Cash flow, gearing and working capital & liquididty ratio analysis Essay

Cash flow, gearing and working capital & liquididty ratio analysis - Essay Example In the year, 2011 the company net cash flows from operating activities was  £3658000 compared in to  £3147000 in 2010. This is 16.42% increase in the cash inflows meaning that the company realized improved cash from its day-to-day operations. From the cash flow statement, the positive improvement can be attributed to the increase in profits from continuing operations from  £2924000 in 2010 to  £3557000 in 2011 (Zytronic, 2011). The increase in depreciation cost on property, plant, and equipment increased the not cash inflows because in determining the net cash inflows the values are added back since the does not account for any actual cash flows. In 2011 for instance, the depreciation value was  £802000 meaning that the company incurred more depreciation cost because of the increase in the assets. The improvement in the cash inflows could be much more if the company could have reduced the values of inventory and receivables in 2011. The increase in inventory from 85 in 2010 to 166 in 2011 and of receivables from  £356000 in 2010 to  £647000 in 2011 is significant and adversely reduced the cash inflow figures in 2011 (Zytronic, 2011). At the same time, the increase in trade and other payables made the net cash flow from operating activities to improve. Finally, tax paid is also a component of the operating cash flows. In 2010, Zytronic paid a tax of  £65000 compared to  £821000 in 2011. The increase in the tax obligation between the two years is attributed to the increase in the profit recorded by the company. Tax is charged as a percentage of profits and therefore an increase in the profits would automatically translate in increased tax expense which as an outflow. The second component of the cash flow statement is the cash flows from the investing activities. Investing activities are those activities that a company puts its resources in order to earn profits, increase its capital assets in