Name: Araf Afsah Haider

ID: 221003106

Question-1: Cash flow statement under indirect method.

1)

Statement of Cash Flows

For the Year Ended December 31,2007

Cash flows from operating activities:

Net Income $16,200
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Add: Amortization expense 7,000
Less: Increase in Merchandise inventory (7,000)
Less: Decrease in accounts payable (3,000)
Less: Decrease in Wages payable (1,000)
Add: Increase Income Tax Payable 1,500
Net cash flow from operating activities $13700 $13700
Disclaimer: Though in the question we were asked to compute only cashflow from operating
activities we computed the whole investing in finance activities as well to keep relevance with the
question no 3 requirement.
Cash flows from investing activities:
Add: Sale of Operational Assets 2,000
Less: Purchase of Long-Term Investment (15,000)
Net cash flow used for investing activities (13,000) (13,000)
Cash flows from financing activities:
Add: Proceeds from sale of shares 6,000
Less: Payment of cash dividends (12,000)
Net cash flow from financing activities (6,000) (6,000)
Net Decrease in cash (5,300.00)
Cash beginning of year 16,500
Cash end of year 11,200
Name: Araf Afsah Haider
ID: 221003106

2) Income Ratio:
We know, the formula goes as: Income Ratio = (Net Income/ Net Sales) / 100
As per the Income statement,
Net Income = $16200
Net Sales / Sales = $140,000
Income Ratio
= (16,200/140,000) * 100
=11.57%
The company’s profitability ratio measures how much cash the company generates for every dollar
the company has invested in business. The ratio is showing 11.57% as per our calculation which
is a positive sign for the company. As, the company is generating 11.57% for every dollars
expenditures.

Capital Acquisitions Ratio:

We know, the formula goes as: Capital Acquisitions Ratio = (Cash paid for operations –
Dividends) / Cash Paid for Acquisitions
As per the Balance Sheet,
Cash Flow from operating activities = $13700
Cash Paid for Acquisitions= 0
= (13,700/0)
=13,700
The capital acquisitions ratio is an defines of how easily a company can obtain finance from
operations by purchasing new equipment’s. Since our ratio amount was more than 1, the company's
operations can immediately fund the purchase of plants and equipment.

3) Increase in cash flow defines how company manages its operation and business activities
along with finance. A company has to generate enough cash flow from business in order to
survive the solvency, repay debtors & loans along with expanding the operations. As per our
cash flow we can easily see the net decrease in cash of dollar $5300. Also, the cash & cash
equivalents of end of the year are lesser than the opening balance of the year. So, the company
has less solvency compared to the last year.
Name: Araf Afsah Haider
ID: 221003106

Question-2:
1) Cash flow statement under indirect method.

MIKOS INC.
Statement of Cash Flows
For the Year Ended December 31,2008

Cash flows from operating activities:

Net Income $105,000
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Add: Depreciation and amortization expense ($33,000 + 4,000) 37,000
Less: Increase in accounts receivable (42,000)
Less: Increase in inventory (14,000)
Less: Increase in short term Investment (25,000)
Add: Decrease in prepaid expenses 2,000
Less: Decrease in accounts payable (23,000)
Add: Increase in income tax payable 5,000
Add: Increase in accrued liabilities 10,000
Net cash flow from operating activities $55,000 $55,000
Cash flows from investing activities:
Add: Sale of land 25,000
Less: Purchase of equipment (166,000)
Add: Sale of equipment (note 1). 32,000
Net cash flow used for investing activities (109,000) (109,000)
Cash flows from financing activities:
Less: Repayment of long-term note (10,000)
Add: Issuance of common shares ($140,000 – 30,000) 110,000
Less: Payment of cash dividends (54,000)
Net cash flow from financing activities 46,000
Net decrease in cash (8,000)
Cash beginning of year 17000
Cash end of year 9000
Name: Araf Afsah Haider
ID: 221003106

Note: 1 Increase in Building and Equipment= $101,000 = 166,000 – disposals – 33,000

Disposals at book value = $32,000.

2) As per the cash flow statement it is obvious that the company has cash inflow from
accounts receivable head, the reason being the accounts receivable is lesser than the
previous year. Also, there is cash outflow because we can that there is increase in
inventory. Also, the company can be defined as aggressive company because there is
more short-term loan than long term loan. It is a sign of profit-oriented company. The
company also issued common share & payment of cash dividend during the reporting
period. In investing activities, the company sold land & made purchase of equipment at
the same time.
3) A cash flow statement tells us about the overall flow of money into and out of a
company. The statement is divided into three sections:
• Operations
• Investing
• Financing.
First, the operations section shows the cash flow from the company's core business
operations. The figures on the income statement, the cash flow statement ignores non-
cash "income" such as depreciation. Secondly, the investing section contains a company's
expenses related to purchasing new equipment or buildings, as well as buying securities
and other types of investments that involve cash leaving the company's accounts. Thirdly,
the financing section shows changes in a company's debt, loans, or dividends. For
example, when a company receives cash as a result from issuing debt, this adds to the
cash coming in. Later, when the company makes payments to debtholders, cash is
reduced. The overall cash flow of a company can tells us whether the company is cash-
flow positive or negative. We should keep in mind that a negative cash flow isn't
automatically a bad thing. An example can be said as, if a company invests a lot of
money to expand its factories, that can be a positive long-term development. However,
several consecutive time periods of negative cash flow are good cause for further
investigation.