Financial Statements Study Session #7 Flashcards
3 Types of cash flow activities
Operating Activity
Investing Activity
Financing Activity
Cash Flow from Operating Activity
consists of inflows/outflows of cash resulting from transactions that affect a firms net income.
GAAP
In Out
Cash from Customers Cash paid to employees/suppliers
Interest/Dividends Received Cash paid for other expenses
Sale proceeds from trading Securities Acquisition of trading securities
Interest paid
Taxes paid
Cash Flow from Investing Activity
consists of inflows/outflows of cash resulting from the acquisition or disposal of long-term assets and certain investments.
GAAP
In Out
Sale proceeds from fixed assets Acquisition of fixed assets
Sale proceeds from debt/equity investments Acquisitions of debt/equity instruments
Principal rec’d from loans to others Loans made to others
Cash Flow from Financing Activity
consists of inflows/outflows of cash resulting from transactions affecting a firms capital structure.
GAAP
In Out
Principal amount of debt issued Principal paid on debt
Proceeds from issuing equity Payments to reacquire stock
Dividends paid to shareholders
Interest/Dividends Received under IFRS
Interest/Dividends Paid under IFRS
Interest and dividends received under IFRS may be reported as operating or investing activity.
Interest and dividends received under IFRS may be reported operating or financing activity.
Income taxes paid GAAP/IFRS (Cash Flow Statement)
Under GAAP all income taxes paid are under operating activities.
Under IFRS income taxes paid are operating activities unless the expense is associated with a investing or financing transaction.
Non-cash investing and financing activities (Cash Flow Statement)
not reported in the cash flow statement since they do not result in inflows/outflows of cash.
Direct Method (Operating Cash Flow)
XYZ Company
Cash Collections from Customers xx,xxx
Cash Paid to Suppliers (xx,xxx)
Cash Paid for operating Expense (xx,xxx)
Cash Paid for interest (xx,xxx)
Cash Paid for taxes (xx,xxx)
______
Operating Cash Flow xx,xxx
Indirect Method (Operating Cash Flow)
XYZ Company
Net Income xx,xxx
Adjust for non-cash items and
changes in working capital:
Depreciation and amortization xx,xxx
Deferred income taxes x,xxx
Change in A/R x,xxx
Change in A/P x,xxx
Change in Prepaid Exp. x,xxx
Change in Inventory x,xxx
Change in Accrued Liabilities x,xxx
_____
Operating Cash Flow
Calculate Cash Paid for New Asset (Investing Activity)
=Ending Gross Assets + grow cost of old assets sold - beginning gross assets
Calculate Cash from an asset sold (Investing Activity)
=book value of the asset + gain (or - loss) on sale
Calculate Cash Paid to Suppliers (Direct Method)
=COGS +/- change in inventory +/- change in A/P
Determine Beginning A/R, Ending A/R, Sales, Cash Collections (Direct Method)
Ending A/R = Beginning A/R + Sales - Cash Collections
‘
If you have and of the 3, solve for the 4th.
Calculate Free Cash Flow to Firm (FCFF)
=CFO + [1 x (1-interest rate)] - FCInv
where FCInc = Fixed Capital Investments (net)
Calculate Free Cash Flow to Equity (FCFE)
=CFO-FCInv+Net Borrowing
Net borrowing = debt issued - debt repaid
Common Size (Cash Flow Statement)
items listed as percentage of revenue
or
each inflow is expressed as a percentage of total inflows and each outflow is expressed as a percentage of total outflows
Calculate Cash Received From Customers
= Revenue +/- Change in A/R
Common Size (Balance Sheet)
=balance sheet/total assets
Receivables turnover
=annual sales/average receivables
Days of sales outstanding
=365/Receivables turnover
Inventory turnover
=COGS/Average Inventory
Days of inventory on hand
=365/Inventory turnover
Payables turnover
=purchases/average trades payable
Number of days of payables
=365/payables turnover ratio
