Compton Computing Systems (a)

A manager is faced with problems in analyzing cash flows for the year. He has completed a projected balance sheet and projected income statement, and wants to construct a projected statement of cash flows for the current year (case timing is very near the end of the year). The case serves as an introduction to the idea of cash flow analysis, and the relationships among balance sheet, income statement, and statement of cash flows. It provides a good opportunity for students to discuss expected changes to cash flow statements resulting from changes in management policies or changes in earnings. Excerpt UVA-C-2022 COMPTON COMPUTING SYSTEMS (A) Phillip Brantly, chief financial officer of Compton Computing Systems, sat in his office and considered the company's financial performance for 1999. He had reason to be pleased since just about every measure of financial performance had shown strong improvement for the first three quarters of 1999, and he had no reason to suspect that the last quarter would be any different. However, as he prepared the final presentation of the 2000 budget to the board of directors, which was scheduled for December 11, Brantly was uneasy about the economy and how it might affect Compton's financing and capital-investment plans for next year. He knew the board would have detailed discussions on alternative levels of expenditures and contingency financing plans for 2000. Thus in the two weeks remaining before the meeting, he would need to complete his 1999 projected end-of-year financial statements. Using these statements as a base, he would then be able to determine whether sufficient funds from operations were being generated to portend a favorable cash flow in general through early 2000, and whether the company should proceed with the capital expenditures that were scheduled for early 2000. The Company Compton Computing Systems, headquartered in San Francisco, California, designed, manufactured, and serviced electronic products and systems for measurement and computation applications for general industry use. In addition to a full line of computers and computer-related hardware, Compton also produced and sold an impressive array of electronic test equipment, component parts, and medical test products. Compton's basic business purpose was to provide the capabilities and support to enable customers worldwide to improve their personal and business effectiveness. The company was founded in 1958 for the manufacture of electronic measurement devices. It had begun research into computers almost at its founding and had marketed computers and computer systems since the early 1960s. Emphasis on quality and reliability allowed the company to grow rapidly. An increased need for capital forced the company to go public in 1962, and earnings had been sufficient to pay dividends to stockholders consecutively since 1965. . . .