Mgmt 600 – Financial Accounting

Chemalite Inc. (B) Case

1. Provide a brief overview of the players in the case, the background for the case, and
the key questions to be addressed.
The Chemalite Inc. (B) case, features Bennet Alexander, founder of Chemalite Inc., his
accountant (anonymous) and Chemalite’s shareholders. The case examines Chemalite’s
financial statements for the year 1991 and makes projections for the year 1992. Bennet
Alexander is to present the financial statements to the company shareholders.
Alexander is doubtful regarding the amount of financing needed for the next year and
alarmed of the short term debt amounts. The main questions to be addressed are
regarding the amounts of cash for the year 1992 and whether the amount of financing
being borrowed was really needed.

2. Prepare a proforma (i.e., projected) Statement of Cash Flows (SCF) for 1992 using the
indirect method.

3. Prepare a proforma (i.e., projected) Statement of Cash Flows (SCF) for 1992 using the
direct method.

4. What are the main sources and uses of cash revealed by your analysis?
Financing (short term and long term debts) seem to be the source of their cash flow.
They use the cash to purchase property, plant, equipment and land.
Selling equipment was another source of cash flow.
They have spent on intangible assets believing that they would reap more profit in
future from these investments.

5. What would you recommend to Bennett Alexander? Please structure your

recommendations in a formal business memorandum format to Bennet Alexander.

Dependency on financing is quite evident in this case study. We would recommend

making a shift in dependency from mostly financing, towards dependency on cash from
operations.