Alpha Corporation Essay

1) Sources of Cash – Accounts receivable (payment from customers) , Proceeds from Sale of assets(PP&E), proceeds from sale of discontinued operations, Issue of Stock and long term debt Use of Cash – Buying of inventories, Account payables (payments to suppliers) , Purchase of Assets(PP&E), Investment in capitalized software, principal payment of short term debt, Repurchase of Stock, Dividends paid 2) Cash flow from operations (125.2, 89.3, and 46.8) was greater than that from net income (- 377.9, -623.5 , and -320.6). The reason for difference is lot of non- cash expenditure such as depreciation, amortization, and restructuring was deducted from the revenues to come to Net Income. Also, the gain from investment was deducted from the Net income as it is also a non-cash item. 3) No, the cash generated from operations (125.2, 89.3, and 46.8) was less than the investment in capital expenditure (129.7, 174.4, and 303.8) 4) No, the cash generated from operations (125.2, 89.3, and 46.8) was less than the total of investment in capital expenditure (129.7, 174.4, and 303.8) and dividends paid(0, 7.2, and 26.0 ). 5) Not applicable 6) Alpha corp used the following sources to fund capital expenditure and dividends – Proceeds from Sale of assets (PP&E), proceeds from sale of discontinued operations, Issue of Stock and long term debt. 7) Yes, Currents assets such as account receivables, inventory, and other current assets and current liabilities such as Accounts payable were uses and source of cash from the working capital respectively. 8) The other major items that impacted cash are – payments of long term debt , and proceeds from Disposal from PP&E Part 2 1) Net Income- in the last three years NI has decreased from -320.6 to -377.9. That is the company has been incurring increasing losses. 2) Cash flow from operations – in the last three years CFO has tripled(approx.) from 46.8 to 125.2. 3) Capital expenditure – Company has been investing the capitals but the amount has steadily decreased from 303.6 to 129.7. 4) Dividends – Alpha corp stopped paying dividends in 1991 though it paid in the previous years. 5) Net Borrowing – Net borrowings were positive in 1989 but since then Alpha has been paying off lot of long term debts resulting in negative net borrowin in 1990 and 1991. 6) Working capital accounts – In 1989, Alpha was buying more assets and paying off current liabilities such as account payables. However, in 1990 & 91, the trend was reversed. Part 3 Alpha – seems to be going through troubled times in the last two years. It has been running into losses for all the 3 years. Though it’s operations are generating cash but its NI is taking a hit because of lot of depreciation/amortization and restructuring. Also, the CFO is not enough to cover the capital expenditure because of which it has been selling assets, borrowing debts from market and issuing class B stocks. Beta – has been doing pretty well financially. Its NI has been growing at a good pace from 400K to 6,323K. It is in growing phase which is evident from the increasing investment in capital expenditure and growing inventory. It also invested excess cash in marketable securities and issued common stock as well. However, it needs to be vigilant of growing accounts receivable from 613 to 10,837 from 1990 to 91. Gamma – From 1989 -91, Gamma has gone from a net income of 1Bn to a loss of 617Mn. Even though the operation is still generating cash but the amount has been gradually decreasing. The decrease in Accounts payable and inventory indicates that the operation has taken a hit apparently because of decrease in demand. The decrease in Account receivables suggests that it has been selling less. Though it has been investing in capital the amount invested has been decreasing suggesting low confidence of management in future outlook. An equivalent amount of sales and repurchase of treasury stocks is also not good sign.