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:
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Jasmine and Co. |
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Balance sheets as at 31 Dec. |
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2009 |
2010 |
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Non-current assets: |
$ |
$ |
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Fixed Assets (Net) |
25,000 |
33,000 |
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Other Non-current assets |
10,000 |
8,000 |
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Total non-current assets |
35,000 |
41,000 |
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Current assets: |
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Cash |
15,000 |
16,000 |
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Inventory |
8,000 |
7,500 |
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Accounts receivables |
7,000 |
7,300 |
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Prepaid expenses |
2,000 |
1,900 |
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Total current assets |
32,000 |
32,700 |
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Total assets |
67,000 |
73,700 |
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Financed by: |
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Current liabilities: |
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Accounts payables |
5,500 |
7,000 |
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Accrued expenses |
1,500 |
1,700 |
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Tax payable |
2,000 |
1,800 |
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Total current liabilities |
18,000 |
18,500 |
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Long term liabilities: |
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Long term debt |
29,000 |
23,000 |
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Total long term liabilities |
20,000 |
15,000 |
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Equity |
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Ordinary share capital |
14,000 |
14,000 |
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5% Preference share capital |
8,000 |
10,000 |
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Retained earnings |
7,000 |
16,200 |
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67,000 |
73,700 |
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Figure 2: Balance sheet for Jasmine & Co.
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Jasmine and Co. |
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Income statements for the years ended 31 Dec. |
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2009 |
2010 |
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|
$ |
$ |
|
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Sales |
28,000 |
37,300 |
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Less: Cost of inventory sold |
-10,400 |
-15,400 |
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Gross profit |
17,600 |
21,900 |
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Less: expenses |
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Rent |
-3,500 |
-3,500 |
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Advertising |
-800 |
-1,200 |
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Depreciation |
-1,700 |
-2,000 |
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Electricity |
-750 |
-800 |
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Salaries |
-2,800 |
-3,000 |
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Operating profit |
8,050 |
11,400 |
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less: Interest expense |
-600 |
-600 |
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Profit before tax |
7,450 |
10,800 |
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Tax |
-1,500 |
-1,600 |
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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.