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Cash Flows at warf computers


Cash flow statements final balance indicates the net cash flow in a business which reflects the balance of money which ultimately remains after deducting the total cash outflows flows from the cash inflows in a business for a particular financial period. (Vance, 2003) Payments and business expenses mostly form the cash outflows in a business while sales revenues, sale of assets and other incomes form the bulk of the cash inflows. (Drucker, 1999)

Cash from operations  671
Increase in retained profits   
Depreciation 191 
Proposed Taxation 467 
Proposed Dividend 225883
Increase in payables 20 
Decrease Owings -118 
Increase in Inventories -17 
Increase In receivables -37-152
Add Cash flow from other sources   
Proceeds from sale of fixed assets 330 
Proceeds from treasury stock 84425
Increase in other assets 11 
Purchase of fixed assets 140 
Taxation paid 467 
Dividend paid 225 
deferred taxes 130 
Increase in Intangible assets 65 
Other Income 58 
less increase in stock 36 
Share capital 635 
Long term debts 24 
Increase at bank  47
Cash and Equivalents 2011  301
Cash and Equivalents 2012  348

1. The Warf computer’s cash flow has a positive net cash flow. The cash flow from operations was the most active besides the cash flow from investing activities. (Garrison, Noreen & Brewer, 2009)

 The cash flow of Warf computers indicate that the increase in fixed assets is much more that it was reported. These means that more assets were bought or alternatively the assets that had been reported as sold were still in the company’s record. (Ross, Westerfield & Jaffe, 2013)

2. The two methods of compiling the cash flow statement are direct and indirect methods. The indirect method is preferable as it reveals more information on the operations of the firm and it’s more commonly used. It starts with cash from operating activities which can be the net income of the company or the balance of the retained earnings in the balance sheet changes.  (Khan, 1993)

3. Nicks expansion could be affected by the highly levered firm. The company has a lot of debts and its current assets and current liabilities are almost on the range of 1:1 when they should be 1:2 respectively as per the current assets and the current liabilities. (Vance, 2003)

The Cash flow coverage = Net cash flow/ interest Expense

The Cash Flow Coverage = 47/105

= 44.76 %

The interest coverage ratio is not sufficient. The net cash flow value is below the normal average of 50% and above. This ratio points out that the company is heavily indebted. (Adams, 2008)

However, the expansion strategy of Nick would receive a boost if the investment made would result in large profits for the company. The company has invested heavily on its fixed assets which increased by 30.5% from the year 2012 as per the balance sheet financial statements. The sale of stock to raise money for the expansion may work but the company needs to do more to generate and expand its revenue base. Advertisement and aggressive marketing strategies might do wonders for the Warf Computer Company.


Adams, S. (2008) Fundamentals of business economics. Financial Management (UK), 46–48. Retrieved from Business Source Premier Database.

Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business.

financial problems and make effective business decisions. New York: McGraw-Hill.

Garrison, R., Noreen, W. & Brewer, P. (2009) Managerial Accounting, McGraw-Hill Irwin.

Higher Education.

Khan, M. (1993) Theory & Problems in Financial Management, Boston: McGraw Hill

Ross, S. A., Westerfield, R. W., & Jaffe, J. (2013). Corporate finance (10th Ed.) New York: McGraw-Hill Irwin.

Vance, D. (2003) financial analysis and decision making: tools and techniques to solve

financial problems and make effective business decisions. New York: McGraw-Hill.

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