As on jan1, 2007 ABC had paid up capital of $100m and $10m as retained earnings. ABC planned well and enhanced the total equity to a level of $190m by the end of Dec. 31, 2007. The company raised capital during the year as well as operational profits were remarkable. All these achievements have been very well reflected through cash flow statement of the company. In fact a cash flow statement is the mirror of activities relating operating, financing, and investing of the company.
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- Operational profits of $67m resulted into net cash inflow of $ 143m, and that is a pretty good performance.
- The company has invested in fresh plant and machinery and that is why there was net outflow of $113m on account of investing activities.
- The company distributed last year dividend and liquidated some loans to the tune of $30m, but inflow of fresh capital provided a net $14 cash in flow from financing activities.
Opening balance Sheet as at January 1, 2007
ABC had assets worth $150m of book value. The company’s current assts were enough to cover current liabilities. Though long term loans were around $50m, but capital and reserves of $110m were enough to carry on operation in an efficient way.
The company sold old machinery though at loss, but new plant and machinery really worked well for the company. The operating profits were to the tune of $67m. But cash flow statement revealed that actual cash flow from operating activities was $147m. This was resulted even when receivables got reduced as on Dec 31, 2007 when compared to opening balances.
The company purchased fixed assets with an outflow of $115m. Sale of old machinery provided only $2m of cash. One can say mostly raised capital during the year was used to strengthen the fixed assets position of the company. Though only $50m were used from additional capital raised during the year, the balance amount used for fixed assets came from operating results and reserves of the company.
The company paid dividend of $6m as declared in last year. Bonds to the tune of $30m were liquidated during the year. In nutshell the company had a cash outflow of $113m on account of financing activities.
Reflection in Cash Flow statement
All the three activities, namely operational, investing, and financing have been ably reflected in cash flow statements. There were contributions from operating activities and financing activities. But investing activity had a cash outflow of $113m mainly because of investments in assets. In fact investments in assets brought good operational profits.
Cash flow statement describes the way company functioned during the period. ABC was very active on all the three fronts, namely operational, investing, and financing activities. The result was a net increase of $29m in cash flow. This provides a healthy picture of ABC as at Dec.31, 2007.
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