Question

Q no #3 Sohni Dharti International is a renowned seed company and they want to expand their business. They hire you as a financial expert and provide you following financial records for the years of 2019 and 2020. Company has Cash $53,000 in 2019 and $31,000 in 2020, Marketable securities $87,000 in 2019 and $0 in 2020, Account Receivable $346,000 in 2019 and $528,000 in 2020, Account payable in 2019 is $13,000 and in 2020 is $27,000, Bank borrowing in 2019 is $10,000 and in 2020 is $35,000, common stock is $100,000 in both 2019 and 2020. Being a financial expert prepare cash flow statement by using direct method and then give your opinion whether company has sufficient funds to take advantage of investment opportunities or not?

Answer 1

Solution:

The cash flow statement as of 31/12/2020 under the direct method is as below:

 

 

 

According to the cash flow statement, the company does not have enough cash to take advantage of investment opportunities. This is because the company has a negative cash flow at the end of the year.