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Consider each of the following independent situations
Consider each of the following independent situations.
a) The retained earnings statement of Scott Corporation shows dividends of $68,000, while net income for the year was $75,000.
b) The statement of cash flows for Silberman Corporation shows that cash provided by operating activities was $10,000, cash used in investing activities was $110,000, and cash provided by financing activities was $130,000.
For each company, provide a brief discussion interpreting these financial facts. For example, you might discuss the company's financial health or its apparent growth philosophy.
Expert Solution
a. Net income for Scott Corporation is $75,000 for the year out of which $68,000 has been paid as dividends. Therefore, $7,000 has been retained for investment and growth purposes. As it has distributed most of its income as dividends, it is either a company that can afford a slow growth or it is a company that has realized most of its growth objectives.
b. The statement of cash flows for Silberman corporation reveals that while cash provided by financing activities was $130,000, only $110,000 was used in investing activities. Therefore, $20,000 was raised as a surplus. This means that the company has a strong financial source. Cash flow from operating activities is $10,000. Hence, operating health is also good. The company can be classified as financially healthy.
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