RadioShack Corporation - Focus on Analysis - Research Paper Example

?RadioShack Corporation – Focus on Analysis Focus on Cash and Cash Equivalents RadioShack Corporation’s Cash and Cash Equivalents on 31 Dec was $ 569 million which is a reduction of $ 339 million compared to the figure at the end of 2009 which was $ 908 million. The summarized cash flow statement for the years 2008, 2009 and 2010 is shown in the table below to help analyze the factors that have caused the change in the Cash and Cash equivalents for the company (RadioShack Annual Report, 2010, pp 43, 44). ( in $ million)     2010 2009 2008 Cash Flows from operating activities   Net income 206 205 189 Depreciation and amortization 84 93 99 Other adjustments 54 36 51 Accounts receivables (40) (80) 15 Inventories (60) (35) 94 Other current assets   (4) (3) (9) Accounts payables and other accrued (85) 29 (165) Net Cash from operating activities 155 245 274     Cash Flows from investing activities   Additions to plant and machinery (80) (81) (86) Other 0 0 (39) Net Cash from investing activities (80) (81) (125)     Cash Flows from financing activities   Purchases of treasury stock (399) 0 (111) Payment of dividends (27) (31) (31) Repayment of borrowings 0 (43) (5) Issue of convertible notes less costs 0 0 319 Other 12 3 (17) Net Cash from financing activities (414) (71) 155 Net change in cash and cash equivalents (339) 93 304 The primary reason for the reduction in Cash and Cash Equivalents is the repurchase of the company’s common stock of the value of $ 399 million during 2010. There was no such repurchase in 2009 (RadioShack Annual Report, 2010, p 27). RadioShack did not repay any borrowings in 2010 which had caused an outflow of $ 43 million in 2009. Payment of dividends was also marginally lower in 2010 compared to 2009. In 2008, RadioShack had raised $ 319 million from the issue of convertible notes. These notes are convertible into equity shares of the company in 2013 (RadioShack Annual Report, 2010, pp 55, 56). The additions to plant and machinery in each of the 3 years is fully financed by the depreciation provisions in these years. In 2008, RadioShack had an outflow of $ 36 million towards acquisition of assets of RadioShack, Mexico. Investing activities in 2010 have not led to a reduction in the Cash and Cash Equivalents for the company. Net cash from operating activities in 2010 was $ 155 million, which is significantly lower than the $ 245 million cash flow in 2009. The cash used as working capital in inventories and accounts receivables was higher in 2010 by $ 100 million compared to 2009. In the Management Discussion & Analysis (MD&A) section of the Annual Report, this increase has been attributed to the growth in the company’s wireless business and the roll out of the new business activity of setting up kiosks at Target stores (RadioShack Annual Report, 2010, pp 27, 21). The total current liabilities of RadioShack in 2010 are marginally lower at $ 600 million compared to $ 656 million in 2009. The Accounts payable for 2010 is $ 272 million which is similar to the $ 263 million in 2009. The reduction is due to lower accrued expenses and lower income tax payable. RadioShack however has $ 308 million in current maturities of long term debt. This debt makes the total current liabilities for 2010 at $ 908 million higher than the figure of $ 656 million for 2009 (RadioShack Annual Report, 2010, p43). 2. RadioShack Corporation’s Internal Controls RadioShack complies with the requirements of the COSO (Committee of Sponsoring Organizations of the Treadway Commission) guidelines on internal controls. The RadioShack management team including the CEO and the CFO reviewed the company’s internal control procedures and has concluded that they were effective for the publication of the financial report of 31 December 2010. The management report also says that the internal control processes have not changed during the year to affect the financial report (RadioShack Annual Report, 2010, p 36). The independent auditors of the company PricewaterhouseCoopers also confirm that they have verified the adequacy of the internal control processes (RadioShack Annual Report, 2010, p 41). The five interrelated components of the COSO framework are (AICPA, 2010) : Control Environment, defining the management’s philosophy and operating style that is the foundation for the internal control system. The level of detail of operations disclosed in the notes to accounts section of the annual report is indicative of the management’s commitment to transparency in its operations. The notes to accounts also include detailed disclosure of potential disputes with business partners and the process being followed to resolve disputes without litigation (RadioShack Annual Report, 2010, pp 47- 69). Risk assessment, both internal and external. The RadioShack annual report covers the risk factors to the company’s business in great detail and also outlines the company’s thinking on mitigating these risks (RadioShack Annual Report, 2010, pp 6-10). Control activities such as approvals, authorizations and review of performance. The independent auditors’ report specifically comments that RadioShack’s internal controls include maintenance of detailed records of all transactions and that these are made only after due authorizations from the management and directors of the company (RadioShack Annual Report, 2010, p 41). Information and Communication so that people within and outside the company receive information relevant to the performance of their roles. The Management Discussion and Analysis section of the annual report does a good job of describing the company’s business model by segments and outlines the processes the company uses to achieve its business objectives (RadioShack Annual Report, 2010, pp 19-36). Monitoring the systems and ensuring that deficiencies are reported for correction. In the Management Discussion and Analysis section of the annual report, there is an acknowledgement that the GAAP rules (Generally Accepted Accounting Principles) require the management to make estimates and assumptions in the compilation of the financial reports. The RadioShack management continually evaluates the information used in making these assumptions and estimates as the business or economic environment changes. References: 1. AICPA, (2010). “Internal Control: A Tool for the Audit Committee”, American Institute for Certified Public Accountants, 2010. Retrieved from http://www.dloitte.com. 2. RadioShack Annual Report, 2010. Retrieved from http://www.radioshack.com. Read More