Interpreting the financial statement and identifying relevant cashflows Flashcards
Why is it important to determine company cash flows?
a) an informative and analytical purpose: historical view of which components determine the cash flow of the company.
b) planning purpose: usually in the development of the business plan.
c) evaluation: FCFO and FCFE for the determination of market value
main difference between income statement and cash flow statement
the latter uses monetary cash flows, and not costs/revenues
What does the balance sheet represent?
Sources of capital: where resources have been drawn from
Uses of capital: where resources have been invested
How do you compute CAPEX?
CAPEX = FixAss1 + Depreciation - FixAss0
How do you compute “use of funds” (severance pay and risk provision)?
Use of funds = Fund0 + Provisions for the year - Fund1
namely: starting balance of the fund + any additional provisions set aside - ending balance of the fund.
What are the differences between accounting and valuation purpose cashflow determination?
Graphs at page 23 (lecture 2)
What is the planned variation in debt?
If we assume financial leverage to remain constant, it i correct to consider that the debt grows in proportion to the equity
What are net extroardinary items?
Items not related to the usual business activity, like, for example:
- severance pay
- pension and other benefits
- forex gains/losses
- other expenses/income
How do you compute “uses of funds”?
Risk Provisions and Severance Pay(1) - Risk Provisions and Severance Pay(0) -Severance Pay, Pension and other benefits, Provisions (all from the IS)
What is net financing requirement / surplus?
Net cash flow from operations - change in equity participation - change in other long term financial assets
How do you compute dividends paid?
Retained earnings 1 - (Retained earnings 0 + Net Income)
How do you compute change in trade receivables?
Receivables 1 - Receivables 0 + Write Down of trade receivables
Bottom up approach to compute EBITDA
Net Profit + Income Tax + Devaluations + Financial Charges - Financial Revenues + Depretiation and Provisions
Top down approach to compute EBITDA
Net Revenue + change in inventories - purchase of goods and services - other operating costs - cost of labour + net extraordinary items
