John Marshall is employed as a bank loan officer for First State Bank. He is comparing two companies that have applied for loans, and he wants your help in evaluating those companies. The two companies—Morris, Inc., and Walker Company—are approximately the same size and had approximately the same cash balance at the beginning of 2009. Because the total cash flows for the three-year period are virtually the same, John is inclined to evaluate the two companies as equal in terms of their desirability as loan candidates. Abbreviated information (in thousands of dollars) from Morris, Inc., and Walker Company is as follows: Morris, Inc. Walker Company 2009 2010 2011 2009 2010 2011 Cash flows from: Operating activities $10 $13 $15 $ 8 $3 $(2) Investing activities (5) (8) (10) (7) (5) 8 Financing activities 8 (3) 1 12 4 -0- Net from all activities $13 $ 2 $ 6 $13 $2 $6 Instructions a. Do you agree with John’s preliminary assessment that the two companies are approximately equal in terms of their strength as loan candidates? Why or why not? b. What might account for the fact that Walker Company’s cash flow from financing activities is zero in 2011? c. Generally, what would you advise Johnwith regard to using statements of cash flows in evaluating loan candidates?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

John Marshall is employed as a bank loan officer for First State Bank. He is comparing two companies that have applied for loans, and he wants your help in evaluating those companies. The two companies—Morris, Inc., and Walker Company—are approximately the same size and had approximately the same cash balance at the beginning of 2009. Because the total cash flows for the three-year period are virtually the same, John is inclined to evaluate the two companies as equal in terms of their desirability as loan candidates. Abbreviated information (in thousands of dollars) from Morris, Inc., and Walker Company is as follows: Morris, Inc. Walker Company 2009 2010 2011 2009 2010 2011 Cash flows from: Operating activities $10 $13 $15 $ 8 $3 $(2) Investing activities (5) (8) (10) (7) (5) 8 Financing activities 8 (3) 1 12 4 -0- Net from all activities $13 $ 2 $ 6 $13 $2 $6 Instructions a. Do you agree with John’s preliminary assessment that the two companies are approximately equal in terms of their strength as loan candidates? Why or why not? b. What might account for the fact that Walker Company’s cash flow from financing activities is zero in 2011? c. Generally, what would you advise Johnwith regard to using statements of cash flows in evaluating loan candidates?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions