Johnson Company Presented Its Financial Statements to a Local Bank

Essay

Johnson Company presented its financial statements to a local bank as part of a loan application. The loan officer was concerned because, even though cash flow had increased during the year and net income was positive, net cash flows from operating activities had a significant negative balance. At the same time, the company had sold a large part of its investment portfolio and issued additional stock to its shareholders.
Write a memo to Johnson Company and explain the loan officer's concern. Include the relationship between cash flows from the three types of activities.