Accounting Tutorial 1

3a) Net income = $574.20

b) OCF = $6454.20

c) CFFA = -$1425.8 Yes, having a negative cash flow from assets is possible. In this case, is mainly due to spending on fixed assets. In the long run, this could be a could investment.

d) As CFFA was negative, it means Dahlia Industries raised more money in the form of new debt and equity than it paid out for the year. As no new debt is raised, cash flow to creditors is just the interest paid of $1830.

From the cash flow identity, we know that CFFA = cash flow to creditors + cash flow to stockholders.

-1425.8 = 1830 + CFTS

CFTS = -$3255.8

To double check our answer: Total equity was up 3830. Of this increase, -725.8 was from decrease in retained earnings. So, 4555.8 in new equity was raised in the year.

CFTS= 1300 (dividends paid) – 4555.8 = -3255.8 The negative sign means that the business is relying on outside funding. If the business uses the capital wisely, could lead to future higher profits. However, if CFTS is negative year after year, could show that the business has trouble sustaining itself and the business model is flawed.

4) Current ratio = Current assets/Current liabilities = 1.25
Long term debt ratio = Long Term debt/(Long Term debt + Total Equity) = 0.45
Current assets = 1.25*875 = 1093.75
Return on Equity = Net income/Total equity = 18.5%
Net income = 5780*9.5% = $549.1
Total Equity = 549.1/0.185 = 2968.10811
Solving for Long Term debt; = $2428.452
Net fixed assets = -Current Assets + Current Liabilities + Long Term Debt + Equity = -1093.75 + 875+ 2428.452 +2968.10811
= $5177.81

5)

Current Ratio = Current Assets/Current Liabilities = 60550/43235 = 1.40
Quick Ratio = 0.830
Cash Ratio = 0.510
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