s. Statement of Cash Flows and Cash Burn or Build Salza Technology Corporation i
ID: 2336573 • Letter: S
Question
s. Statement of Cash Flows and Cash Burn or Build Salza Technology Corporation increased its sales from $375,000 in 2015 to $450,000 in 2016 as shown in the firm's income statements presented below. LeAnn Sands, chief executive officer and founder of the firm, expressed concern that the cash account and the firm's marketable securities declined substantially between 2015 and 2016. Salza's complete bal- ance sheets are also shown. Ms Sands is seeking your assistance in the preparation of a statement of cash flows for Salza Technology A. Prepare a statement of cash flows for 2016 for Salza Technology Corporation. B. Provide a brief description of what happened in terms of cash flows (both inflows and outflows) for Salza between 2015 and 2016. SALZA TECHNOLOGY CORPORATION ANNUAL INCOME STATEMENTS FOR YEAR ENDED DECEMBER 31 (IN S THOUSANDS) 2015 2016 S375 225 150 $450 -270 180 -46 -30 Net sales Less Cost of goods sold Gross profit Less Operating expenses Less: Depreciation Less Interest Income before taxes Less Income taxes Net income Cash dividends -25 -75 -20 S 55 S 17 100 30 s 70 S 20Explanation / Answer
Answer:
SALZA TECHNOLOGY CORPORATION
Statement of Cash Flows for 2016
Amount ($ in 000)
Amount ($ in 000)
Cash from Operating Activities:
Net Income
70
Add:
Depreciation
30
Increase in Accounts Payable
15
Increase in Accrued Liabilities
13
58
Less:
Increase in Inventories
-53
Increase in Accounts Receivables
-30
-83
Net cash flow from Operating Activities
45
Cash from Investing Activities:
Increase in gross fixed assets
-90
Net cash from investing activities
-90
Cash from Financing Activities:
Increase in Bank Loan
7
Increase in common stock
35
Cash dividends paid
-20
Net cash from Financing Activities
22
Total Net Cash Increase (Decrease)
-23
Cash at beginning of period
39
Total net cash decrease
-23
Cash at the end of period
16
Solution:
Net Cash Flow from Operating Activities was a Positive
45
Net Cash flow from Investing Activities was a negative
-90
Net Cash flow from Financing Activities was a positive
22
The Result was a decline in cash of 23 from 39 to 16
-23
Solution:
Net Cash Burn = Cash flow from Operating Activities + Investing Activities
Net Cash Burn = $45,000 + ($90,000)
Net Cash Burn = ($45,000)
Solution:
Monthly Burn Rate = Annual Burn / 12
Monthly Burn Rate = ($45,000) / 12
Monthly Burn = ($3,750) per month
Time to Out of Cash = Cash / Monthly Burn Rate
Time to Out of cash = $16,000 / $3,750
Time to Out of Cash = 4.3 months
SALZA TECHNOLOGY CORPORATION
Statement of Cash Flows for 2016
Amount ($ in 000)
Amount ($ in 000)
Cash from Operating Activities:
Net Income
70
Add:
Depreciation
30
Increase in Accounts Payable
15
Increase in Accrued Liabilities
13
58
Less:
Increase in Inventories
-53
Increase in Accounts Receivables
-30
-83
Net cash flow from Operating Activities
45
Cash from Investing Activities:
Increase in gross fixed assets
-90
Net cash from investing activities
-90
Cash from Financing Activities:
Increase in Bank Loan
7
Increase in common stock
35
Cash dividends paid
-20
Net cash from Financing Activities
22
Total Net Cash Increase (Decrease)
-23
Cash at beginning of period
39
Total net cash decrease
-23
Cash at the end of period
16
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