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Questions: Review the statement of cash flows for the most recent year and indicate the following: 1. Net cash inflow (outflow) from operating activities 2. Net cash inflow (outflow) from financing activities 3. Net cash inflow (outflow) from investing activities 4. Net increase (decrease) in cash during the year Analyse the Cash Flow Statements for the last 2 years and comment on the cash position of the company. Answers: Cash Flow from Operating Activities Cash Flow from operating activities measures the cash generated by a company's main business activities. Operating cash flow is required to maintain its current level of operation. If cash flow is sufficiently positive, it can also finance for companys growing operations. Further, operating cash flows helps us in getting the true picture about the financial position of the company (Davies Crawford, 2012). On comparing cash flow of given two years, one can easily say that situation has worsened as cash outflow from operating activities has increased by $ 52,814. That means, Company is not able to generate sufficient cash from its main activities to finance its costs. In year 2014, cash generation was already negative to the extent of $188,662. This negative cash flow has increased to $241,476 in year 2015. Cash flow has gone down by approx. 25%. It is a very bad signal for companys operating performance. On analyzing further, following points were noted: 1. Receipts from Customers Receipts from customers have gone down by more than 60% in year 2015. It is merely one-third when compared to previous year 2014. There could be two reason behind that, a. The company is not able to recover amount from its outstanding debtors. To improve the situation, company needs to follow up with debtors to get the outstanding amount. Or b. Company is not able to generate revenue. In other terms, companys sales are going down. It could be an alarming situation for the company. 2. Payment to suppliers and employees It has increased by approx. 20%. This increase may either be attributable to increase in sales or some previous outstanding debit paid in current year. It also shows company has been very prompt in paying to its vendors and employees on time. However, it seems to be normal. 3. Interest received It seems like this is a new item in this year. Last year, interest amount was only $4 which has now increased to $1962. It shows in the current year company has made efforts to recover interest amount. 4. Finance Costs Finance cost has gone down by more than 50% which is a good sign. However, finance costs are in very less amount when compared overall cash flow and does not have any material impact on cash flows. Therefore, it can be ignored. Cash Flows from Investing Activities It refers to the cash investment in the fixed assets by the company. Overall, cash inflow from investing activities has increased by manifold, in amount terms; it has increased by $ 341,284. It has been main source of cash generation in current year. Let us analyze its components: 1. Proceeds from held for trading investments - It has gone down to zero in current year from $34,553 from previous year. It means company has not sold any trading investments in the current year. Either, the company is hardly having any trading investment in current year to sell off or it does not feel the need to sell off its investments. However, this activity has caused the cash flows to fall in current year by a big margin. 2. Purchase of held for trading investments - It is linked with above items, last year purchases were $1,770 which has gone down to $160. It has resulted in saving cash in current year. 3. Proceeds from sale of intangible assets It is the major contributing factor to cash inflow in current year. Company has sold a major portion of its intangible assets. Overall increase in cash flow has resulted due to this factor. Generating cash flow from sale of assets is not a good sign for the company. 4. Payments for exploration evaluation Last year payment was about $4,720 which has increased to $6,493 in current year. It has resulted in negative cash flow in current year. An investment that pays off in future cannot be said a bad investment. Cash Flow from Financing Activities Overall cash flow from financing activities has been positive during the year. During the year, borrowings have increased by approx. $50,200. It is one of the sources which have increased the cash flow in current year. However, to improve the cash flow situation, use of finance activity should be avoided. Use of financing activities is suggested only for expansion plan (Choi Meek, 2011). Overall, it can be seen that company has not been able to generate cash from its operating activities. To cover up the deficiency of cash flow, company had to sell off its investment and had to borrow funds from outside. Immediately company needs to take urgent action to improve its operating performance (Graham Smart, 2012). Net increase/ decrease in cash Particulars Year ended 30th Jun-2015 Net cash outflow from operating activities (241,476) Net cash inflow from financing activities 177,200 Net cash inflow from investing activities 369,347 Net increase in cash during the year 305,071 Comments: On comparing the two years cash flow in totality, one can say that company has improved in the year 2015. However, on investigation it shows that there was a net increase in cash during the year that means the amount left with the company. References Choi, R.D. and Meek, G.K 2011, International accounting, Pearson. Davies, T. and Crawford, I 2012, Financial accounting, Harlow, England: Pearson. Graham, J. and Smart, S 2012, Introduction to corporate finance, Australia: South-Western Cengage Learning.