Financial Reporting: Peeking Under the Financial Hood

Compose a 500- to 750-word paper responding to questions 1 and 2 of the Candela Corporation Case on p. 146 (Ch. 4). Format your paper according to APA standards. Post your paper as an attachment.

Using the Consolidated Statements of Cash Flows, prepare a summary analysis for the years ended July 3, 2004, June 28, 2003, and June 29, 2002. Analyze the cash flows for Candela Corporation, Inc. for all three years.

Explain what information you gain from the statement of cash flows that cannot be found directly from the balance sheet or income statement.

“Candela Corporation is a pioneer in the development and commercialization of advanced aesthetic laser systems that allow physicians and personal care practitioners to treat a wide variety of cosmetic and medical conditions” (Fraser & Ormiston, 2007, pp. 46-147). After reviewing the corporation’s statement of cash flows for the years 2002, 2003, and 2004, it is clear that the company has taken on many changes financially. In 2002, Candela Corporation had a weak start with several losses compared to the years 2003, and 2004. In 2002, Candela had a net loss of $2,154 (thousands) compared to a net gain in 2003 and 2004. Candela Corporation had a significantly higher amount of loss in its net cash used in operating activities of $7,071 (thousands) compared to its net loss of $2,154 (thousands), a difference of $4,917.
Candela Corporation also had a net loss in its investing activities of $1,058 (thousands), and a net loss in its financing activities of $5,141 (thousands). Candela also had a loss of $68 (thousands) on its income taxes for the year. In 2002, the company took a loss in the following operating areas according to their statement of cash flows. Provision for deferred taxes $115 (thousands), tax benefit from exercised stock options $6 (thousands), effect of exchange rate changes on foreign currency denominated assets and liabilities of $305 (thousands).
Account receivable $3,525 (thousands), notes receivable $54 (thousands), inventories $1,661 (thousands), and accounts payable $3,069 (thousands) and income tax payable $784 (thousands). Net losses in investing and financing areas include purchase of property, plant, and equipment of $1,058 (thousands), repurchases of treasury stock of $5,215 (thousands), and principle payments of long-term debt of $370 (thousands). In 2003, Candela Corporation had a net profit at the yearend of $6,814 (thousands) with a net cash used in operating activities of $11,655 (thousands); a significant difference from 2002.
Candela Corporation still had a net loss in its investing activities of $1,227 (thousands) while they had a net profit in its financing activities of $176 (thousands). Other net losses the company incurred in its operating, investing, and financing activities sections were provision for bad debts $13 (thousands), provision for deferred taxes $682 (thousands), and tax benefit from exercised stock options of $505 (thousands). Other areas are restricted cash $57 (thousands), account receivable $2,417 (thousands), accounts payable $1,409 (thousands).
Accrued warranty costs of $921 (thousands), purchase of property, plant, and equipment $1,227 (thousands), net borrowings (repayments) on line of credit $1,114 (thousands), and principle payments of long-term debt of $3,330 (thousands). Candela Corporation seems to be most successful in 2004 according to its statement of cash flows. In 2004, Candela Corporation had a net income of $8,119 (thousands) and $1,132 used in net operating activities. Even though the company still had several losses in 2004 they were still able to profit from the last two years.
Other net losses the company incurred in its operating, investing, and financing activities sections were tax benefit from exercised stock options of $1,223 (thousands), restricted cash $200 (thousands), accounts receivable $7,663 (thousands) and inventories of $2,134 (thousands). Other current assets of $2,550 (thousands), other assets $236 (thousands), accounts payable $91 (thousands), income tax payable $1,312 (thousands), and purchase of property, plant, and equipment of $685 (thousands).
The income statement and balance sheet provides an adequate amount of information, but the statement of cash flows provides a clearer picture of what a company is doing and how well they are doing. The income statement and balance sheet provides information about the accounts receivable and the accounts payable as well as depreciation; the statement of cash flows also provides this information. “A company’s financial statements consist of the balance sheet, income statement and cash flow statement. The balance sheet summarizes the assets, liabilities and shareholders’ equity of the company.
The income statement shows the sales-related activity over a period, which is usually a quarter of a year. The cash flow statement shows the cash inflows and outflows during a period. Financial information is important in assessing a company’s profitability, detecting problem areas and making investment decisions” (Basu, 1999-2012).
References

Basu, C. (1999-2012). The importance of Income Statement and Cash Flows. Retrieved from eHow: http://www. ehow. com/info_8274659_importance-income-statement-cash-flows. html
Fraser, L. M. , & Ormiston, A. (2007). Case 4. 2 CandelaCorporation. Prentice Hall.

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