Financial Statements Part 2: Statement of Cash Flows Flashcards
This is the most honest of the financial statements
Statement of Cash Flows
This reveals the true health of the company
Statement of Cash Flows
CFO means
Cash flows from operations
CFI means
Cash Flows from Investing
CFF means
Cash Flows from Financing
The sum of CFO, CFI, and CFF is equal to
the company’s change in cash (ending cahs-beginning cash)
This includes what to produce, how to produce it, whom to sell it to, whom to use for suppliers, etc.
Operational Decisions
CFI measures the net cash impact of
Operating Decisions
What type of projects a firm decides to take
Investing Activities
Investing activities involve decisions concerning the purchase and sale of
Long-term assets, such as conveyor belts or the construction of new production facilities
CFI measures the net cash impact of
Investing Decisions
Deals with the issuance of debt and equity, the repayment of debts or repurchase of stock, and the payment of dividends
Financing Decisions
CFF measures the net cash impact of
Financing Decisions
The standard form for the statement of cash flows lists what?
Operating, investing, and financing cash flows (in that order) followed by the net change in cash
These will impact the way cash flows are categorized
The firm’s core activities
The most commonly used method used by financial analysts to calculate CFO is
Indirect Method
Financial statement accounts which generate operating expenses
Operating Accounts
Generally, current assets other than cash are
Operating Asset Accounts
Current liabilities other than notes payable are
Operating Liability Accounts
Increased assets =
Outflow of Cash
For assets to increase
Cash must be used to acquire the asset
An increase in an asset account indicates what
That cash has left the firm
Increases in liability accounts signal
an inflow of cash
For the purposes of the statement of cash flows, current liabilities are considered a
Financing Account
When calculating CFO, be sure to not adjust
net income for changes in notes payable
This involves any cash in or out of the company due to investment in or disposal of fixed assets
Cash Flow from Investing
An increase of an asset including cash or the decrease of a liability
Use of Cash
CFF stands for
Cash Flow from Financing
CFF is calculated by
comparing the appropriate balance sheet accounts
An increase in a financing account signals
A cash inflow
What happens to net income?
Pay dividends to equity holders OR Increase retained earnings
Dividends =
(Old RE + Net Income) - New RE
CFO =
Net Income + Depreciation expense, +/- change in operating assets, +/- Changes in operating liability accounts
CFO cannot be distributed to the owners of a firm because
CFO does not allow for required reinvestment
FCF stands for
Free Cash Flow
FCF is
Distributable cash
FCFF is
Free Cash Flow to the Firm
FCFE is
Free Cash Flow to Equity
FCFE is the cash distributable to the
equity holders after satisfying all obligations to debt holders
The cash actually distributed to stockholders
Dividends
The base equation for measuring FCFF is
FCFF = EBIT(1-tax rate)+Depreciation - CAPEX - Increases in NWC
The percent of earnings a firm pays in tax
Tax rate
Depreciation =
Depreciation Expense
EBIT
Earnings before interest and taxes
CAPEX
Capital Expenditure on PP&E; frequently measured as CFI
NWC
Net working capital (current assets-current liabilities) changes
How much the firm spends on fixed assets
Capital Expenditures
Calculated by subtracting current liabilities from current assets
NWC
New borrowings minus any repayment of old debt is
Increases in debt
