Week 8 - Tutorial 7 Flashcards
August 2018
The following Statements of Financial Position (SOFPs) relate to McGuigan Enterprise Ltd.
SOFPs as at 31 December
2016 2017
£m £m £m £m
Non-Current Assets
Property, plant and
equipment 870 824
Fixtures and fittings 326 360
Patents 74 74
1,270 1,258
Current Assets
Inventory 82 90
Trade receivables 278 260
Bank 4 10
364 360
Total Assets 1,634 1,618
Capital and Reserves
Ordinary share capital 520 620
Share premium
account 98 148
Profit and loss account 206 314
General reserve 140 220
964 1,302
Non-Current
Liabilities
Long term loans 500 150
500 150
Current Liabilities
Overdraft 16 0
Trade payables 78 82
Corporation tax 46 36
Accruals 30 48
170 166
Total Liabilities 1,634 1,618
You are also given the following information:
- During 2017 the business spent £96 million on additional fixtures and fittings. There were no other fixed asset acquisitions or disposals.
- The taxation charge for 2017 was £54 million.
- Interest charged for the year was £25 million. No interest was received.
Required
a) Prepare the cash flow statement for McGuigan Enterprise
Ltd. as at 31/12/2017.
b) Provide a brief analysis of McGuigan Enterprise Ltd. using the cash flow statement.
Cash flow statement for McGuigan Enterprise Ltd for the year ending 31st of December 2017
£m £m
Cash flow from operating activities
Operating profit 108
80
Tax charge 54 242
Plus
Depreciation:
Property plant and equipment 46
Fixtures and fittings (326+96) 62
Decrease in receivables 18
Increase in payables 4
Increase in accruals 18
Interest paid 25 173
415
Minus
Increase in inventory 8
Tax 64 72
Net cash inflow from operating activities 343
Cash flow from investing activities
Purchase of fixtures and fittings -96
Net cash outflow from investing activities -96
Cash flow from financing activities
Share issue 150
Repayment of long term loan -350
Interest paid -25
Net cash outflow from financing activities -225
Increase in cash or cash equivalents 22
Bank at 2016 was £4m, in 2017 it was £10m
Overdraft in 2016 was £16m and was cleared in 2017
Therefore there has been a positive cash flow of £22m
Analysis
The company is making a positive cash flow from its operating activities, with this figure being higher than the actual profit made.
With regard to working capital, receivables are down which is a sign that the companyis getting paid by its customers who were sold goods on credit. However, payables are up slightly and accruals are up £18m, which could indicate the company is slow in paying its bills. Moreover, inventory has increased which will need to be monitored.
There has been a substantial increase in non-current assets. This should lead to an increase in sales, if it hasn’t already done so. Non-current assets are revenue generating assets.
Even though the company has sold extra shares bringing in £150m, they have paid off a substantial amount of their long-term liabilities. This will mean less interest payments
next year and a lower gearing ratio.
Generally the company is in a much stronger financial position in 2017, it has more money in the bank and is has cleared a £16m overdraft. This will also mean less interest payments.
January 2019 The following Statements of Financial Position (SOFPs) relate to Mainland Construction plc. SOFPs as at 31 December 2017 2018 £m £m £m £m Non-Current Assets Property, plant and equipment Land and Buildings 2,619 2,655 Plant 876 1,020 3,495 3,675 Current Assets Inventory 1,050 1,260 Trade receivables 2,424 1,116 Bank 156 594 3,630 2,970 Total Assets 7,125 6,645 Capital and Reserves Ordinary share capital 600 900 Share premium account 0 180 Profit and loss account 3,285 3,495 3,885 4,575 Non-Current Liabilities Long term loans 960 210 960 210 Current Liabilities Overdraft 375 0 Trade payables 1,350 1,545 Corporation Tax 555 315 2,280 1,860 Total Liabilities 7,125 6,645 You are also given the following information: i. During 2018 the business spent £85 million on land and buildings and £192 million on plant. There were no disposals of any fixed assets. ii. The taxation charge for 2018 was £96 million. iii. Interest charged for the year was £72 million. Required (a) Prepare the cash flow statement for Mainland Construction plc for the year ending 31st December 2018. (b) Provide a brief analysis of Mainland Construction plc using the cash flow statement.
Cash flow statement for Mainland Construction plc for the year ending 31st December, 2018
£m £m
Cash flow from operating activities
Operating profit (change in retained earnings) 210
Plus tax charge 96 306
Plus
Depreciation - Land and buildings 49
Depreciation - plant 48
Decrease in receivables 1308
Increase in payables 195
Interest paid 72 1672
Less
Increase in inventory -210
Tax paid -336 -546
Net cash inflow from operating activities 1,432
Cash flow from investing activities
Purchase of non-current assets -277
Net cash outflow from investing activities -277
Cash flow from financing activities
Share issue 480
Repayment of loan -750
Interest paid -72
Net cash outflow from financing activities -342
Increase in cash or cash equivalents 813
In 2017 there was a bank balance of £156m and an overdraft of £375m
This represents a negative cash flow of £219
In 2018 there was no overdraft and a bank balance of £594m, representing a positive cash flow of this amount
Therefore between 2017 and 2018 there has been a positive cash flow of £813m
Analysis
The company has made a good profit from its operating activities, which is a good sign.
Whilst both inventory and trade payables have increased, trade receivables have decreased considerably, which would have had a positive impact on the cash flow.
The organisation has invested in non-current assets, which should lead to an increase in turnover in future years.
The organisation has issued more shares; however, it has paid back a large proportion of its long-term loan, which means that less interest will be paid next year.
Moreover, it has cleared what was a large bank overdraft, which will also mean that less interest will be paid next year.
Overall the organisation appears to be in a healthy state, with less debt and more money coming in due to a change in its credit control policy that has resulted in trade receivables paying more quickly.
