Managerial Accounting – Analyzing Cash Flow
Introduction
Whirlpool Corporation is a multinational company that manufactures home appliances and has its headquarters in Benton, Michigan in the USA. Whirlpool is listed at the NYSE and its among the Fortune 500 having a turnover of slightly over $18.4 billion. Whirlpool owns several manufacturing companies in Iowa, Ohio, Tennessee, Oklahoma, and Greenvile among other cities in the USA. It was founded to in the year 1911 by Louis and Emory Upton.
Case Summary
Whirlpool Cash Flow reflected Net earnings of $433 million. This is after financing the acquisition of Maytag and the sale of Dixie-Narco Vending systems to Crane Company. There were other sales of assets and businesses that brought in extra earnings to Whirlpool Corporation though it also spent $102 million in expenses related to the sales and acquisition of the businesses.
Whirlpool revealed that it sold Aga Food Service, Inc. for approximately $49 million and Dixie-Narco Vending Systems for approximately $46 million. Both of these companies were part of Maytag. How much did Whirlpool receive from the sale of portions of Maytag in addition to the amounts it received from selling Aga Foodservice and Dixie-Narco? Explain how you arrived at this figure.
| A. | ||
| Proceeds from Maytag adjacent businesses | 110 | |
| Less: Proceeds from Aga sale | 49 | |
| Less: Proceeds from Dixie-Narco sale | 46 | |
| Additional proceeds from sales of other Maytag parts | 15 | |
The figure is obtained by deducting the amount of money received from the sales of Aga Sales and Dixie- Narco which were $49 and $46 million respectively from the Proceeds received from Maytag adjacent businesses which was $110 million.
Case Analysis
After taking into consideration the cash received from selling off parts of Maytag, how much cash did Whirlpool pay for the Maytag acquisition in 2006? (Assume that the Maytag acquisition was Whirlpool’s only major acquisition for 2006). Explain how you arrived at this figure.
| B. | |
| Acquisitions of businesses, less cash acquired | 797 |
| Less: Proceeds from Maytag adjacent businesses | 110 |
| Total cash paid for Maytag acquisition | 687 |
This figure is arrived at after deducting the amounts received from the proceeds of Maytag adjacent($110 million) business sales from the total acquisitions of the period under review less the cash acquired which amounted to $ 797 million which gives a balance of $687 million.
Executive Decision
What appears to be the primary source of the cash that Whirlpool used to buy Maytag?
Case Summary
The primary source of cash that Whirlpool seems to have used as per the Cash Flow is from the cash generated from operations other activities were financed by borrowed funds through the issuance of US commercial paper market in June 2006 and was later refinanced partly by the issuance of long term bonds. But the major considerations for the purchase were from the sales of shares that were exchanged for the debt adopted by whirlpool.
Case Analysis
After taking into consideration the cash received from selling off parts of Maytag, how much cash did Whirlpool pay for the Maytag acquisition in 2006? (Assume that the Maytag acquisition was Whirlpool’s only major acquisition for 2006). Explain how you arrived at this figure.
| C. | |
| Cash from Operations | 880 |
| Cash from Investing | -1194 |
| Cash from Financing | 29 |
| Cash from discontinued operations | 5 |
| Effect of exchange rate | 18 |
| Cash and cash equivalents | -262 |
The funds received from operations were $880 million and most of these funds was used to pay for the purchase of Maytag.
The figure $880 million was arrived at after adding the loss amounting to $53 million which had been generated from discontinued operations together with other expenses and incomes as shown below. (Khan, 1993)
| Net earnings (loss) | 433 | |
| Loss from discontinued operations | 53 | |
| Equity in earnings (loss) of affiliated companies | 5 | |
| Loss (gain) on disposition of assets | -4 | |
| Loss (gain) on disposition of businesses | -32 | |
| Depreciation and amortization | 550 | |
| Trade receivables | 50 | |
| Inventories | -118 | |
| Accounts payable | 44 | |
| Restructuring charges, net of cash paid | -80 | |
| Taxes deferred and payable, net | -154 | |
| Accrued pension | 53 | |
| Accrued payroll and other compensation | 25 | |
| Other assets and liabilities, net | 55 | |
| 880 | ||
Executive Decision
What appears to be the primary source of the cash that Whirlpool used to buy Maytag?
The primary source was the money generated from the business that’s the net earnings. The executive decision was actually needed in deciding which investment could be disposed off to finance the Maytag investments. The decision to sale Aga Food Service and Dixie-Narco Vending Company was actually a critical investment decision that could only be made by the top management of Whirlpool Corporation. (Vance, 2003)
To conclude the primary source of cash that was used to finance the Maytag Purchase was from the cash generated from operations. This was mostly from the sales of some investments that were part of the Maytag businesses. Aga Food Service that was sold for about $49 million and the Dixie-Narco Vending Company for about $46 million.
References
Khan, M. (1993). Theory & Problems in Financial Management. Boston: McGraw Hill, Higher Education.
Vance, D. (2003) Financial analysis and decision making: tools and techniques to solve
financial problems and make effective business decisions. New York: McGraw-Hill.
