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DB 7

The cash inflow is good news to creditors whose interest is in availability of cash from which the organization can fulfill its debts. The cash inflow from operating activities, especially net profit, is also good news to the company’s stockholders who are interested in the interest that they can earn from their shares because such rates depend of profitability (Porter and Norton, 2012). The management, as the organization’s custodian, also delights in the positive cash flow as an indicator of their effectiveness and efficiency. The positive cash flow does not identify negative effects on the stakeholders (Harrison, Horngren, 2008; Porter and Norton, 2010). RadioShack’s main use of cash and implication on stakeholders The company’s main cash application is in financing activities through purchase of treasury stocks. This means that the corporation repurchased its stock and this has significant impacts on the management and stockholders. It offers benefits to stockholders because of the interest earned in selling their shares to the company. It however has the disadvantage of lost stake and shareholders’ reduced decision-making authority as the entity gains more decision-making authority. The purchase however increases the management’s autonomy and other benefits to the organization such as ensuring a favorable market value for its stock, expanding its returns on investment, and protecting the organization from potential takeover. The management also gains the power to purchase other companies (Needles and Powers, 2012). Question 2: Most significant differences between net cash provided by operations and net income The most significant differences between net cash from cash flow statement and net income from the income statement are identified in adjustments for reconciling net income to the net cash. The most significant difference is with respect to accounts payable, accrued expenses, income taxes payable and other payables, whose total value amount to $ 85 million. Another significant difference is realized through depreciation and amortization that account for a $ 84.2 million variation. Inventories and accounts and notes receivables are the other significant differences between the two cash values. Inventories accounted for a cash outflow of $ 60.4 million while accounts and notes receivables accounted for a reduction in net cash flow by $ 39.9 million (Stittle and Wearing, 2008). Question 3: Comparison of RadioShack’s sales and purchase of fixed assets in 2010 relative to previous years The net addition of fixed assets in the year 2010 is less that the net additions in the previous years. This means that the difference between purchase and sales during the accounting period was less than the difference in preceding periods. While there was a net increase in value of property, plant, and equipment by $ 80.1 million, the year ended 2009 realized a higher value increment of $ 80.8 million. The year ended 2008 realized higher net increment of $ 85.6 million, 5.5 million more than net fixed asset purchase for the year ended 2010. It is however important to note that the changes are not representative of pure purchase of sales of the fixed assets but a sum interaction of the two (Stittle and Wear ...Show more

Summary

DB 7 Question 1: Main source of cash, main use of cash, and implications on stakeholders RadioShack’s main source of cash and implication on stakeholders The main source of cash for the organization is operating activities that generated the highest cash inflow, $ 155 million, as compared to cash flow from investing activities that was - $ 80 million and cash flow from investing activities that was - $ 413…
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