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FINANCIAL MANAGEMENT Assignment

This document is the statement of cash flows for Maris Corporation for the year ended December 31, 20X1. It shows that the company had net income of P250,000 but net cash from operating activities was P700,000 due to non-cash expenses like depreciation. The company used P590,000 in investing activities for investments and plant/equipment. Financing activities used P90,000 primarily for dividends. As a result, cash increased by P20,000.

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654 views2 pages

FINANCIAL MANAGEMENT Assignment

This document is the statement of cash flows for Maris Corporation for the year ended December 31, 20X1. It shows that the company had net income of P250,000 but net cash from operating activities was P700,000 due to non-cash expenses like depreciation. The company used P590,000 in investing activities for investments and plant/equipment. Financing activities used P90,000 primarily for dividends. As a result, cash increased by P20,000.

Uploaded by

finn mertens
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FINMGT1

Module 5 – Problem 8 Assignmen


Maris Corporation
Statement of Cash Flows
For the Year Ended December 31, 20X1
Operating activities:
Net income (earnings after taxes) P250,000
Add items not requiring an outlay of cash:
Depreciation 230,000 230,000
Cash flow from operations 480,000
Increase in accounts receivable (10,000)
Increase in inventory (30,000)
Decrease in prepaid expenses 30,000
Increase in accounts payable 250,000
Decrease in accrued expenses (20,000)
Net change in non-cash working capital 220,000
Cash provided by operating activities 700,000

Investing activities:
Decrease in investments 10,000
Increase in plant and equipment (600,000)
Cash used in investing activities (590,000)

Financing activities:
Increase in bonds payable 60,000
Preferred stock dividends paid (10,000)
Common stock dividends paid (140,000)
Cash used in financing activities (90,000)
Net increase (decrease) in cash 20,000

Cash, at beginning of year 100,000


Cash, end of year P120,000

Additional Question:

A. Describe the general relationship between net income and net cash flows from operating activities
for the firm.

The net cash flow given by the operating activities exceeds the net income by P450,000. This occurs
because we add back depreciation of P230,000, and AP increases by P250,000. Therefore, the net cash
flow statement reader gets an essential overview as to how much cash flow was developed from its
daily operations.

B. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.

The buildup in plant and equipment of P600,000 and P370,000 has been financed, in part, by the
significant increase in accounts payable (P250,000). This is not a good situation. Short-term sources of
funds can always dry up, while capital asset needs are permanent. Therefore, the firm may wish to
consider more long-term financing, such as a mortgage, to go along with their profits, the increase in
bonds payable, and the add-back of depreciation.

C. Compute the book value per common share both 20X0 and 20X1.

Book value = Shareholders' equity - Preferred stock


per share Common shares outstanding

Book value = (P1,390,000 - P90,000) = P1,300,000 = P8.67


per share 150,000 150,000
(20X0)

Book value = (P1,490,000 - $90,000) = P1,400,000 = P9.33


per share 150,000 150,000
(20X1)

D. If the market value of a share of common stock is 2.8 times book value for 20X1, what is the firm’s
P/E ratio for 20X1? (Round of to the nearest whole).

Market value = 2.8 × P9.33 = P26.12


P/E ratio = P26.12/ $1.60
= 16.33 or 16x

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