Crystal Meadows of Tahoe, Inc

Introduction
Crystal Meadows of Tahoe (CMOT) is a holding company for two different ski resorts. The majority of revenues from this company come from the sale of lift tickets, ski rentals, skiing lessons, and food and beverage sales; revenues are also primarily generated during the winter months. CMOT has recently partnered with Toiyabe Resort Company for the development of a year-round ski resort in the Tahoe area, and have invested $5,300,000 in the venture. CMOT and Toiyabe plan to begin construction of the resort in 1992. CMOT also plans to invest $8,200,000 in their two ski resorts (Lake Ridge and Crystal Meadows) in 1992.

During 1991, CMOT saw very positive increases to net income and shareholder’s equity. This year was exceptional in terms of operations, bringing CMOT the most skier days in the company’s history.
CMOT is planning some significant capital investments in 1992. An analysis of their income statements, balance sheets, and cash flow are helpful in guiding the company’s proposed investments.

What does the analysis of cash flows reveal about CMOT that was not evident from analysis of the income statements and balance sheets?
The income statement for CMOT for 1991 has the company showing a net income of $1,418,000. This figure is $747,000 higher than the previous year at $671,000 and more than doubles CMOT’s net income from 1990 to 1991. CMOT’s balance sheet for 1991 indicates that the company had $7,585,000 in retained earnings, which is $1,306,000 higher than 1990’s $6,279,000. Both provide bottom lines that make the CMOT appear to be profitable and in a growth cycle. An analysis of cash flows shows that CMOT has significant cash outflows for capital investments in PP&E, namely the purchase of new snow making equipment and other improvements. These outflows are nearly equivalent to cash taken in over the same