chap4TheStatementofCashFlows(财务报表分析,加州大学MBA).ppt

On Project Report/Readings Market value, use number of shares outstanding, do not use average number of shares outstanding Identify source of data or quotes Common size analysis, show amounts and percentages Only analyze notes that are related to our current lecture Take turn to write the report, do not leave to one person In final exams, I may provide you with raw materials and a sample article from our readings for you to analyze the raw materials and write a similar article. So get familiar with all articles. Again, understand but do not memorize. Firm Names Eagle Eye: Valuation Analysis Strategy Investorium Statement of Cash Flow Cash flow from Operating activities: （营运活动） cash receipts from customers cash disbursed to: suppliers of merchandise employees for salaries Cash flow from investing activities: （投资活动） purchase of buildings, equipments, plants proceeds (进帐）from sales of long term assets Cash flow from financing activities: （融资活动） borrowing/repay long term debts issuing new shares Overview of the Statement of Cash Flows In AOL 2000 balance sheet, cash and cash equivalent increased from $936 millions to $2,490 millions. How? The statement of cash flows (a) explains the reasons for a change in cash. (b) classifies the reasons for the change as an operating, investing or financing activity. (c) reconciles net income with cash flow from operations. Montgomery Ward b.f. bankrupt The difference between earnings and cash flows I/S Explain change in retained earnings I/S is accrued-based I/S recognize property rights I/S require estimates I/S is an opinion I/S is prone to (易于） manipulation Firms can survive a long string（长串） of negative earnings SCF explain change in cash and cash equivalent N/A SCF emphasize “actual possessment” SCF does not SCF is a fact SCF is so to a much less degree Firms go bankrupt with a long string of negative cash flows (outflow) Cash flow equation A = L + E A =L+E cash +non-cash A = L+ E cash + current A (other than cash) +non- current A= current L+ non-current L+ E cash = current L+ non-current L+ E - current A (other than cash) -non-current A Cash flow from operation Cash flows related to selling goods and services; that is, the principle business(主营业务) of the firm The main source of payoffs to shareholders and creditors The reason for the firms to exist If firms do not in the long run generate more cash from operation than the returns of funds to shareholders and creditors, the firms go bankrupt Cash flow from operation-components Cash collected from customers Cash collected as interest (利息）on loans to others Cash collected as dividends （股利）on investment on other firms stocks Cash paid to suppliers Cash paid to employees Cash paid to other service providers: landlords, marketing agency, auditors, consultants, Cash paid to government Cash paid to creditors as interest on borrowed money Cash flow from investing activities Cash flows related to the acquisition or sale of non -current assets: investment, land, property, plants, equipments To maintain the current productivity of the operation, a firm must replace assets that they wear out (消耗） To grow its operation, a firm must acquire additional assets Old assets may be sold as they become obsolete (过 时）, or as the firm change production Investing activities thus provide resource to generate cash flow from operations Cash flow from investing activities- components Cash received from sales of land, investment, property, plants and equipment Cash paid to acquire land, investment, property, plants and equipment Cash flow from financing activities Cash flows related to long-term liabilities and owners equity The source of cash to be used in investing and operating activities Two sources: shareholders and creditors This part of SCF also indicates how much cash the firm returns to its capital providers, i.e., cash distribution to shareholders and creditors Note: short-term liabilities generated in operation, such as account payable, is not related to this category Cash flow from financing activities- components Cash received from issuing corporate debts or taking up loans Cash received from issuing common shares or preferred shares Cash paid to repay debts or loans Cash paid to repurchase shares Cash paid to shareholders as dividends Relations among the cash flows from the three categories of activities 1 CF from Fin. Act. CF from Inv. Act CF From Op. Act. Free Cash Flow = Cash flow from operating activities + Cash flow from investing activities If positive, normal operation generates more cash that it consumes, such as the case of a stable firm If negative, normal operation generates insufficient amount of cash to be self-sustaining, such as a growing firm Two methods to prepare the operating portion of SCF Direct method of presentation calculates cash flow from operations by subtracting cash disbursements to supplies, employees, and others from cash receipts from customers. The indirect method calculates cash flow from operations by adjusting net income for noncash revenues and expenses. Most firms present their cash flows using the indirect method. SCF-Direct method The direct method is simple and straight: Cash collected from customers Cash collected as interest (利息）on loans to others Cash collected as dividends （股利）on investment on other firms stocks Cash paid to suppliers Cash paid to employees Cash paid to other service providers: landlords, marketing agency, auditors, consultants, Cash paid to government Cash paid to creditors as interest on borrowed money Indirect method SCF reconciles net income with cash flow from operation cash = current L+ non-current L+ E - current A (other than cash) -non-current A cash = current L - current A (other than cash) + non-current L+ E non-current A Op. Fin. Inv. Indirect method SCF reconciles net income with cash flow from operation Net Income is accrual-based, when we calculate net income, we do not care whether cash has been received or paid But current assets and current liabilities accounts are impacted when we calculate net income, e.g., we debit account receivable and credit revenue when finishing a sales activity Indirect method SCF reconciles net income with cash flow from operation So in the example above, net income is higher than cash flow from operation because this transaction increases net income by increasing revenues, but does not increase cash because we debit account receivable and no cash is collected yet. Therefore, to get to the balance of cash from net income, we subtract the increase in account receivable account. This procedure confirms to the cash equation in which increase (positive change) in current assets other than cash decrease cash flow from operation. Indirect method SCF reconciles net income with cash flow from operation The indirect method: Net income + depreciation - Increase in current assets accounts + decrease in current assets accounts - decrease in current liabilities accounts + increase in current liabilities accounts = Cash flow from operation Notes to financial statements- on cash flows Is cash the king? Cash is the ultimate payoffs to capital providers Established finance theory told us the the value of a firm is the present value of all its future dividends Is cash the king? Earnings do not always go hand-in-hand with cash flows - Operational reason: a growin