Candela Corporation Case
In 2002, Candela Corporation statement of cash flows shows a net loss of income at $2,154,000. The reason for the loss is from accrual methods as non-cash expenses are added back. This method shows the company the true cash flows of the business. Some of the items that were added back in that had a significant affect is from loss of the discontinued operations and the interest firm the stock warrants.
The categories that had significant subtractions were the foreign currency exchange rate difference and the respect of the deferred taxes. The results are the working capital that had resulted in a gross outflow of cash flow, which caused the cash outflow to show from the operating activities. There is a purchase of fixed assets in the investment activities, which caused an outflow of cash. In the financing activities, it looks as if the total outflows were trying to stay in control with acquiring a modest debt and share issue.
However, because of the previous commitments that the business had, they were required to buy back stock and to continue to pay on the existing debt. However, when this happened it caused another outflow of cash, and the results are a negative balance with the operating, investing, and financing activities. With the company they had a previous cash balance and had the ability to survive with a severe damaging effect to the cash balance. The net profit in 2003 was 6,814,000 as shown on the statement.
Adjustments were made in the non-cash items. A very important adjustment was in the loss from notional interest on stock warrants, discontinued operations, notional interest on stock warrants, and the foreign exchange rate difference accrued. This tax benefit of stock option and the respect of deferred taxes were two important subtractions. The analysis of the working capital is there was cash flow from the notes, deferred income, the sale of inventories, sale of other assets, and more control on payroll cost and tax refund.
These cash outflows came from warranty cost, receivables, payment of payables, and restricted cash. This created a positive cash flow from the operating activities. The investing activities showed that there was one purchase in fixed assets category, which caused an outflow in the terms of investing. The financing activities show an increase for the shares sold, following a good amount of a payment in the long-term debt and the lines of credit.
Therefore, with in inflow of the share issue becoming larger, this produced n inflow of cash. Not including the investing activities, the other two activities created a positive cash flow, therefore increasing the company’s cash reserves. A net profit was shown on the statement in 2004 of $8,119,000. This adjusted non-cash items accurately were important add-ons were a new provision for loss on discontinued operations, the loss from discontinued operations, the foreign exchange rate difference, and deferred taxes. The subtraction that was considerable was in the respect of benefit on stock options.
This is an indication that the business is showing advancement. The analysis of the working capital is for this year cash flows were from the notes, deferred income, warranty costs, a control on payroll cost, and taking some services on credit. The cash outflows were from the receivables (higher credit sales), restricted cash, purchase of inventory, and other current assets. Meanwhile the non-cash adjustment created a positive figure along with positive cash inflows from the working capital adjustments, created a positive cash flow from operations activities.
The purchase of fixed asset of $685,000, lower from the former year, shows that the business purchased most of its fixed assets last year and this year the business needed less. Their financing activities only showed activity for the shares issued and it showed a positive inflow of cash. Besides the investing activities, the other two activities were showing positive, giving the company a positive net flow of cash and an increase in the business’s cash reserves. The information that was not found on the income statement or the balance sheet is as listed: 1.
The cash that was received from sales. 2. Any payments that were made to suppliers and/or employees. 3. The cash receipts or payments on behalf of royalty fees, etc. 4. Any interest and taxes have been paid. 5. The cash receipts for issue of shares. 6. The money receipt or payment for acquisition or disposal of fixed assets. 7. Any cash payments for debentures 8. The dividends paid or received. 9. Segregation of any non-cash items. 10. The ability to forecast future cash flows 11. Highlighting any of the business area that is need of management attention in the terms of cash flow.