Before analyzing the cash flow statements for the three years of Candela Corporation, it is necessary to understand the current operations of the company.
As described in the text, Candela, since is formation, is introducing new state-of-the-art medical application and because of their continual innovation, they have to capture significant market share, thus, we assume that by each year, the financials of the company are also going to improve. In 2004, Candela managed to gain significant net gains, as the cash inflows were much higher than the cash outflows.The reason being is that, during this year, the company got much higher returns from the investing activities. The year 2003, also had a relatively good cash inflow, considering the amount of investment in the year. In 2003, the cash inflows were the highest from the operating and investing activities, but the cash inflow from the financing activities were small.
The year 2002, didn’t perform well net income is concerned. The year ending loss was recorded, as all the three categories showed cash outflows.Despite, having a Net loss in 2002, Candela quite successfully managed to get profits in year 2003 and 2004. Question 2: The Cash flow statements basically help in determine the cash receipts and cash disbursements of company.
It gives a general idea of how the company is spending its cash and from where it is receiving it. With the help of cash flow statements, the company can find out the cash which is required to pay the company’s debts and obligations. By calculating the cash flows, the company’s cash inflow or cash outflows can be determined.Cash flows also classify cash activities into three categories.
The first is the Operating activities, which determines the affect of cash on daily day-to-day activities. Second is investing activities, which include those activities, which affect the cash on long-term basis (i. e. more than one year). These transactions include the purchasing of long-term assets or loans/securities. Third is financial activities, which involve the transactions related to liabilities and the equity side.
The Balance Sheet, on the other side, shows the overall worthiness or financial strength of a company at a particular time.The Balance Sheet tells us about the position of assets, company’s liabilities and the equity. How well a company maintains its assets, liabilities and equity can be determine by properly recording the Balance Sheet. With the help of Balance Sheet, we can get any idea that about the financial size of the company, the ability of the company to meet its debts as well as the cash coming from debts and company’s own cash. However, it is not the best statement to determine the performance of a company.
Besides this, the Balance sheet only gives the cumulative position of the company, i. e. it is difficult to calculate the current value of the assets. One of the most important accounting recordings is the Income Statement.
It tells us that how profitable a company is. It gives us a better idea about the revenue generated, the expenses incurred by the company and its affect on the net income (profits or loss) of the company. However, the income statement can be easily disturbed by making adjustments, and it does not indicate about the earnings in the future.
