Financial Accounting
15th Edition
ISBN: 9781337272124
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Chapter 8, Problem 25E
Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands. For a recent year, Mattel reported the following net
Explain why Mattel reported negative net cash flows from operating activities during the first and second quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.
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Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel's toys include
Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands. For a recent
year, Mattel reported the following net cash flows from operating activities (in thousands):
$ (53,110)
First quarter ending March 31
Second quarter ending June 30
Third quarter ending September 30
Fourth quarter ending December 31
(187,663)
18,435
956,895
Explain why Mattel reported negative net cash flows from operating activi-
ties during the first and second quarters and a large positive cash flow for the fourth
quarter, with overall net positive cash flow for the year.
At one time, the Coca-Cola Company reported a number called” economic profit” that is very similar to residual operating income. It also reported free cash flow in its annual summary of selected financial data. The respective numbers for 1992-1999 are given below (in millions of dollars), along with what Coke calls total capital (similar to net operating assets) and return on total capital (similar to return on net operating assets):
1992
1993
1994
1995
1996
1997
1998
1999
Economic Profit
1300
1549
1896
2291
2718
3325
2480
1128
Free Cash Flow
873
1623
2146
2102
2413
3533
1876
2332
Total Capital
7095
7684
8744
9456
10669
11186
13552
15740
Return on Capital
29.40%
31.20%
32.70%
34.90%
36.70%
39.40%
30.20%
18.20%
a. Economic profit and free cash flow are similar, in most years, and their growth patterns are similar. Why?
b. Based on this past history, would you be indifferent in valuing Coke using discounted cash flow methods or residual operating income methods?
The management of ABC Company felt proud of their accomplishments concerning cash flow for the end of the year because overall cash increased by $1,500,000. In the operating section, the company showed an increase in cash of $250,000 because of net income. However, because of increases in accounts receivable and inventory, the overall cash outflow from operating activities was $100,000.
In the investing section, purchases of long-term assets outweighed the sale of long-term assets which resulted in a cash outflow from investing activities of $500,000.
The company has a line-of-credit with the bank. During the year, the company drew on the line which resulted in cash inflow from financing activities of $2,100,000. The cash inflow from financing activities of $2,100,000 less the cash outflow from operating activities of $100,000 and less the cash out flow from investing activities resulted in the overall cash increase of $1,500,000.
Analyze the cash flows of ABC Company. What conclusions…
Chapter 8 Solutions
Financial Accounting
Ch. 8 - Prob. 1DQCh. 8 - Why should the employee who handles cash receipts...Ch. 8 - Prob. 3DQCh. 8 - Why should the responsibility for maintaining the...Ch. 8 - Assume that Brooke Miles, accounts payable clerk...Ch. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 1PEACh. 8 - Prob. 1PEBCh. 8 - Prob. 2PEACh. 8 - Prob. 2PEBCh. 8 - Prob. 3PEACh. 8 - Prob. 3PEBCh. 8 - Prob. 4PEACh. 8 - Prob. 4PEBCh. 8 - Financial data for Otto Company follow: a....Ch. 8 - Prob. 5PEBCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Pacific Bank provides loans to businesses in the...Ch. 8 - Prob. 5ECh. 8 - An employee of JHT Holdings, Inc., a trucking...Ch. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - The actual cash received from cash sales was...Ch. 8 - The actual cash received from cash sales was...Ch. 8 - Abbe Co. is a small merchandising company with a...Ch. 8 - Prob. 15ECh. 8 - Prob. 16ECh. 8 - Prob. 17ECh. 8 - Prob. 18ECh. 8 - Prob. 19ECh. 8 - Prob. 20ECh. 8 - Prob. 21ECh. 8 - Prob. 22ECh. 8 - Prob. 23ECh. 8 - Prob. 24ECh. 8 - Mattel, Inc., designs, manufactures, and markets...Ch. 8 - El Dorado Inc. has monthly cash expenses of...Ch. 8 - Prob. 27ECh. 8 - Amicus Therapeutics, Inc., is a biopharmaceutical...Ch. 8 - Prob. 1PACh. 8 - Prob. 2PACh. 8 - Prob. 3PACh. 8 - Prob. 4PACh. 8 - Prob. 5PACh. 8 - Prob. 1PBCh. 8 - Prob. 2PBCh. 8 - Prob. 3PBCh. 8 - Prob. 4PBCh. 8 - Prob. 5PBCh. 8 - Tehra Dactyl is an accountant for Skeds, Inc., a...Ch. 8 - During the preparation of the bank reconciliation...Ch. 8 - Prob. 5CPCh. 8 - Prob. 6CPCh. 8 - Prob. 7CPCh. 8 - Prob. 8CPCh. 8 - Prob. 9CP
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- Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattels toys include Barbie fashion dolls and accessories, Hot Wheels, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands): Explain why Mattel reported negative net cash flows from operating activities during the second and third quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.arrow_forwardPlease find the Operating Cash Flow for the first 5 years with the following information below: Currently, Ljutic A/I Inc. has hired a consulting firm (Oakland Association-OA) to estimate the size of the market and hence expected unit sales for its main product (E-toral application sensor). OA’s work resulted in unit sales estimates of 318,331, 341,342, 368,769, 383,432, and 376,532 units respectively for the next five years conditioned on Ljutic adhering to an average sales price of $568 per unit for the first two years and $387 in years three, four, and five. From that point going forward, growth in unit sales is predicted to be 2.72% indefinitely. The results of an independent outside analysis by a leading market research firm has determined that the company can manufacture its product line at a variable cost per unit expected to be $63.47 growing at 2.23% per year for the first 5 years and 3.17% per year indefinitely thereafter while overall fixed costs are estimated to be…arrow_forwardGeorgia Products Co. had the following positive cash flows during the current year: received cashfrom customers of $750,000; received bank loans of $35,000; and received cash from the sale ofcommon stock of $145,000. During the same year, cash was paid out to purchase inventory for$335,000, to employees for $230,000, and for the purchase of plant assets of $190,000. Calculatethe amount of cash provided by or used for operating activities by the direct method.arrow_forward
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