Emmerton Enterprises’ Cash Flow and Ratio Analysis
Cash Flow Statement & Summary Analysis
As shown in the Ememerton Enterprises’ cash flow statement and its summary, the company has a positive net cash flow in 2018 and a negative net cash flow in 2019. This indicates that the company spends more cash on its operations in 2019 than it received from its operations. However, in 2018, the company’s operations yielded more cash than the company spends on all its operations. In 2018 and 2019, the company’s net cash flow from its operating activities was -$1,213 and -$9,247. The negative net cash flow from the company’s operating activities was a result of income loss from the company’s continues, which was -12,747 in 2018 and -$8,858 in 2019. Also, the company’s investing activities resulted in negative net cash, which means that the company bought more property, plants, and equipment than it disposed of the existing one. The company’s net cash from investing activities was -$400 in 2018 and -$971 in 2019. However, Emmerton Enterprises had positive net cash flows from its financing activities for both years; 2018, net cash flow from financing activities was $6491, and in 2019, the net cash flows from financing activities were $8,869.
For 2018, Emmerton cash flows were mainly contributed by a gain in its investments, gain from the sale of its fixed assets, accrued liabilities and taxes payable, proceeds from plant, property, and equipment, and proceeds from long-term borrowings. After all the above cash flows were adjusted to depreciation and amortization, stock-based compensation, and a net loss, it totaled to cash inflows of $12,299, as indicated in the company’s cash flow summary. Additionally, there were proceeds from sales of common stock and positive net cash from exchange rates. However, the cash spends a significant amount of cash in its operating, investing, and financing activities. As shown in the cash flow summary, cash outflows in 2018 for Emmerton Enterprises was as a result of negative net cash from non-cash items, more credit sales, restocking, purchase of other current assets, purchases of fixed assets, repayment of long-term debt and cash spent on other investing activities. In 2018, the total cash outflows were -$7114, which was less than its cash inflows. This resulted in positive overall cash flows from the enterprise’s operations of $5,185.
In 2019, the company’s cash inflows were obtained from the sale of fixed assets, proceeds from common stock, proceeds from long-term debt, collection of its receivables, cash from non-cash items, gins from the sale of its fixed assets and also from its investments, acquisitions, and securities. When adjusted to net loss, depreciation and amortization, and stock-based compensation, the total cash inflows from the mentioned activities were $9,380. However, the company’s cash expenditure was a bit higher than its cash inflows as activities such as restocking, purchase of other current assets, payment in its deferred payments, purchase of fixed assets, payment of its long-term debt and cash outflow from other enterprises’ investments resulted to a total outflow of -$10,627, which was more compared the cash the enterprise earned from its activities for the fiscal year. Therefore, the net cash flow for Emmerton enterprises was -$1247.
Emmerton Ratio Analysis
Short-term liquidity
Liquidity is the company’s ability to have enough current assets to repay its short-term obligations. The current ratio and quick ratios are mainly used to establish how liquid a company. The current and a liquid ratio of 1.0 X shows that the company can be able to pay its short-term obligations. Emmerton Enterprises had a current ratio of 1.33 in 2018 and 1.40 in 2019. This meant that the firm could meet its short-term obligations 1.40 and 1.33 times over for 2019 and 2018, respectively. The company’s quick ratio was 0.69 and 0.73, which meant that the company could not meet its short-term obligations using its most liquid assets, which excludes inventories.
Operating Efficiency
Operating efficiency indicates the company’s ability to continue delivering products and services at affordable prices while maintaining their quality and getting enough returns. The activity ratios are used to measure the operating efficiency of a company. The higher the ratios, the better the operating efficiency. According to Emmerton activity ratios, the enterprise has good operating efficiency as it can collect its bills faster, sell its inventories, and dispose of its fixed assets faster.
Capital structure and long-term solvency
Capital structure and long-term solvency indicate the ability of a firm to meet its long term obligations. In the case of Emmerton enterprises, it can be measured using long-term debt to capitalization as it is a ratio that shows the financial leverage of a firm. A higher ratio shows that the company is highly financed through debt and therefore is at risk of insolvency. From the ratios of Emmerton, the company was very solvent as its ratio of long-term debt to total capital was very low; 22.82% in 2018 and 26.52% in 2019.
Profitability ratio
Profitability ratios are financial measures that show a company’s ability to generate returns relative to its sales, assets, and equity. The three main ratios used include net income, return on assets (ROA), and return on equity (ROE). Emmerton had a negative net income, which meant that the company was not able to control its costs during the generation of revenues. This resulted in negative ROA and ROE, which meant that the company was not utilizing its assets and equity well to generate profits for the shareholders in both 2018 and 2019.
Market ratios
Earnings per share are used to measure how much a company loses per share in case of negative net incomes. For Emmerton enterprises, the company lost $1.73 per share in 2018 and $1.03 per share in 2019.
Based on the ratios above, Emmerton enterprises have poor investment potential as the management has been unable to manage the company’s costs. This has resulted in negative returns for both 2018 and 2018. However, the company’s creditworthiness as good as it can meet its short-term obligations as it has 1.33 and 1.40 times current assets compared to its current liabilities. This means that the company can pay its short-term obligations and continue to operate with its extra current assets both for the year 2018 and 2019. The company is also highly solvent as its long-term debt to capitalization is low; 22.82% in 2018 and 26.52% in 2019.