Question

Financial data from three competitors in the same industry follow.

1. Which of the three competitors is in the strongest position as shown by its statement of cash flows?
2. Analyze and compare the strength of Moore’s cash flow on total assets ratio to that of Sykes.

	A	B	C	D
1	\( thousands	Moore	Sykes	Kritch
2	Cash provided (used) by operating activities	\) 70,000	\( 60,000	\) (24,000)
3	Cash provided (used) by investing activities
4	Proceeds from sale of operating assets			26,000
5	Purchase of operating assets	(28,000)	(34,000)
6	Cash provided (used) by financing activities
7	Proceeds from issuance of debt			23,000
8	Repayment of debt	(6,000)
9	Net increase (decrease) in cash	\( 36,000	\) 26,000	\( 25,000
10
11	Average total assets	\)790,000	\(625,000	\)300,000

Short answer

1. Moore is probably in the strongest position of the three competing companies based on the statement of cash flows.
2. The cash flow on total assets ratio for Sykes is higher than for Moore.

Step-by-step solution

Step 1:(1) Determining who is in the strongest position.

Based on the statement of cash flows, Moore is most likely in the best position of the three rival companies. Moore's operating cash flows can finance debt reduction and investment in operating assets.

Sykes, which can reinvest 57 percent of its operating cash flows into new productive assets, is in the second-best position. The weakest company is Kritch, which generated funds by selling valuable assets and assuming further debt while experiencing negative cash flows from operations.

Step 2:(2) Analysing and comparing Moore’s in the strongest position

Cash flow on total asset for Skyes equals 9.60% which is higher than that of Moore which is 8.86%.

Sykes has a 9.60% ratio

$\begin{array}{rcl}\mathbf{Total}\mathbf{asset}\mathbf{ratio}& \mathbf{=}& \frac{\mathbf{Cash} \mathbf{provided}\mathbf{by}\mathbf{operating}\mathbf{activities}}{\mathbf{Average}\mathbf{total}\mathbf{asset}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{60}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{625}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{9}\mathbf{.}\mathbf{60}\mathbf{\%}\\ & & \end{array}$

Moore’s has an 8.86% ratio

$\begin{array}{rcl}\mathbf{Total}\mathbf{asset}\mathbf{ratio}& \mathbf{=}& \frac{\mathbf{Cash} \mathbf{provided}\mathbf{by}\mathbf{operating}\mathbf{activities}}{\mathbf{Average}\mathbf{total}\mathbf{asset}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{70}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{790}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{8}\mathbf{.}\mathbf{86}\mathbf{\%}\\ & & \end{array}$