1. Cash flows analysis

2. As there was an increase in the cash at bank balance during the year, one of the directors opined that it indicated good profitability and liquidity prospect. Evaluate the director’s opinion based on the current ratio (2007 & 2006) & cash flow statement (2007).

3. The current ratio increase from 2.07 (Year 2006) to 3.07 (Year 2007). It shows the company’s short-term repayment ability should be improved. However…

4. Lily Ltd had a negative cash flow in operating activities, this includes that the company has difficulty in sustaining its daily operations. Assets generate future economic benefits, but the cash inflow mainly came from the sales of plant and machinery in 2007. This indicates that the company’s ability to generate future profit is in doubt.

5. Lily Ltd had obtained a new bank loan of $598,000 and the new asset was only financed by finance lease. Company has to repay loan and bear high interest expenses in the future. To conclude, the liquidity ratio only presents the current cash position but the cash flow statement provides an indication of the future cash position and gives a comprehensive view on operating, investing & financing activities.