Analyzing the Statement of Cash Flows - Assignment Example

Cash Flow Analysis Affiliation Cash Flow Analysis As at the end of the year 2009, the Net Income of Techno stood at $399,904,000. When we consider cash flow, we have to reduce the Noncash charges (credits) to income total to remain with $316,354,000. The Net Income stood at a higher figure because accrued expenses worth $73,684,000 existed at the end of the year. At the instance of acquiring the liabilities on credit, it boosted the company’s stock and position without releasing cash. At the moment the accrued liabilities will be paid, the Net Income will reduce and the cash flow will also be affected negatively by $73,684,000. Therefore, Net Income is the position of a company’s business based on matching incomes versus expenditure but cash flow will only reflect actual movement of money without any considerations for the accruals (Epstein, 2014).
A comparison of the Cash from operating activities to the Net Income for techno in 2008 stands at a ratio of 177,387/242,329= 0.73 and 2009 stands at 24,525/316,354= 0.08. Therefore, Techno had a 73% rate in 2008 and it dropped to 8% in 2009. This is a low quality income showing a great imbalance. The time taken to convert any credits or accruals to cash is stretching an indication of a pending problem that may lead to crippled operations. The first red flag is the declining number of receivable from $-49,704,000 in 2008 to $-288,174,000 in 2009. This deterioration is emphasized by a minimal decline in inventory over the two years. The Net Income figure is also overrated because the Accrued liabilities have almost doubled over the two years which puts the company at a delicate position if the creditors demand instant payment ((Epstein, 2014)). This position would not be the same in 2008 because the Cash from Operating Activities $177,387,000 was enough to cover the accrued liabilities of $41,079,000.
Techno has also engaged in heavy borrowing both in short-term and Long-term in 2009 to probably support the business from the weak position confirmed by the declining ratio between a 73% rate in 2008 and it dropped to 8% in 2009.
Reference
Epstein, L. (2014). Financial decision making: An introduction to financial reports. San Diego, CA: Bridgepoint Education, Inc. Read More