Reading 27: Understanding Cash Flow Statements Flashcards
Free Cash Flow to the Firm (FCFF)
27.x
Understanding Cash Flow Statements
FCFF = NI \+NCC \+Int(1 - Tax Rate) -FCInv -WCInv
where:
NI = Net Income NCC = Non-cash charges (such as depreciation and amortization) Int = interest expense FCInv = Capital expenditures (fixed capital, such as equipment) WCInv = Working capital expenditures
Free Cash Flow to the Firm (FCFF)
(computed from cash flow from ooperating activities)
27.x
Understanding Cash Flow Statements
FCFF =
CFO
+Int(1 - Tax Rate)
-FCInv
Free Cash Flow to Equity (FCFE)
27.x
Understanding Cash Flow Statements
FCFE = CFO - FCInv + Net borrowing
When net borrowing is negative, debt repayments exceed receipts of borrowed funds. In this case FCFE can be expressed as
FCFE = CFO - FCInv - Net debt repayment
Cash Flow to Revenue Ratio
Cash Flow Ratios: Performance
27.x
Understanding Cash Flow Statements
CFO / Net Revenue
Measures operating cash generated per dollar of revenue
Cash Return on Assets Ratio
Cash Flow Ratios: Performance
27.x
Understanding Cash Flow Statements
CFO / Average total assets
Measures operating cash generated per dollar of asset invested
Cash Return on Equity Ratio
Cash Flow Ratios: Performance
27.x
Understanding Cash Flow Statements
CFO / Average shareholders’ equity
Measures operating cash generated per dollar of owner investment
Cash to Income Ratio
Cash Flow Ratios: Performance
27.x
Understanding Cash Flow Statements
CFO / Operating Income
Measures cash generating ability of operations
Cash Flow per Share Ratio
Cash Flow Ratios: Performance
27.x
Understanding Cash Flow Statements
(CFO - Preferred dividends) / Number of common shares outstanding
Measures operating cash flow on a per-share basis
Debt Coverage Ratio
Cash Flow Ratios: Coverage
27.x
Understanding Cash Flow Statements
CFO / Total debt
Measures financial risk and financial leverage
Interest Coverage Ratio
Cash Flow Ratios: Coverage
27.x
Understanding Cash Flow Statements
(CFO + Interest paid + Taxes paid) / Interest paid
Measures ability to meet interest obligations
Reinvestment Ratio
Cash Flow Ratios: Coverage
27.x
Understanding Cash Flow Statements
CFO / Cash paid for long-term assets
Measures ability to acquire assets with operating cash flows
Debt Payment Ratio
Cash Flow Ratios: Coverage
27.x
Understanding Cash Flow Statements
CFO / Cash paid for long-term debt repayment
Measures ability to pay debts with oerating cash flows
Dividend Payment Ratio
Cash Flow Ratios: Coverage
27.x
Understanding Cash Flow Statements
CFO / Dividends paid
Measures ability to pay dividends with operating cash flows
Investing and Financing Ratio
Cash Flow Ratios: Coverage
27.x
Understanding Cash Flow Statements
CFO / Cash outflows for investing and financing activities
Measures ability to acquire assets, pay debts, and make distributions to owners
