Q1DC
Question
Question: Theater by Design and Show Cinemas are asking you to recommend their stock to your clients. Because Theater by Design and Show Cinemas earn about the same net income and have similar financial positions, your decision depends on their statement of cash flows, summarized as follows:
Theater by Design Show Cinemas
Net Cash Provided by Operating Activities \( 30,000 \) 70,000
Cash Provided by (Used for) Investing Activities:
Purchase of Plant Assets \( (20,000) \) (100,000)
Sale of Plant Assets 40,000 20,000 10,000 (90,000)
Cash Provided by (Used for) Financing Activities:
Issuance of Common Stock 0 30,000
Payment of Long-term Debt (40,000) 0
Net Increase (Decrease) in Cash \( 10,000 \) 10,000
Based on their cash flows, which company looks better? Give your reasons.
Step-by-Step Solution
VerifiedAnswer
The Show cinemas look better than the Theatre Cinemas in terms of statement of cash flow
A cash flow statement is defined as the financial statement presenting the inflow and outflow of cash and its relatable equivalents during the year.
The statement of cash flow of Show cinema is better than the Theatre by design because of the following reason:
Operating Activities:
The cash provided by operating activities is one of the key indicators, and the company which is generating more cash from operating activities will have enough cash in hand for future operations. In this case, the Show Cinemas has better cash from operations than the Theatre by designs.
Investing activities:
The company which is investing more in plant assets means the company is expanding its operations; in this case, the Show cinemas are buying plant assets, but on the other hand, Theatre by design is selling their plant assets.
Financing Activities:
By issuing common stock, common stock companies raise cash to fund their future operations, increasing the availability of cash with the companies. In this case, Show Cinemas are raising capital by issuing common stock.