Question

ZZ Tire Company started as retail installer of tires on cars 10 years ago. They now have 400 retail stores, installing about 10,000 tires per store per year and selling a total of 4 million tires. 5 years ago, they decided to start manufacturing their own tires to sell in their retail locations. They now have 4 manufacturing plants, making 2 million tires a year. They made a profit of $170 million dollars. On average, the make $50 a tire on the tires they manufacture and $35 on the tires from other manufacturers. Their current growth rate is 12% a year, and they are only located in the 10 southeaster states. Just by looking at this information, how should their cash flows be characterized on their statement of cash flows. Look through the different types of categorizations of cash flows and define each. Then analyze to see which categorization fits the best here.

Answer 1

Answer)

Categories of Cash Flows:

1) Operating activities:It consists of all types of revenues and expenditures that is to be received and spent in regular operations like sales,direct expenditure and indirect expenditure in cash but not on credit.

2) Investing Activities:It consists of sale or purchases of investments and revenue in cash received or paid like dividend,interest or though sale or puchase of then.

3)Financing activities:It consists of cash amount received or spent through financing i.e issue of shares,debentures etc or redemption or buy back of them and dividends and interests paid.

Here in the given case the cash flows that is to be categorised is cash flows from Operating activities as all of them contains the expenses that is to be incurred and revenue to be earned though regular Operations.