Eastern Platinum Limited’s 2009 financial statements can be found at the end of this volume. The company is involved in the mining, exploration, and development of platinum products in South Africa.
Review the financial statements and notes of Eastern Platinum Limited (Eastplats) and answer the following questions.
(a) How does Eastplats define cash and cash equivalents? Do the cash and cash equivalents reported on the statement of cash flows reconcile to the statement of financial position amounts that are reported? Provide details of the reconciliation.
(b) Prepare a summary analysis of Eastplats’s sources and uses of cash at the level of operating, investing, and financing subtotals only, for 2009 and 2008. Based on this, comment on the similarities and differences in the company’s needs for cash and how they were met over the past three years.
(c) What method of reporting operating cash flows does Eastplats use in the statement of cash flows? Do you think this approach provides useful information to a potential investor?
(d) Using the information provided in the statement of cash flows, determine the balances of the Trade Receivables, Inventories, and Accounts Payable and Accrued Liabilities that would have been reported on the January 1, 2008 statement of financial position. Compare this with the actual balance at January 1, 2008, provided in the notes and explain any differences.
(e) From the statement of cash flows, it appears that share-based payments provided U.S. $582 thousand of cash from operations and that environmental expense provided an additional U.S. $301 thousand. Explain.
(f) Explain why interest income has been deducted and finance costs have been added on the statement of cash flows. Companies have a choice in classifying interest income and finance costs. What choice did Eastplats make with respect to this?
(g) Based only on the information in the Financing Activities section of the statement of cash flows, can you tell whether the debt-to-equity ratio increased or decreased during the years ended December 31, 2009, and 2008? Explain.
(h) Is Eastplats’s operating capability expanding or contracting? What type of assets is the company investing in? What is the likely effect of these investments on Eastplats’s future operating and financing cash flows?
(i) Comment briefly on the company’s solvency and financial flexibility.