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:
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Sigma Designs, Inc. Statement of Cash Flows For the Years ended January 31, 1995 and 1994 (Dollars in thousands) |
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1995 |
1994 |
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Cash flows from operating activities |
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Net loss |
$(8,773) |
$(29,546) |
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Adjustments to reconcile net loss to net |
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cash provided by operating activities |
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(summary of all adjustments, net) |
(110) |
15,885 |
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Net cash provided by (used for) |
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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) |
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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) |
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financing activities |
12,986 |
493 |
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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?