Cash Flow The direct method

Cash Flow- The Direct Method
Name
Institution

A Statement of Cash Flows contains three main parts. The first section of the Statement is cash flows from operating activities followed by cash flows from investing activities and lastly cash flows from financing activities. This paper will focus on the direct method of preparing statements of cash flow. It will concentrate on Arden Group, Inc. and Consolidated Subsidiaries Company. The essay will give statements of cash flows for the year period giving comments on major cash flow items on the two statements of cash flows of the Company for the periods ended January 1, 2011.

ARDEN GROUP, INC AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF CASH FLOWS FOR THREE YEAR PERIOD
January 1, 2011 January 2, 2010 January 3, 2009
(In dollars)
Cash flows from operating activities:
Cash received from customers 417,580 431,108 479,578
Cash paid to suppliers and employees 384,624 391,957 437,970
Interests and dividends received 1,580 565 2,513
Interest paid 94 87 109
Income taxes paid 11,354 13,895 15,545
Net cash provided by operating activities 23,088 25,734 28,467
Cash flows from investing activities:
Capital expenditures 2,597 2,890 5,159
Purchases of investments 29,861 30,164 25,130
Sales of investments 51,926 30,164 25,130
Proceed from the sale of property, plant
And equipment 16 48 21
Net cash used in investing activities 19,434 19,879 5,288

Cash flows from financing activities:
Cash dividends paid 3,161 3,161 82,188
Net cash used in financing activities 3,161 3,161 82,188
Net increase (decrease) in cash and
Cash equivalents 39,499 2,694 48,433
Cash and Cash equivalents at
beginning of year 13,180 10,486 58,919
Cash and cash equivalents at end of year 52,591 13,180 10,486

Source: Arden Group, Inc and Consolidated Subsidiaries, (2010).

It is worth making certain observations and comments concerning the cash flow statement for the three year period of the Company. Firstly it is evident that there was a steady reduction in the net cash provided by the operating activities from the periods between January 3, 2009 and January 1, 2011. The figure reduced by over $ 5,000 in the three year period. This reduction means that Arden, Inc. focused on a projected profit margin by reducing its operating costs over the financial period.
In contrast the company exhibited a steady increase in the net cash used in investing activities. The Company had a net investment turnover of $ 5, 288 in January3, 2009 compared to $ 19,434 in January 1, 2011. Lastly the Company had a tremendous reduction on the net cash used in financing activities over the three year period changing the figure from $ 82,188 to a mere $ 3,161..The figure below is a statement of cash flows of the same Company for the period ended January 1, 2011.

ARDEN GROUP, INC AND CONSOLIDATED SUBSIDIARIES
Statement of Cash Flows for the Year Ended January 1, 2011

Cash flows from operating activities: (Dollars) (Percentage )
Cash received from customers 417,580 96

Cash paid to suppliers and employees 384,624 92
Interests and dividends received 1,580 0
Interest paid 94 0
Income taxes paid 11,354 2
Net cash provided by operating activities 23,088 5

Cash flows from investing activities:
Capital expenditures 2,597 0
Purchases of investments 29,861 7
Sales of investments 51,926 12
Proceed from the sale of property, plant
And equipment 16 3
Net cash used in investing activities 19,434 4

Cash flows from financing activities:
Cash dividends paid 3,161 1
Net cash used in financing activities 3,161 1
Net increase (decrease) in cash and
Cash equivalents 39,499 8
Cash and Cash equivalents at
beginning of year 13,180 3
Cash and cash equivalents at end of year 52,591 13
Source: Arden Group, Inc and Consolidated Subsidiaries, (2010).
From the January 1, 2011 statement it is evident that this Company experienced an 11% decrease in net cash provided by operating activities compared to the previous year. In addition Arden, Inc. equally realized a 10% reduction in net cash used in financing activities in January1, 2011. Lastly there was redundant 1% net cash used in investing activities in the two financial years.
In conclusion it would be important to note that the direct method of creating statements of cash flows gives information on where a Company gets its revenue and where it spends it. The statement contains three main components namely cash flows from operating, investing and financing activities. Arden Group, Inc. Statement of cash flows for the period between January 3, 2009 and January 1, 2011 show a steady increase in net cash used in investing activities with stagnation in the net cash used in financing activities over the last year. There is however an increase in the net cash used in operating activities in the three year period.

References
Week 10 Case- Case 10-2 Cash Flow the Direct Method Arden Group, Inc. HYPERLINK “http://www.course” www.course hero.com (Retrieved 24 January 2018).

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