Segment 1B Q2 9. Cash Flow to Stockholders and Creditors [LO4] Could a company’s
ID: 2734558 • Letter: S
Question
Segment 1B Q2
9. Cash Flow to Stockholders and Creditors [LO4] Could a company’s cash flow to stockholders be negative in a given year? (Hint: Yes.) Explain how this might come about. What about cash flow to creditors?
This chart came with the problem, I'm not sure if it applies but if it does please use it to help
Cash Flow From Assets Problem:
Calculate each step of the cash flow from assets based on the following information. Use the examples in the presentation as a guide.
Working Capital Accounts:
2015: Current Assets = 4,400; Current Liabilities = 1,500
2014: Current Assets = 3,500; Current Liabilities = 1,200
Fixed Assets and Depreciation:
2015: Net Fixed Assets = 3,400
2014: Net Fixed Assets = 3,100
Depreciation Expense = 400
Long-Term Debt and Equity:
2015: Long-Term Debt = 4,000; Common Stock = 400
2014: Long-Term Debt = 3,950; Common Stock = 400
Income Statement:
EBIT = 2,000
Taxes = 300
Interest Expense = 350
Dividends = 500
Explanation / Answer
9.
In certain instances, negative cash flow to stockholders is perfectly normal for a small business. A company often has negative cash flow to stockholders in its first year of business because of startup money contributed by owners. The cash flow measure also might be negative in subsequent years if a rapidly growing business raises additional capital from investors to fund expansion. If a business allocates the new capital wisely, it might generate higher future profits.