comment on the difference between net income and net cash outflow from operating act 642822
THE RETAIL MOVER
This case represents an actual retail company. The dates and format have been changed.
Required
a. Compute and comment on the following for 2005, 2006, and 2009:
1. Working capital
2. Current ratio
b. Comment on the difference between net income and net cash outflow from operating activities for the year ended December 31, 2006, and December 31, 2009.
c. This company reported a loss of $177,340,000 for 2010. Reviewing the balance sheet data, speculate on major reasons for this loss.
d. Considering (a), (b), and (c), comment on the wisdom of the short term bank loan in 2010. (Consider the company’s perspective and the bank’s perspective.)
1.
|
Selected Balance Sheet Data |
31 Dec 06 |
31 Dec 05 |
|
Total current assets |
$719,478,441 |
$628,408,895 |
|
Total current liabilities |
458,999,682 |
366,718,656 |
|
THE RETAIL MOVER |
|
|
Net cash flow from operating activities: |
|
|
Net income |
$39,577,000 |
|
Noncash expenses, revenues, losses, and gains included in income: |
|
|
Increase in equity in Zeller’s Limited |
2,777,000 |
|
Depreciation and amortization |
9,619,000 |
|
Net increase in reserves |
74,000 |
|
Increase in deferred federal income taxes |
232,000 |
|
Net increase in receivables |
51,463,995 |
|
Net increase in inventories |
38,364,709 |
|
Net increase in prepaid taxes, rents, etc. |
209,043 |
|
Increase in accounts payable |
9,828,348 |
|
Increase in salaries, wages, and bonuses |
470,054 |
|
Increase in taxes withheld from employees’ compensation |
301,035 |
|
Decrease in taxes other than federal income taxes |
659,021 |
|
Increase in federal income taxes payable |
4,007,022 |
|
Increases in deferred credits, principally income taxes related to installment sales (short term) |
14,045,572 |
|
Rounding difference in working capital |
520 |
|
Net cash outflow from operating activities |
15,319,217 |
|
Cash flows from investing activities: |
|
|
Investment in properties, fixtures, and improvements |
16,141,000 |
|
Investment in Zeller’s Limited |
436,000 |
|
Increase in sundry accounts (net) |
48,000 |
|
Net cash outflow from investing activities |
16,625,000 |
|
Cash flows from financing activities: |
|
|
Sales of common stock to employees |
5,219,000 |
|
Dividends to stockholders |
20,821,000 |
|
Purchase of treasury stock |
13,224,000 |
|
Purchase of preferred stock for cancellation |
948,000 |
|
Retirement of 4 3/4% sinking fund debentures |
1,538,000 |
|
Increase in short term notes payable |
56,323,016 |
|
Increase in bank loans |
7,965,000 |
|
Net cash inflow from financing activities |
32,976,016 |
|
Net increase in cash and short term securities |
$1,031,799 |
2.
|
Selected Balance Sheet Data |
31 Dec 09 |
|
Total current assets |
$1,044,689,000 |
|
Total current liabilities |
661,058,000 |
|
THE RETAIL MOVER |
|
|
Net cash flow from operating activities: |
|
|
Net income |
$10,902,000 |
|
Noncash expenses, revenues, losses, and gains included in income: |
|
|
Undistributed equity in net earnings of unconsolidated subsidiaries |
3,570,000 |
|
Depreciation and amortization of properties |
13,579,000 |
|
Increase in deferred federal income taxes—noncurrent |
2,723,000 |
|
Decrease in deferred contingent compensation and other liabilities |
498,000 |
|
Net receivables increase |
52,737,000 |
|
Merchandise inventories increase |
51,104,000 |
|
Other current assets increase |
8,935,000 |
|
Accounts payable for merchandise decrease |
2,781,000 |
|
Salaries, wages, and bonuses decrease |
3,349,000 |
|
Other accrued expenses increase |
3,932,000 |
|
Taxes withheld from employees increase |
2,217,000 |
|
Sales and other taxes increase |
448,000 |
|
Federal income taxes payable decrease |
8,480,000 |
|
Increase in deferred income taxes related to installment sales |
4,449,000 |
|
Net cash flow from operating activities |
93,204,000 |
|
Cash flows from investing activities: |
|
|
Investments on properties, fixtures, and improvements |
23,143,000 |
|
Increase in other assets—net |
642,000 |
|
Investment in Granjewel Jewelers & Distributors, Inc. |
5,700,000 |
|
Net cash outflow from investing activities |
29,485,000 |
|
Cash flows from financing activities: |
|
|
Increase in short term notes payable to banks |
100,000,000 |
|
Receipts from employees under stock purchase contracts |
2,584,000 |
|
Short term commercial notes |
73,063,000 |
|
Cash dividends to stockholders |
21,122,000 |
|
Decrease in long term debt |
6,074,000 |
|
Purchase of cumulative preferred stock, for cancellation |
618,000 |
|
Purchase of treasury common stock |
136,000 |
|
Bank loans decreased |
10,000,000 |
|
Net cash inflow from financing activities |
137,697,000 |
|
Net increase in cash |
$15,008,000 |
3.
|
Income Statement Data related to 2009 and 2010 (in Part) |
||
|
2010 |
2009 |
|
|
Net earnings (loss) |
($177,340,000) |
$10,902,000 |
|
Balance Sheet Data related to 2009 and 2010 (in Part) |
||
|
December 31, 2010 |
December 31, 2009 |
|
|
Assets |
||
|
Current assets: |
||
|
Cash notes |
$79,642,000 |
$45,951,000 |
|
Customers’ installment accounts receivable |
518,387,000 |
602,305,000 |
|
Less: |
||
|
Allowance for doubtful accounts |
79,510,000 |
16,315,000 |
|
Unearned credit insurance premiums |
1,386,000 |
4,923,000 |
|
Deferred finance income |
37,523,000 |
59,748,000 |
|
399,968,000 |
521,319,000 |
|
|
Merchandise inventories |
407,357,000 |
450,637,000 |
|
Other accounts receivable, refundable taxes, and claims |
31,223,000 |
19,483,000 |
|
Prepaid expenses |
6,591,000 |
7,299,000 |
|
Total current assets |
$924,781,000 |
$1,044,689,000 |
|
Liabilities |
||
|
Current liabilities: |
||
|
Bank loans |
$600,000,000 |
$ — |
|
Short term commercial notes |
— |
453,097,000 |
|
Current portion of long term debt |
995,000 |
— |
|
Accounts payable for merchandise |
50,067,000 |
58,192,000 |
|
Salaries, wages, and bonuses |
10,808,000 |
14,678,000 |
|
Other accrued expenses |
49,095,000 |
14,172,000 |
|
Taxes withheld from employees |
1,919,000 |
4,412,000 |
|
Sales and other taxes |
17,322,000 |
13,429,000 |
|
Federal income taxes payable |
17,700,000 |
— |
|
Deferred income taxes related to installment sales |
2,000,000 |
103,078,000 |
|
Total current liabilities |
749,906,000 |
661,058,000 |
|
Other liabilities |
||
|
Long term debt |
216,341,000 |
220,336,000 |
|
Deferred federal income taxes |
— |
14,649,000 |
|
Deferred contingent compensation and other liabilities |
2,183,000 |
4,196,000 |
|
Total other liabilities |
218,524,000 |
239,181,000 |
|
Total liabilities |
$968,430,000 |
$900,239,000 |