Interpreting Financial Statements: Cash Flow Effects
Consider the following (summary) consolidated statements of cash flows from Pioneer Resource, Inc., for 1999 and 2000:
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Consolidated Statements of Cash Flows Pioneer Resource, Inc. For the years ending December 31, 2000 and 1999 (Dollars in Millions) |
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2000 |
1999 |
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Cash flows from operating activities: |
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Net cash from operating activities |
$ 2,989.5 |
$3,125.7 |
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Cash flows from investing activities: |
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Acquisitions of property, plant, |
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and equipment |
$(2,454.0) |
(2,111.9) |
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Acquisitions of new companies |
(796.3) |
(65.4) |
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Other investing activities, net |
125.8 |
(185.6) |
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Net cash from investing activities |
(3,124.5) |
(2,362.9) |
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Cash flows from financing activities: |
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Net change in short term debt |
818.4 |
17.5 |
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Issuance of long term debt |
97.5 |
32.9 |
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Retirements of long term debt |
(102.3) |
(89.2) |
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Dividend payments |
(825.4) |
(776.4) |
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Repurchase of common stock |
(588.1) |
(807.2) |
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Other financing activities, net |
205.3 |
895.7 |
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Net cash from financing activities |
(394.6) |
(726.7) |
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Net increase (decrease) in cash and |
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temporary investments |
$ (529.6) |
$ 36.1 |
Required
a. Identify and discuss each item that caused a change in Pioneer Resource’s net cash flows for each year.
b. Using only the cash flow statement, evaluate Pioneer Resource’s cash flow prospects for 2001.
c. Describe and evaluate Pioneer Resource’s apparent strategy for financing its acquisitions. How do its dividend payments and its repurchases of common stock affect its financing strategies?
d. If Pioneer Resource’s net income figures for 2000 and 1999 were, respectively, $1,253.8 and $1,238.2 (dollars in millions), write a short essay explaining the relationship between net income and net cash flow provided by operating activities. Draw a simple graph to show how these amounts relate to each other.What conclusions can be drawn from the graph?
e. Compare Pioneer Resource’s net income and cash provided by operating activities with the net income and cash flow trends for another company. Unless your instructor designates another company, use the data from Sigma Designs’ net income (loss) and cash provided (or used) by operating activities Although these are two distinctly different companies how do your conclusions about cash flows differ? Why do you think there are such vast differences?