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FAR > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

when operating cash flow is negative is a good or bad news?

A

bad news because the firm don’t generate cash flow

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2
Q

direct method for calculate operating c.f.

A

you list what are the inflows and the outflows specifically

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3
Q

indirect method operating c.f.

A

you start from the net income and add all non cash expenses and add and subtract expenses/revenuee classified as investing or financing and subtract to change in NWC

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4
Q

indirect method gaap vs ifrs

A

both permit

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5
Q

direct method gap vs ifrs

A

both encourage

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6
Q

interest received IFRS and US GAAP

A
  • IFRS: operating or investing
    _ GAAP: operating
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7
Q

interest paid IFRS and US GAAP

A
  • IFRS: operating or financing
    -GAAP operating
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8
Q

dividends received IFRS and US GAAP

A
  • IFRS: operating or investing
  • GAAP: operating
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9
Q

dividends paid IFRS and US GAAP

A
  • IFRS: operating or financing
    -GAAP: financing
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10
Q

bank overdrafts IFRS and US GAAP

A
  • iFRS: considered part of cash equivalents
  • GAAP: not considered pat of cash equivalent; classified as financing
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11
Q

taxes paid IFRS and US GAAP

A
  • IFRS: generally operating , but a portion can be allocated to investing or financing
  • GAAP: operating
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12
Q

non cash transaction

A

any transaction that does not involve an inflow or outflow of cash, not incorporate in the cash flow statement, must be disclosed

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13
Q

step for the preparation of the cash flow statement

A
  1. determine the change in cash
  2. determine thee net cash flow from operating activities
  3. determine net cash flows from investing and financing activities
  4. include summary of net increase in cash, cash at beginning and cash at end
  5. disclose any significant non cash transaction separately at the bottom of the statement
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14
Q

ending PP&E formula

A

beginning PP&E + Purchases - Disposition

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15
Q

how you can determine investing cash flow

A

examine change in long-term assets

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16
Q

how you can determine operating cash flow

A

examine changes in debt and equity accounts

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17
Q

ending stock formula

A

beginning stock + issuance - repurchases

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18
Q

free cash flow to the firm

A

cash flow available to the company’s suppliers of capital
after all operating expenses have been paid
after all operating investments have been made for fixed and working capital

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19
Q

operating activities

A

deliver or provide goods for sale and provide services: receive cash from customer; pay cash to suppliers; pay cash for operating expenses

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20
Q

investing activates

A

buy or sell long-term asset and other investment : property, plan and equipment ; other companies’ securities

21
Q

financing activities

A

obtain or repay captal: borrow from creditors and repay the principal; issue or repurchasing stock; pay dividend

22
Q

cash cow business

A

in a mature firm I expect to have always cash higher than net income

23
Q

indirect method operating cash flow

A

net income + add-cash expenses +/- expenses or revenues classified in a different cash flow - change win net working capital where the NWC= INV + A/R - A/P

24
Q

FCFF FORMULA

A

net income + int.expense*(1-tax rate) + depreciations - Capex - change in NWC

25
Q

FCFF FORMULA WITH OPERATING CASH FLOW

A

operating cash flow + int.expense * (1-tax rate) - Capex

26
Q

the FCFF is discounted at

A

wacc

27
Q

FCFE formula

A

net income + depreciation - Capex - change in net working capital + net new borrowings (or minus net debt repayments)

28
Q

FCFE is discounted at

A

cost of equity

29
Q

cost of equity

A

fair value of equity dividend bu the number of shares outstanding and I obtain the fair value of shares

30
Q

cost of capital

A

enterprise value, market value of equity + debt - cash; value to pay to obtain the entire firm

31
Q

FCFE

A

free cash flow to equity; cash available to the company’s common stockholders.
After all operating expenses have been paid
after borrowings costs have been paid
after all operating investments have been made for fixed capital and working capital

32
Q

what does it means when positive FCFE

A

means that the company has an excess of operating cash flow over amounts needed for capital expenditures and payment of debt

33
Q

what does it means when positive FCFF

A

indicates that the firm has cash remaining after expenses

34
Q

cash paid to suppliers formula

A

cogs + change in inventory - (change in account payable)

35
Q

cash paid in salaries formula

A

salaries expense - salaries payable end + salaries purchase beginning

36
Q

cash received from customer formula

A

sales - change in A/R

37
Q

cash paid for interest formula

A

int.expense - int.payable end + int. payable beginning - int. exp - change interest payable

38
Q

perfomance ratio cash flow

A
  • cash flow to revenue
  • cash return on asset
    -cash return on equity
    -cash flow per share
  • cash to income
39
Q

cash flow to revenue

A

cfo/net revenue

40
Q

cash return on asset

A

cfo/ avg. tot. asset

41
Q

cash to income

A

cfo/ op.income

42
Q

cash return on equity

A

cfo/avg. share holders

43
Q

cash flow per share

A

cfo pref.dividends/n. shares outstanding

44
Q

debt coverage

A

cfo/total debt
financial risk and financial leverage

45
Q

interest coverage

A

(cfo + int paid + taxes paid)/ interest paid
ability to meet interest obligations

46
Q

reinvestment

A

cfo/cash paid for long term asset
ability to acquire asset with operating cash flows

47
Q

debt payment

A

cfo/cash paid for long term debt repayment
ability to pay debts with operating cash flow

48
Q

dividen payment

A

cfo/dividends paid
ability to pay dividends with operating cash flows

49
Q

investing and financing

A

cfo/cash outflows for investing and financing activities
ability to acquire assets, pay debt and make distributions to owners

FAR (16 decks)

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