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    didemgunsel Posts: 5, Reputation: 1
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    #1

    Oct 29, 2010, 07:16 AM
    John Marshall is employed as a bank loan officer for First State Bank. He is comparin
    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 Company and Walker Company) are approximately the same size and had approximately the same cash balance at the beginning of 2007. 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 and Walker Company is as follows:
    Morris Company Walker Company

    2007 2008 2009 2007 2008 2009
    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 Johnís 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 Companyís cash flow from financing activities is zero in 2009?
    c. Generally, what would you advise John with regard to using statements of cash flows in evaluating loan candidates?
    didemgunsel's Avatar
    didemgunsel Posts: 5, Reputation: 1
    New Member
     
    #2

    Oct 29, 2010, 07:19 AM

    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 Company and Walker Company) are approximately the same size and had approximately the same cash balance at the beginning of 2007. 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 and Walker Company is as follows:
    Morris Company Walker Company

    2007 2008 2009 2007 2008 2009
    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 Johnís 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 Companyís cash flow from financing activities is zero in 2009?
    c. Generally, what would you advise John with regard to using statements of cash flows in evaluating loan candidates?

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