Techno Net Income and Cash Flows for the Year 2008 and 2009

Techno Net Income and Cash Flows for the Year 2008 And 2009

Net income is different from operating cash flows due to various reasons. To start with, net income deals with non-cash expenses resulting from the depreciation of the intangible assets (Ball, Gerakos, Linnainmaa & Nikolaev, 2016). In 2009, the net income was $316 which increased after including amortization, depreciation, and taxes deferred during this year to $400.  These two methods, i.e. amortization and depreciation, are not included when calculating cash flows, hence the difference.

Another reason why cash flow and net income are contrasting is because of time difference between expense and revenue recognition; in the given table there is an increase in cash flow activities (Ball, Gerakos, Linnainmaa & Nikolaev, 2016).  This is because of sales revenue inclusion in to the net income. The revenue was collected in form of cash. Also, net income differs from cash flows due to inclusions of non-operating losses and gains. Cash flow income is as a result of investment and finance activities, but not from operating activities. In this scenario, it is clear that gains were deducted from net income and losses include in the net income to come up with the operating cash flows.

Analyzing cash flows for 2008 and 2009

The Techno’s cash flows for 2008 and 2009, shows that the company gained a lot of cash from its operations. This increased their cash amount by 141%. This is an example of an effective cash management system which was able to generate future cash flows and produce and manage investment strategies. In analyzing the cash flow statements solvency of the business is assessed to help in evaluating company’s ability to generate positive cash flows and its continuity in financial growth (Ball, Gerakos, Linnainmaa & Nikolaev, 2016).

Reference

Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. (2016). Accruals, cash flows, and operating profitability in the cross section of stock returns. Journal of Financial Economics121(1), 28-45.