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Small Business Credit: Cash Flow Lending to SME: Analyzing Cash Flows for Credit

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.

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