To: Shareholders, Carpino Company Inc.
Re: Carpino Company, Year-end, January 31, 2007
In spite of the challenges faced during the period, we are pleased to report that Carpino Company Inc. showed a net increase in cash of $100,000. A greater part of the cash formed during the period under review resulted from sale of merchandise and capital stock ($380,000 and $420,000). You will also notice that the company gained $6,000 as interest on investment in its first year of operations. What this will mean is that Carpino Company will pay dividends and meet its future responsibilities. This also is an indication of future cash flow.
However, consistent with usual practices for any new company, you will note that a considerable amount of investment funds was used to purchase fixtures and equipment ($330,000). Another note for the purchase of merchandise was ($258,000) which was sold for a return. The setting up the work environment also incurred operating expenses of $160,000. Most of these expenses are a one-time expense and will not affect future Cash Flow Statements.
Consistent with Companies at the early stage of development, the company did not generate positive cash from operations. This explains the low net cash from operations reported as $20,000. This inclination also explains the high net cash from financing of $410,000.
Subsequent cash flow statements will be used to calculate actual cash flow of the company. This is because the current cash flow statement does not reflect the dividends paid out, and therefore, does not give a true picture of the company’s present liabilities.
If we are to only look at the increase in cash of $100,000, we can assume that we are in fact doing well; however after running our cash method as well as the current cash to debt ratio, a different picture will be viewed.
The cash flow calculation takes cash provided by operating activities which in this case happens to be ($421,000) less the...