Analysis of Gymboree Corporation Cash Flow Statement
TO: Gymboree Corporation Stakeholders
FROM: Lloyd Edwards, Chief Financial Officer
DATE: February 4th, 2018
SUBJECT: Analysis of Gymboree Corporation’s Cash Flow Statement
The cash flow statement shows the amount of cash and cash equivalents entering or leaving the company (Harrison, Horngren, Thomas, & Tietz, 2016). As a result, investors can know the primary sources of the company’s finances and also how this cash is being spent. Due to the importance of cash flows in enhancing companies’ disclosures of their books of accounts, the United States requires all audited financial statement to have their annual cash flow statements.
The cash flow statement is categorized into three distinct parts: operations, investing, and financial cash flows. The operations cash flow shows the cash inflows and outflows that are from an organization’s core business operations. Therefore, it shows the amount generated and spent on company’s products and services. The investing cash flow shows cash inflows and outflows that are from investments in the organization’s none core activities. These activities include purchase or sale of assets, equipment, or investment, such as in stocks. Finally, the financing cash flow shows cash inflows or outflows that affect a business’ capital (Spiceland, Thomas, & Herrmann, 2015). They include debt, dividends, and loans. Noteworthy, the total cash flow shows a company’s overall cash position and not its profits or losses.
Primary Sources and Use of Gymboree Inc. Cash
In the operating cash flow, the primary cash inflows for the business are from the firm’s share-based compensation of $3,367, accounts payable of $22, 237, accrued and other liabilities $8,717, prepaid income tax $401, disposal of impaired assets $3,627, and interest rate cap contracts of $3,627. The primary cash outflows for the operating cash flow are deferred income taxes of $910, merchandise inventories of $9,275, and lease incentives and other liabilities of $2,013 (EDGAR Pro., 2017).
In the investing activities cash flow, the main cash inflows are proceeds from the sale of assets $353. The main cash outflows are capital expenditures of $21,413 and the increase in related party loan receivable $1,741 (EDGAR Pro., 2017). In the financing activities cash flow, the main cash inflows are Proceeds from ABL facility $470,000 and proceeds from sale-leaseback financing liability $26,750. The main cash outflows are Payments on ABL facility $484,000, repurchase of notes $15,325, payments on capital lease and sale-leaseback financing liability $686, payments for deferred financing costs $2,574, and dividend payment to parent $11. There is also an effect in exchange rate fluctuations of $1,050 (EDGAR Pro., 2017).
Overall Cash Flow Sustainability of the Organization
The total cash flow as at 30th January 2016 was $18,164, which was a decrease from that of 30th January 2015 cash flow of $18,520, and that of 30th January 2014 of $39,429. Therefore, the total cash outflows of the business have been greater than its cash inflows in the year 2014 and year 2015. The business had a net loss of $206,351 as at 1st February 2014, its net loss was $580,111 as at 31st January 2015, and on 30th January 2016, it made a net loss of $8,764 (EDGAR Pro., 2017). Therefore, the business has been progressively reducing its negative financial performance.
The operating cash flow ratio Gymboree Inc. as at 30th January 2016 was 0.12612. This ratio is calculated by dividing the operating cash flow ($29,140) and the business’ current liabilities ($231,052). Therefore, the firm can only repay 0.126 of its current liabilities from the cash generated by its current operations. The current ratio for the business is 1.127. This ratio is calculated by dividing the current assets ($260,455) by the current liabilities ($231,052). Since this ratio is greater than 1, the business total current assets can comfortably repay its current liabilities (Wild, 2016). Therefore, although Gymboree Inc. has a low operating cash flow ratio of 0.126, its current assets are enough to pay its short-term liabilities when they are due. Given the reduction in Gymboree Inc. negative financial performance, and its ability to repay its current liabilities using its current assets, the company has an overall sustainable cash flow.
EDGAR Pro. (2017). Gymboree Corp. Form 10-K (Annual Report): Filed 04/21/16 for the period ending 01/30/2016. Retrieved from http://files.shareholder.com/downloads/GYMB/5957854443x0xS1193125%2D16%2D560439/786110/filing.pdf.
Harrison, W., Horngren, C., Thomas, W., & Tietz, W. (2016). Financial accounting (11th Ed.). Upper Saddle River, NJ: Pearson.
Spiceland, D., Thomas, W., & Herrmann, D. (2015). Financial accounting (4th Ed.). New York, NY: McGraw-Hill Ed.
Wild, J. (2016). Financial accounting: Information for decisions (8th Ed.). New York, NY: McGraw-Hill Ed.