Accounting/Financial analysis - Case Study Example

Case Cash Flow ment     Net Income 5 Depreciation Expense 5   Increase in Inventories -15   Increase inAccounts Receivable-20 Increase in Accounts Payable2 Increase in Accrued Expenses Payable7 Cash flow from Operating Activities-21  Investing Activities  Additions to PPE (44+5)-49 Cash flow from Investing Activities-49Financing Activities Notes Payable36 Common Stock30 Cash flow from Financing Activities66Cash Closing Balance1   To: Managing DirectorFrom: Chief AccountantSubject: Discrepancy in Net Income and Closing Cash BalanceDate: 12 March, 2012The company has successfully managed to earn net income $5 million but the overall liquidity position of the company is still quite depressing as the closing cash balance of the company remained at $1million.

There are various reasons for such discrepancy which include the inclusion of non-cash expense of depreciation which increased the net income as the company did not pay any cash disbursement in this regard. At the same time, the company invested too much in its current assets due to which the cash of the company blocked in those current assets. These are the two main reasons due to which there is a considerable difference in the net income and cash position of the company. In such case, the company is not in a position to pay dividends to its shareholders.Case 21. Wal-Mart did not report any of its liability with respect to operating leases in its balance sheet as on 31, January 2011.2. Wal-Mart reported its liability with respect to capital leases in its balance sheet as on 31, January 2011.

The amount of capital leases is $3,486 (336+3150) in total combining both current portion and non-current portion of the liability. 3. Wal-Mart did not report any of its assets with respect to operating leases in its balance sheet as on 31, January 2011.4. Wal-Mart reported its assets with respect to capital leases in its balance sheet as on 31, January 2011. The amount of capital leased assets is $2,780.5. The following is the computation for the present value of the operating lease commitments.

YearsOperating LeaseInterest Rate (5%)Present Value20121,4060.95238 1,339.05 20131,3360.90703 1,211.79 20141,2710.86384 1,097.94 20151,2050.82270 991.36 20161,1200.78353 877.55 Thereafter7,7850.74622 5,809.29 Present Value of Operating Lease Commitments14,123  11,326.97 6. Liabilities109416  Long Term Debt40692 Total Assets180663   Liabilities to Asset Ratio109416=60.56% 180663 Long Term Debt Ratio40692=22.52% 180663  7.

Liabilities120,743  Long Term Debt52,019 Total Assets191,990   Liabilities to Asset Ratio120,743=62.89% 191,990 Long Term Debt Ratio52,019=27.09% 191,990  8. Without capitalizing the operating leases, it can be noticed that the company’s leverage position is quite better as its Liabilities to Asset Ratio is 60.56% and Long-term Debt Ratio is 22.52%. But f the operating leases are to be capitalized, then both these ratios will increase substantially and will become 62.89% and 27.09% respectively.

Work Cited“Cash flow from Operating Activities.” Stock 300., n.d. Web. 12 March 2012.