1. Prepare an analysis of the statement. Construct a statement of cash flows for Axtel for 2016.

Axtel Company
Statement of Financial Position
December 31, 2016

ASSETS
Increase
12/31/2015 12/31/2016 (Decrease)
Cash 3514 2875 -639
Accounts receivable 6742 5583 -1159
Inventory 2573 3220 647
Current Assets 12829 11678 -1151
Noncurrent Assets
Gross 22478 24360 1882
Accumulated depreciation -12,147 -13313 -1166
Net 10331 11047 716
Total Assets 23160 22725 -435

LIABILITIES & EQUITY

Accounts Payable 1556 1702 146
Accruals 268 408 140
Current Liabilities 1824 2110 286
Long-term debt 7112 6002 -1110
Total Liabilities 8936 8112 -824
Equity 14224 14613 389
Total Liabilities & Equity 23160 22725 -435

Axtel Company
Statement of Cash Flows
Year Ended December 31, 2016

Cash Balance, January 1, 2016 3514

Increase (Decrease) in Cash Balance
Net Cash Flows in Operating Activities
Net income for the year 4712
Add: depreciation for the year 1166
decrease in accounts receivable 1159
increase in inventory -647
increase in accounts payable 146
increase in accruals 140 6676

Net Cash Flows in Investing Activties

Increase in Non Current Assets -1882
(Acquisition)

Net Cash Flows in Financing Activties

 Payment for long term debt -1110
Retirement of stocks -1000
Payment of dividends -1727
Decrease in equity (w/o details) -1596 -5433

Cash Balance, December 31, 2016 2,875

 Seymour Corp.
Statemeny of Financial Position
December 31, 2016

ASSETS

12/31/2015 12/31/2016
Cash 2745 1017
Receivable 19842 24691
Inventory 10045 15621
Current Assets 32632 41383
Noncurrent Assets
Gross 80128 97432
Accumulated depreciation -60,225 -68076
Net 19903 29356
Total Assets 52535 70739

LIABILITIES & EQUITY

Accounts Payable 3114 6307
Accruals 768 914
Current Liabilities 3882 7221
Long-term debt 36490 48128
Total Liabilities 40372 55349
Equity 12163 15390
Total Liabilities & Equity 52535 70739

a. Without preparing a statement of cash flows, examine the changes in each balance sheet account and summa
in rough terms where Seymour got its cash and what it spent the money on. Include the sum of net income
and depreciation as a source of cash.

Ans. Some of cash is borrowings and money was spent for acquisition of new assets, payment
of dividends, payment of accounts payable and accrued expenses.

b. Construct a statement of cash flows for Seymour. Compare your statement with your analysis in a.

Seymour Corp.
Statement of Cash Flows
Year Ended December 31, 2016

Cash Balance, January 1, 2016 2745

Increase (Decrease) in Cash Balance
Net Cash Flows in Operating Activities
Net income for the year 10379
 Add: depreciation for the year 7851
increase in receivable -4849
increase in inventory -5576
increase in accounts payable 3193
increase in accruals 146
error in total should be 41,329
recorded as 41, 383 -54 11090

Net Cash Flows in Investing Activties

Acquisition of Non Current Assets -17304

Net Cash Flows in Financing Activties

Borrowing ( long term debt) 11638
Payment of dividends -3000
Decrease in equity (w/o details) -4152 4486

Cash Balance, December 31, 2016 1,017

Changes in Owners Equity

Equity, January 1, 2016 12163

Add: Net income for the year 10379 22542

Less: paid dividends 3000

decrease in equity w/o details 4152 7152
Equity, December 31, 2016

c. Explain the possible implications of the new product and credit strategy on individual accounts

There may be additional cash outflows which would lead to less cash balance. About credit
strategy, revisit credit terms and suggest for less credit durations example if for 60 days, make it
30 days.

1. Account Receivable Turnover =Sales

Ave. Rec.

88,765,000
(19842000)+(24691000)
2
3.98648193474

2. Days in Receivable 365 days

3.98648193474

91.56 days
Per current F/S, the receivable turnover is 4 times and 92 days in receivables. If a new product
will be offered for sale, aim for a less number of days for credit term, say 30 days depending on credit term
for supplier
 Increase
(Decrease)
12/31/2016
-1728
4849
5576
8751

17304
-7851
9453
18204

3193
146
3339
11638
14977
3227
18204

ce sheet account and summarize

ude the sum of net income

your analysis in a.
 15390

idual accounts

days, make it
new product
depending on credit term
a. Construct common size income statement for 2014, 2015 and 2016. Analyze the trend in each line. What ap

Protek Company
Common Size Income Statement
For the periods ending December 31, 2016

2014 2015 2016 2014

Sales 1578 2106 3265 100%
Cost of goods sold 631 906 1502 40%
Gross margin 947 1200 1763 60%
Expenses:
Marketing 316 495 882 20%
Research & Devt 158 211 327 10%
Administration 126 179 294 8%
Total Expenses 600 885 1503 38%
Profit before interest 347 315 260 22%
Interest 63 95 143 4%
Profit before tax 284 220 117 18%
Tax 86 66 35 5%
Profit 198 154 82 13%

Trend is that the gross profit is getting lower from 60% in 2014 to 54% in 2016. It is because cost of goods sold p
in 2016. If the gross profit trend is getting lower, then net profit also becomes smaller.
e trend in each line. What appears to be happening? b. Contruct statements of cash flows for
during the period. Is it likely to have pos
ompany
ome Statement
g December 31, 2016 %
Amount Amount Increase
Increase % Increase Increase (Decrease
2015 (Decrease) (Decrease) 2016 (Decrease) )
100% 528 33% 100% 1159 55%
43% 275 44% 46% 596 66%
57% 253 27% 54% 563 47%

24% 179 57% 27% 387 78%

10% 53 34% 10% 116 55%
8% 53 42% 9% 115 64%
42% 285 48% 46% 618 70%
15% -32 -9% 8% -55 -17%
5% 32 51% 4% 48 51%
10% -64 -23% 4% -103 -47%
3% -20 -23% 1% -31 -47% LIABILITIES AND EQUITY
7% -44 -22% 3% -72 -47%

because cost of goods sold percentage from 2014 is 40% which went up to 46%

Cash Balance, January 1, 2015

Add (Deduct) Increase (Decre

Net Cash Flows from the Oper

Net Cash Flows from Investing

Net Cash Flows from Financin

Cash Balance, December 31, 2

Cash Balance, January 1, 2016

Add: Increase (Decrease) in C

Net Cash Flows from the Oper

Net Cash Flows from Investing

Net Cash Flows from Financin

Cash Balance, December 31, 2

In 2015 & 2016, the money is

of new assets. Free cash flows
It will likely have a positive fre

c. What will be your recomm

Having large cash flows does n
Connect management of cash
look for low cost of raw mate
As for factory overhead, analy
during slack time.
t statements of cash flows for 2015 and 2016. Where is the company's money is going to and coming from? Make a comment about
period. Is it likely to have positive or negative free cash flows in the future?

Protek Company
Common Size Balance Statement
For the periods ending December 31, 2016
Increase Increase Increase
(Decrease (Decrease (Decrease
2014 ) 2015 ) ) 2016
Cash 30 2.4% 40 10 25% 62
Accounts Receivable 175 14% 351 176 50% 590
Inventory 90 7.2% 151 61 40% 300
Current Assets 295 23.6% 542 247 46% 952
Noncurrent Assets
Gross 1565 125.2% 2373 808 34% 2718
Accumulated Depreciation -610 -48.8% -860 -250 29% -1135
Net 955 76.4% 1513 558 37% 1583
Total Assets 1250 100% 2055 805 39% 2535
LIABILITIES AND EQUITY
Accounts Payable 56 4.5% 81 25 31% 134
Accruals 15 1% 20 5 25% 30
Current Liabilities 71 6% 101 30 30% 164
Long Term debt 630 50% 1260 630 50% 1600
Total Liabilities 701 56% 1361 660 48% 1764
Equity 549 44% 694 145 21% 771
Total Liabilities and Equity 1250 100% 2055 805 39% 2535

Changes in Owner's Equity

2015 2016
Equity beginning 549 694
Add: Net income for the year 220 117
Total 769 811

Less: Withdrawals (decrease in equity) -75 -40

Equity at the end 694 771

Protek Company
Statement of Cash Flows
Year ended December 31, 2015

Cash Balance, January 1, 2015 30

Add (Deduct) Increase (Decrease) in Cash
Account for the year
Net Cash Flows from the Operating Activities
Net Income for the year 220
 Add: depreciation for the year 250
increase in A/R -176
increase in inventory -61
increase in A/P 25
increase in accruals 5 43 263

Net Cash Flows from Investing Activities

Increase in Non-current Assets -808
(Acquisition)

Net Cash Flows from Financing Activities

Increase in long-term debt (borrowings) 630
decrease in equity -75 555

Cash Balance, December 31, 2015 40

Protek Company
Statement of Cash Flows
Year ended December 31, 2016

Cash Balance, January 1, 2016 40

Add: Increase (Decrease) in Cash
Account for the year
Net Cash Flows from the Operating Activities
Net Income for the year 117
Add: depreciation for the year 275
increase in A/R -239
increase in inventory -149
increase in A/P 53
increase in accruals 10 -50 67

Net Cash Flows from Investing Activities

Increase in Non-current Assets -345
(Acquisition)

Net Cash Flows from Financing Activities

Increase in long-term debt (borrowings) 340
decrease in equity (withdrawal/dividends) -40 300

Cash Balance, December 31, 2016 62

In 2015 & 2016, the money is coming from borrowings. In 2015 & 2016, the money went to acquisition
of new assets. Free cash flows is satisfactory having a 25% increase from 2014 to 2015 and 35% from 2015 to 2016.
It will likely have a positive free cash flows in the future as seen from 2014 to 2016 changes.

c. What will be your recommendations to the management? Justify.

Having large cash flows does not mean bigger profit. In here, there are so much cash but achieving a lower net profit.
Connect management of cash with achieving a lower cost of goods sold percentage. From the internet or online orders,
look for low cost of raw materials, search for workers as well who can render for low salary rates or consider piece rates.
As for factory overhead, analyze peak or lean hours, same on factory overhead by turning off electrical connections
during slack time.
from? Make a comment about its free cash flows

Increase Increase
(Decrease (Decrease
) )
22 35%
239 41%
149 50%
410 43%

345 13%
-275 24%
70 4%
480 19%

53 40%
10 33%
63 38%
340 21%
403 23%
77 10%
480 19%
015 to 2016.
wer net profit.
or online orders,
nsider piece rates.
connections