In the following example we will drawn up a cash flow summary and carry out a cash flow analysis for each stage in that summary:
Let us consider Jasmine. She owns a company by the name of Jasmine and Co. The company’s balance sheets for the years 2009 and 2010 and income statement for 2010 are given below:
Jasmine and Co. | ||
Balance sheets as at 31 Dec. | ||
2009 | 2010 | |
Non-current assets: | $ | $ |
Fixed Assets (Net) | 25,000 | 33,000 |
Other Non-current assets | 10,000 | 8,000 |
Total non-current assets | 35,000 | 41,000 |
Current assets: | ||
Cash | 15,000 | 16,000 |
Inventory | 8,000 | 7,500 |
Accounts receivables | 7,000 | 7,300 |
Prepaid expenses | 2,000 | 1,900 |
Total current assets | 32,000 | 32,700 |
Total assets | 67,000 | 73,700 |
Financed by: | ||
Current liabilities: | ||
Accounts payables | 5,500 | 7,000 |
Accrued expenses | 1,500 | 1,700 |
Tax payable | 2,000 | 1,800 |
Total current liabilities | 18,000 | 18,500 |
Long term liabilities: | ||
Long term debt | 29,000 | 23,000 |
Total long term liabilities | 20,000 | 15,000 |
Equity | ||
Ordinary share capital | 14,000 | 14,000 |
5% Preference share capital | 8,000 | 10,000 |
Retained earnings | 7,000 | 16,200 |
67,000 | 73,700 | |
Figure 2: Balance sheet for Jasmine & Co.
Jasmine and Co. | ||
Income statements for the years ended 31 Dec. | ||
2009 | 2010 | |
$ | $ | |
Sales | 28,000 | 37,300 |
Less: Cost of inventory sold | -10,400 | -15,400 |
Gross profit | 17,600 | 21,900 |
Less: expenses | ||
Rent | -3,500 | -3,500 |
Advertising | -800 | -1,200 |
Depreciation | -1,700 | -2,000 |
Electricity | -750 | -800 |
Salaries | -2,800 | -3,000 |
Operating profit | 8,050 | 11,400 |
less: Interest expense | -600 | -600 |
Profit before tax | 7,450 | 10,800 |
Tax | -1,500 | -1,600 |
Net profit after tax | 5,950 | 9,200 |
Figure 3: Income Statement for Jasmine & Co.
Using the balance sheet and income statement we will now construct the cash flow summary of Jasmine & Co. We will undertake the construction process as well as conduct a cash flow analysis in a step-by-step manner considering each of the eight segments in turn. We will merge all the pieces together at the end.