Question

BTN 12-8 Jenna and Matt Wilder are completing their second year operating Mountain High, a downhill ski area and resort. Mountain High reports a net loss of \((10,000) for its second year, which includes an \)85,000 unusual loss from fire. This past year also involved major purchases of plant assets for renovation and expansion, yielding a year-end total asset amount of \(800,000. Mountain High’s net cash outflow for its second year is \)(5,000); a summarized version of its statement of cash flows follows.

Net cash flow provided by operating activities	$295,000
Net cash flow used by investing activities	(310,000)
Net cash flow provided by financing activities	10,000

Required

Write a one-page memorandum to the Wilders evaluating Mountain High’s current performance and assessing its future. Give special emphasis to cash flow data and their interpretation.

Short answer

Date: XX/XX/XX

To: Wilders

From: Mr. X

Subject: Evaluation of current performance and assessment of future

The business entity is performing well in terms of profitability because the operation’s cash flow reflects a higher positive value. It means that the business entity has realized a positive cash income of $295,000 and will perform well in future periods.

Step-by-step solution

Definition of Statement of Cash Flow

A statement that determinesthe cash position of the business entityby reporting cash inflows and outflowsis known as a statement of cash flow. It is classified into three sections known as investing, operating, and financing.

Memorandum for evaluating current performance and assessing future

According to the information on the cash flow, it can be concluded that the business entity is performing well.

Operating cash flow: Operating cash flow reflects the cash income realized by the business entity from the operations. The operating cash flow of the business entity is $295,000. It means that the business entity has realized a cash income of $295,000, and the actual income might be more than this.

Investing cash flow: The business entity has used $310,000 for investing, which means that the business entity has purchased assets. Such expenditure is done for long-term assets and is not done in each period. Therefore, it can be expected that the future cash flow from investing activities will improve.

Financing activities: The business entity is generating cash from financing activities. It is due to the issue of debt and equity securities. If the business entity can raise capital from debt or equity sources, investors are interested in investing in the company due to its profitability and performance.