Prime Contracting Services provides various services to government agencies under multi-year contracts. In 2006, the services primarily involved transportation of equipment and furniture. Beginning in 2012, the firm began exiting these transportation services businesses and began offering more people-based services (clerical, training). Sales increased at a compounded annual rate of 28.9% during the five-year period. Exhibit 16.20 presents a statement of cash flows for Prime Contracting Services for 2006 to 2010. Changes in Other Current Liabilities primarily represent salaries.

a. What evidence do you see of the strategic shift from asset-based to people-based services?

b. What are the likely reasons that net income decreased between 2006 and 2013 while cash flow from operations increased during the same period?

c. What are the likely reasons that net income increased between 2013 and 2010 while cash flow from operations was less during 2014 and 2010 than in 2013?

d. How has the risk of Prime Contracting Services changed during the five years?

Transcribed Image Text:

Prime Contracting Services Statement of Cash Flows (all amounts in millions of US$) (Problem 16) EXHIBIT 16.20 2015 2014 2013 2012 2011 OPERATIONS Net Income . $ 593,518 $ 412,908 $ 46,799 $ 249,438 $ 261,243 Depreciation 606,633 664,882 826,745 616,335 306,423 Deferred Income Taxes... (154,000) (35,077) (110,116) (117,804) (19,377) 55,000 179,584 158,966 Loss (Gain) on Disposition of Assets Other 20,000 9,100 (51,711) (263,164) (40,067) (32,732) (7,226) (647,087) (25,792) (177,031) 2,200 (Increase) Decrease in Accounts Receivable (Increase) Decrease in Other Current Assets (864,555) (9,333) (1,420,783) (38,031) 175,408 127,548 Increase (Decrease) in Accounts Payable Increase (Decrease) in Other Current Liabilities . Cash Flow from Operations .... (166,672) (416,856) $ 739,602 (272,121) 507,386 927,478 422,929 $ 963,799 99,417 266,260 $ 611,962 $ 287,638 24 63,664 INVESTING Fixed Assets Sold $ 175,075 $ 117,804 80,000 $ 62,894 (911,470) $ (848,576) Employee and Officer Loans (16,960) $ (56,370) $ (56,370) Fixed Assets Acquired (48,296) $ 126,779 (19,222) $ 98,582 (2,002,912) $(1,939,872) Cash Flow from Investing. FINANCING Net Increase (Decrease) in Notes Payable . $ 325,354 $ 12,650 $(126,932) $ 275,475 $ 204,817 Borrowings Under Equipment Loans . 208,418 793,590 943,589 Borrowings Under Capital Leases... 915,596 Borrowings from Shareholder Loans 117,422 127,500 Repayments Under Equipment Loans (736,793) (437,660) (304,054) (564,585) (296,495) (150,000) $ (929,594) $ (22,165) (389,268) (268,556) (236,229) (124,012) (63,077) $ 1,768,184 $ (108,024) Repayments Under Capital Leases Repayments Under Shareholder Loans. Cash Flow from Financing.. Change in Cash.... Cash, Beginning of Year. (28,710) $ (440,149) $ 426,232 $ (729,064) $ (18,520) $ 528,663 $ (32,275) 5,913 24,433 46,598 78,873 186,897 Cash, End of Year $ 432,145 5,913 $ 24,433 $ 46,598 78,873 Prime Contracting Services Statement of Cash Flows (all amounts in millions of US$) (Problem 16) EXHIBIT 16.20 2015 2014 2013 2012 2011 OPERATIONS Net Income . $ 593,518 $ 412,908 $ 46,799 $ 249,438 $ 261,243 Depreciation 606,633 664,882 826,745 616,335 306,423 Deferred Income Taxes... (154,000) (35,077) (110,116) (117,804) (19,377) 55,000 179,584 158,966 Loss (Gain) on Disposition of Assets Other 20,000 9,100 (51,711) (263,164) (40,067) (32,732) (7,226) (647,087) (25,792) (177,031) 2,200 (Increase) Decrease in Accounts Receivable (Increase) Decrease in Other Current Assets (864,555) (9,333) (1,420,783) (38,031) 175,408 127,548 Increase (Decrease) in Accounts Payable Increase (Decrease) in Other Current Liabilities . Cash Flow from Operations .... (166,672) (416,856) $ 739,602 (272,121) 507,386 927,478 422,929 $ 963,799 99,417 266,260 $ 611,962 $ 287,638 24 63,664 INVESTING Fixed Assets Sold $ 175,075 $ 117,804 80,000 $ 62,894 (911,470) $ (848,576) Employee and Officer Loans (16,960) $ (56,370) $ (56,370) Fixed Assets Acquired (48,296) $ 126,779 (19,222) $ 98,582 (2,002,912) $(1,939,872) Cash Flow from Investing. FINANCING Net Increase (Decrease) in Notes Payable . $ 325,354 $ 12,650 $(126,932) $ 275,475 $ 204,817 Borrowings Under Equipment Loans . 208,418 793,590 943,589 Borrowings Under Capital Leases... 915,596 Borrowings from Shareholder Loans 117,422 127,500 Repayments Under Equipment Loans (736,793) (437,660) (304,054) (564,585) (296,495) (150,000) $ (929,594) $ (22,165) (389,268) (268,556) (236,229) (124,012) (63,077) $ 1,768,184 $ (108,024) Repayments Under Capital Leases Repayments Under Shareholder Loans. Cash Flow from Financing.. Change in Cash.... Cash, Beginning of Year. (28,710) $ (440,149) $ 426,232 $ (729,064) $ (18,520) $ 528,663 $ (32,275) 5,913 24,433 46,598 78,873 186,897 Cash, End of Year $ 432,145 5,913 $ 24,433 $ 46,598 78,873

Answer rating: 100% (QA)

Cash flows Cash flows include all the transactions that are entered into cash within a year The chan... View the full answer