Radioshacks Main Source of Cash - Research Paper Example

?DB 7 Question Main source of cash, main use of cash, and implications on stakeholders RadioShack’s main source of cash and implication on stakeholders The main source of cash for the organization is operating activities that generated the highest cash inflow, $ 155 million, as compared to cash flow from investing activities that was - $ 80 million and cash flow from investing activities that was - $ 413. Net income is the major contributor to the high cash flow from operating activities followed by depreciation and amortization. The cash flow means that the organization generated significant amount of cash for such expenditures as financing current operations, purchase of fixed assets, and purchase of equity and these applications identifies benefits to diversified stakeholders. The cash inflow is good news to creditors whose interest is in availability of cash from which the organization can fulfill its debts. The cash inflow from operating activities, especially net profit, is also good news to the company’s stockholders who are interested in the interest that they can earn from their shares because such rates depend of profitability (Porter and Norton, 2012). The management, as the organization’s custodian, also delights in the positive cash flow as an indicator of their effectiveness and efficiency. The positive cash flow does not identify negative effects on the stakeholders (Harrison, Horngren, 2008; Porter and Norton, 2010). RadioShack’s main use of cash and implication on stakeholders The company’s main cash application is in financing activities through purchase of treasury stocks. This means that the corporation repurchased its stock and this has significant impacts on the management and stockholders. It offers benefits to stockholders because of the interest earned in selling their shares to the company. It however has the disadvantage of lost stake and shareholders’ reduced decision-making authority as the entity gains more decision-making authority. The purchase however increases the management’s autonomy and other benefits to the organization such as ensuring a favorable market value for its stock, expanding its returns on investment, and protecting the organization from potential takeover. The management also gains the power to purchase other companies (Needles and Powers, 2012). Question 2: Most significant differences between net cash provided by operations and net income The most significant differences between net cash from cash flow statement and net income from the income statement are identified in adjustments for reconciling net income to the net cash. The most significant difference is with respect to accounts payable, accrued expenses, income taxes payable and other payables, whose total value amount to $ 85 million. Another significant difference is realized through depreciation and amortization that account for a $ 84.2 million variation. Inventories and accounts and notes receivables are the other significant differences between the two cash values. Inventories accounted for a cash outflow of $ 60.4 million while accounts and notes receivables accounted for a reduction in net cash flow by $ 39.9 million (Stittle and Wearing, 2008). Question 3: Comparison of RadioShack’s sales and purchase of fixed assets in 2010 relative to previous years The net addition of fixed assets in the year 2010 is less that the net additions in the previous years. This means that the difference between purchase and sales during the accounting period was less than the difference in preceding periods. While there was a net increase in value of property, plant, and equipment by $ 80.1 million, the year ended 2009 realized a higher value increment of $ 80.8 million. The year ended 2008 realized higher net increment of $ 85.6 million, 5.5 million more than net fixed asset purchase for the year ended 2010. It is however important to note that the changes are not representative of pure purchase of sales of the fixed assets but a sum interaction of the two (Stittle and Wearing, 2008). Question 4: Largest two items in the financial activities section and the company’s probable reasoning Purchase of treasury stock and payments of dividends are the largest two items in RadioShack Corporation’s financing section of the entity’s cash flow. Purchase of treasury stock is the more significant of the two with a value of $ 398.8 million followed by the payment of dividends with a value of $ 26.5 million. The company’s probable reasoning behind the expenditures is recognition of its shareholders by giving back the corporation’s returns to them. Dividend is stakeholder’s right but the percentage to be offered to shareholders is determined by the management. With a net income of $ 206.1 million, the paid dividends translate to more than ten percent and this is a significantly high percentage for dividends, identifying a special interest in satisfying shareholders through the payments. Purchase of treasury stock with an ultimate aim of offering them to internal stakeholders such as existing shareholders and employees among other stakeholders also the aim of giving back to the stakeholders. The company’s probable reason behind the two expenditures therefore identifies an intention to reward its internal stakeholders instead of investing income to activities such as financing long-term debts that would benefit external stakeholders (Delaney and Whittington, 2010). Question 5: RadioShack Corporation’s overall performance for 2010 One of the bases for evaluating RadioShack Corporation’s overall performance is through review of its cash flow from operating activities. Net cash flow from operating activities reduced from $ 274.6 million in the year 2009 to $ 155 million in the year 2010 while net income improved from $ 189 million in the year 2009 to $ 206.1 million in the year 2010. This identifies an increment in current assets applications among other cash flow adjustment items for profit generation and a better activity position can be concluded for the year 2010. Cash flow into investment activities decreased in the period, reflecting a decrease from the years 2008 and 2009 and the increase in net income with reducing trend in investment suggests efficient application of available resources for a high performance level. Cash flow into financing activities however increased in the year 2010 and this communicates the corporation’s confidence in its cash balance and its management of the available cash and cash equivalence. The increasing outflows that is significant in financing activities and decreasing cash inflow means that the corporation’s cash base is contracting. This is particularly true because the trend levels of increment in out flows are high and inflow is decreasing (Delaney and Whittington, 2010). References Delaney, J. and Whittington, R. (2010). Wiley CPA exam review 2011, Financial accounting and reporting. Hoboken, NJ: John Wiley & Sons. Harrison, W. and Horngren, C. (2008). Financial accounting. Upper Saddle River, NJ: Pearson Prentice Hall. Needles, B. and Powers, M. (2012). Financial accounting. Mason, OH: Cengage Learning. Porter, G. and Norton, C. (2010). Financial accounting: The impact on decision makers. Mason, OH: Cengage Learning. Porter, G. and Norton, C. (2012). Using financial accounting information: The alternative to debits and credits. Mason, OH: Cengage Learning. Stittle, J. and Wearing, R. (2008). Financial accounting. London, UK: SAGE. Read More