |
|
Interest received |
2,622 |
722 |
|
Interest paid |
(87) |
(224) |
|
Income taxes paid |
(16,121) |
(5,187) |
|
Net cash provided by operating activities |
8,255 |
7,956 |
|
Cash flows from investing activities: |
||
|
Sale (purchase) of short term investments |
600 |
(16,200) |
|
Capital expenditures |
(9,740) |
(1,932) |
|
Net cash used for investing activities |
(9,140) |
(18,132) |
|
Cash flows from financing activities: |
||
|
Proceeds from issuing common stock |
496 |
22,114 |
|
Payments under capital leases |
(472) |
(347) |
|
Other |
(9) |
31 |
|
Net cash provided by financing activities |
15 |
21,798 |
|
Net increase (decrease) in cash |
(870) |
11,622 |
|
Cash balances at beginning of year |
14,808 |
3,186 |
|
Cash balances at end of year |
$ 13,938 |
$14,808 |
Required
a. Is Micro byte’s statement of cash flows based on the direct or indirect method? What evidence supports this view?
b. By how much did Micro byte’s cash flow from operations increase?
c. During these two years, how much did Micro byte spend to purchase marketable securities and other short term investments? Did Micro byte buy or sell securities each year? Show any relevant calculations.
d. How much did Micro byte spend on capital expenditures during the two years? Did Micro byte purchase or sell capital assets each year? How do you know?
e. During these two years, how much money did Micro byte receive by issuing common stock? Given these proceeds, what do you suppose Micro byte did with it? Why would Micro byte take these actions?
f. By how much did Micro byte’s collections from customers increase between 1999 and 2000? Does this increase represent modest or significant growth? Is the increase in cash paid to suppliers and employees consistent with this growth? Why?
g. By how much did Micro byte’s cash balances increase between the beginning of 1999 and the end of 2000? Is this increase significant? Does it represent a significant increase in Micro byte’s liquidity? Why?
h. Why do you think the amounts shown for interest payments are so low? Why is interest received so much larger than interest payments? Under what circumstances is this a favorable relationship?
i. During 1999,Microbyte’s cash increased by $11,622,000.On the other hand, during 2000 its cash decreased by $870,000. Is this trend alarming? Does it indicate any problems for Micro byte?
j. How would an analyst evaluate the relationship between Micro byte’s cash provided by operations of $8,255,000 and its cash used for investing activities of $9,140,000? How is this relationship affected by Micro byte’s financing activities? Has Micro byte been a prudent manager of its cash during 2000? Why?
k. Compute the following ratios or amounts for Micro byte Corporation for 2000. Discuss each ratio in the context of Micro byte’s statement of cash flows.
1. Cash flow from operating activities
2. Cash return on assets, assuming average total assets are $81,613,000
3. Cash return on stockholders’ equity, assuming average stockholders’ equity is $60,386,000
4. Quality of sales, assuming sales revenues are $170,290,000
5. Quality of income, assuming net income is $40,513,000
6. Cash interest coverage
l. Compute the following ratios or amounts for Micro byte Corporation for 1999 and discuss each ratio in the context of Micro byte’s statement of cash flows.
1. Cash flow from operating activities
2. Quality of sales, assuming sales revenues are $88,655,000
3. Quality of income, assuming net income is $17,848,000
4. Cash interest coverage
m. Evaluate the trends in these ratios over the two years.
n. Evaluate Micro byte’s future prospects.