Chapter 6 Flashcards
How do calculate Net Cash Flows
=Net Income - Non-cash Rev + Non Cash Exp
What is the statement of cash flows
summarizes the changes in a company’s cash position
What are operating activities
The amount of cash generated by the firm’s operating activities
What are investing activities
a transaction involving fixed assets or short-term financial investments
What are financing activities increase cash
- issuing short and long term debt and stock
What financing activities decrease cash
dividend payments, stock repurchases
What does the statement of cash flows say
is the firm generating enough cash to purchase the additional assets required for growth and is there extra cash they can use to pay off debt
What is FCF
FCF is the amount of cash available from operations for distribution to all investors after making necessary to support operations
what does a companies value depend on
amount of FCF it can generate
What is NOPAT
the amount of profit a company would generate if it had no debt and held no financial assets
What are operating current assets
the CA needed to support operations
What do current operating assets include and exclude?
include: cash, inventory, receivables
exclude: short-term investments
What do current operating liabilities include or exclude
Include: AP and Accruals
Exclude: Notes payable b/bc this is a source of financing
What is Net Operating Working Capital (NOWC)
working capital acquired with investor-supplier funds
Is negative FCF always bad
no
Besides working capital what can also be used to support operation
long terms assets
What are the uses of FCF
- Pay interest on debt (IS)
- Pay back principal on debt (BS)
- Pay dividends
- Buy back stock
- Buy short-term investments
What does it mean if a company has negative FCF
That the company is making large investments in operating assets
NOPAT is bad but negative FCF is not
What is return on invested capital
The way to show whether growth is profitable shows how much growth is generated by each dollar of operating capital
if ROIC is greater than rate of return that investors require then what?
the firm is adding value
What is MVA
Total market value of a company minus the amount of investor-supplied capital
what is EVA
Economic value added… the income that remains after the cost of all capital
What does MVA measure
the effects of managerial actions since the very inception of a company
What does EVA measure
managerial action in the given year
