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1、Chapteer 3 - SoluutionssOvervieew:Problemm Lenggth Prroblemm #s SS 1, 3 MM2, 7, 8, 112, 133 LL4 - 66, 9 - 11, 14, 115 1.Sa.Palommba Piizza SStoress Stateement of Caash FllowsYear Endedd Deceember 31, 22000Cash Fllows ffrom OOperatting AActiviities: Cash Colleectionns froom Cusstomerrs Cash Paymeents
2、 tto Suppplierrs Cash Paymeents ffor Saalariees Cash Paymeents ffor InnteresstNet Cassh froom Opeeratinng ActtivitiiesCash Fllows ffrom IInvestting AActiviities: Saless of EEquipmment Purchhase oof Equuipmennt Purchhase oof LanndNet Cassh forr Inveestingg ActiivitieesCash Fllows ffrom FFinanccing AA
3、ctiviities: Retirrementt of CCommonn Stocck Paymeent off DiviidendssNet Cassh forr Finaancingg Actiivitiees Nett Incrrease in Caash Cassh at Beginnning of Yeear Cassh at End oof Yeaar$ 250,0000 (85,0000) (45,0000) (10,0000) 38,0000 (30,0000) (14,0000) (25,0000) (35,0000)$ 110,0000 (6,0000) (60,0000)
4、$ 44,0000 50,0000 $ 94,0000 b.Cassh Floow froom Opeeratioons (CCFO) mmeasurres thhe cassh genneratiing abbilityy of ooperattions, in aadditiion too proffitabiility. If uused aas a mmeasurre of perfoormancce, CFFO is less subjeect too disttortioon thaan nett incoome. AAnalyssts usse thee CFO as a che
5、ckk on tthe quualityy of rreportted eaarninggs, allthouggh it is noot a ssubstiitute for nnet inncome. Comppaniess withh highh net incomme andd low CFO mmay bee usinng oveerly aaggresssive incomme reccognittion ttechniiques. The abiliity off a fiirm too geneerate cash from operaationss on aa conssis
6、tennt bassis iss one indiccationn of tthe fiinanciial heealth of thhe firrm. Annalystts seaarch ffor trrends in CFFO to indiccate ffuturee cashh condditionns andd poteentiall liquuidityy or ssolvenncy prroblemms.Cash Flow from Invessting Activvitiess (CFII) repports how tthe fiirm iss inveestingg it
7、s excesss cassh. Thhe anaalyst must consiider tthe abbilityy of tthe fiirm too conttinue to grrow annd CFII is aa goodd indiicatioon of the aattituude off manaagemennt in this area. Thiss compponentt of ttotal cash flow incluudes tthe caapitall expeendituures mmade bby mannagemeent too mainntain and
8、 eexpandd prodductivve cappacityy. Deccreasiing CFFI mayy be aa foreecast of sllower futurre groowth.Cash Fllow frrom Fiinanciing (CCFF) iindicaates tthe soourcess of ffinanccing ffor thhe firrm. Foor firrms thhat reequiree exteernal sourcces off finaancingg (eitther bborrowwing oor equuity ffinancc
9、ing) it coommuniicatess manaagemennts ppreferrencess regaardingg finaanciall leveerage. Debtt finaancingg indiicatess futuure caash reequireementss for princcipal and iintereest paaymentts. Eqquity finanncing will causee futuure eaarninggs perr sharre dillutionn.For ffirms whosee operratingg cashh f
10、loww exceeeds iinvesttment needss, CFFF indiicatess whetther tthat eexcesss is uused tto reppay deebt, ppay (oor inccreasee) cassh divvidendds, orr repuurchasse outtstandding ssharess.c.Cassh payymentss for interrest sshouldd be cclassiified as CFFF forr purpposes of annalysiis. Thhis cllassifficati
11、ion seeparattes thhe efffect oof finnanciaal levveragee deciisionss fromm operratingg resuults. It allso faacilittates the ccomparrison of Paalombaa withh otheer firrms whhose ffinanccial lleveraage diifferss.d. Thhe chaange iin cassh hass no aanalyttic siignifiicancee. Thee channge inn cashh (andd
12、hencce, thhe cassh ballance at thhe endd of tthe yeear) iis a pproducct of managgementt deciisionss regaardingg finaancingg. Forr exammple, the ffirm ccan shhow a largee cashh balaance bby draawing on baank liines jjust pprior to yeear ennd.e. and f. Theere arre a nnumberr of ddefiniitionss of ffree
13、 ccash fflows.In the text, freee cashh floww is ddefineed as cash from operaationss lesss the amounnt of capittal exxpendiituress requuired to maaintaiin thee firmms cuurrentt prodductivve cappacityy. Thiis deffinitiion reequirees thee excllusionn of ccosts of grrowth and aacquissitionns. Hooweverr,
14、 feww firmms proovide separrate ddiscloosuress of eexpendditurees inccurredd to mmaintaain prroducttive ccapaciity. CCapitaal cossts off acquuisitiions mmay bee obtaained from proxyy stattementts andd otheer dissclosuures oof acqquisittions (See Chaptter 144). In the finannce liiteratture, free cash
15、 flowss avaiilablee to eequityy holdders aare offten mmeasurred ass cashh fromm operrationns lesss cappital expennditurres. IIntereest paaid iss a deeductiion whhen coomputiing caash frrom opperatiions aas it is paaid too credditorss. Pallombas freee cassh floow avaailablle to equitty hollders is ca
16、alculaated aas folllows:Net cassh floow froom opeeratinng acttivitiies leess neet cassh forr inveestingg actiivitiees:$110,0000 - $6,0000 = $1104,0000 The invvestmeent acctivitties ddiscloosed iin thee probblem ddo nott indiicate any aacquissitionns. Anotherr defiinitioon of free cash flowss, whiich
17、 foocusess on ffree ccash fflow aavailaable tto alll provviderss of ccapitaal, woould eexcludde payymentss for interrest ($10,0000 inn thiss casee) andd debtt. Thuus, Paalombaas frree caash fllow avvailabble too all proviiders of caapitall woulld be $114,000. 2.Ma.199619971998199920002001SalesBad de
18、bbt exppenseNet recceivabblesCash coollecttions11$ - - 30$ -$ 140 7 40$ 123$150 7 50$133$165 8 60$147$175 10 75$150$195 10 95$1651 Saless - baad debbt exppense - inccreasee in nnet reeceivaablesb. 19971998199920002001Bad debbt exppense/saless5.0%4.7%4.9%5.7%5.1%Net recceivabbles/ssales28.633.336.442
19、.848.7Cash coollecttions/saless87.988.789.185.784.6c.The bad ddebt pprovission ddoes nnot seeem too be aadequaate. FFrom 11997 - 20011 salees inccreaseed by approoximattely 440%, wwhile net rreceivvabless moree thann doubbled, indiccatingg thatt colllectioons haave beeen laaggingg. Thee ratiios caal
20、culaated iin parrt b aalso iindicaate thhe prooblem. Whille badd debtt expeense hhas reemaineed faiirly cconstaant att 5% oof salles ovver thhe 5 yyear pperiodd, nett receeivablles ass a peercenttage oof salles haave inncreassed frrom 299% to 49%; cash colleectionns rellativee to ssales have decliin
21、ed. Otherr posssible explaanatioons foor theese daata arre thaat staated ppaymennt terrms haave leengtheened oor thaat Steengel has aalloweed cusstomerrs to delayy paymment ffor coompetiitive reasoons.3-973.SNiiagaraa ComppanyStatemment oof Cassh Floows 20001Cash coollecttionsCash innputsCash exxpen
22、seesCash innteresst paiidIncome taxess paidd Cash from OperaationssPurchasse of fixedd asseetsCash Ussed foor InvvestinngIncreasse in LT deebtDecreasse in notess payaableDividennds paaidCash Ussed foor FinnancinngNet Chaange iin CasshCash Baalancee 12/331/00Cash Baalancee 12/331/01$ 980 (670) (75) (
23、40) (30)$ 165 (150) (150) 50 (25) (30) (5)$ 10 500 $ 60 Sales - D AAccounnts ReeceivaableCOGS + D InvventorrySellinng & GGeneraal Exppense - D Acccountts Payyable11Intereest Exxpensee - D IIntereest PaayableeIncomee Tax Expennse - D Defeerred TaxDeprecciatioon Exppense + D Fiixed AAssetss (nett)Net
24、Inncome - D Reetaineed earrningss 1 Can aalso bbe useed to calcuulate cash inputts, deecreassing tthat ooutfloow to $645 whilee incrreasinng cassh exppensess to $100.4.La.G CommpanyIncomme Staatemennt, 20000 ($ thouusandss)SalesCOGS + operaating expennses1DepreciiationnInteresstTaxes Net iincomee$ 3
25、,8411 3,6511 155 411 422$ 922receippts frrom cuustomeers + increease iin acccountss receeivabllepaymennts - increease iin invventorry + iincreaase inn accoounts payabbleincreaase inn accuumulatted deepreciiationnpaymenntspaymennt + iincreaase inn tax payabblecheck = chaange iin rettainedd earnnings
26、as thhere aare noo diviidendss1 Note that thesee two itemss cannnot bee calcculateed sepparateely frrom thhe infformattion aavailaable.b.M CCompannyCash Receiipts aand Diisburssementts, 20000 ($ thouusandss)Cash reeceiptts froom: Custoomers Issuee of sstock Shortt-termm debtt Long-term debt TootalCa
27、sh diisburssementts: COGS and ooperatting eexpensses Taxess Interrest Dividdends PP&E purchhase TotallChange in caash$ 1,8077 33 622 966$ 1,9688 $ 1,8433 33 511 222 333$ 1,9522$ 166 Sales - inccreasee in rreceivvablessIncreaase inn accoountIncreaase inn liabbilityyIncreaase inn liabbilityyCOGS + ope
28、rratingg expeense + incrrease in innventoory + decreease iin acccountss payaableExpensse - iincreaase inn tax payabbleExpensseIncomee + inncreasse in retaiined eearninngsChangee in PPP&ENote: TThis iis nott a trrue reeceiptts andd disbbursemments scheddule aas it showss certtain aamountts (e.g., dde
29、bt) on a net bbasis ratheer thaan grooss. SSuch sscheduules (and ccash fflow sstatemments) preppared from publiished data can oonly sshow ssome aamountts nett, unlless ssuppleementaary daata arre avaailablle.c.Thee cashh floww stattementts aree pressentedd withh the incomme staatemennt forr comppari
30、soon purrposess in aanswerring PPart dd.M Compaany: SStatemment oof Cassh Floows($ thhousannds)19961997199819992000CFO:From cuustomeersLess ouutlayss for:COGS/opper. eexp.InteresstTaxesCFI:PP&E puurchasseCFF:Issue oof stoockShort-tterm ddebtLong-teerm deebtDividenndsStock rrepurcchase LT debtt repaa
31、idST debtt repaaidChange in caash$1,165 1,130 15 23 $ (3) (14) 5 64 - (20) (22) (2) - $ 25 8 $1,210 1,187 19 19 $ (15) (17) 5 65 - (21) (14) (2) - $ 33 1 $1,327 1,326 16 9 $ (24) (37) 8 - 100 (21) - (3) (8)$ 76 15 $1,587 1,672 21 9 $ (115) (30) 3 153 - (21) (10) - - $ 125 (20)$1,807 1,843 51 3 $ (90
32、) (33) 3 62 96 (22) - - - $ 139 16 M Commpany: Incoome Sttatemeent ($ thouusandss)19961997199819992000SalesCOGSOperatiing exxpenseeDepreciiationnInteresstTaxes Totall Net IIncomee$ 1,2200 8188 2988 99 155 388$ 1,1788 422$ 1,2655 8433 3200 100 199 333$ 1,2255 400$ 1,3844 9311 3633 111 166 277$ 1,3488
33、 366$ 1,6555 1,1255 4344 122 211 266$ 1,8522 377$ 1,8611 1,2777 5044 144 511 66$ 1,8522 99G Commpany: Stattementt of CCash FFlows($ thhousannds)19961997199819992000CFO:From cuustomeersDisburssementts:COGS/Opper. eexp.InteresstTaxes CFI:PP&E puurchasseCFF:Issue oof stoockShort-tterm ddebtLong-teerm d
34、eebt Change in caash$1,110 1,214 11 13 $ (128) - 10 80 40 $ 130 $ 2$1,659 1,702 13 15 $ (71) - - 52 23 $ 75 $ 4 $2,163 1,702 23 16 $ (93) (20) 5 91 20 $ 116 $ 3 $2,809 2,895 29 29 $ (144) (10) 45 3 125 $ 173 $ 19 $3,679 3,778 41 35 $ (175) - 30 60 50 $ 140 $ 35 G Commpany-Incoome Sttatemeent($ thhou
35、sannds)19961997199819992000SalesCOGSOperatiing exxpenseeDepreciiationnInteresstTaxes Totall Net iincomee$ 1,3399 1,0399 2433 100 111 133$ 1,3166$ 233$ 1,7311 1,3344 3122 100 133 200$ 1,6899$ 422$ 2,2611 1,7433 3988 122 233 277$ 2,2033$ 588$ 2,9399 2,2677 5244 144 299 311$ 2,8655$ 744$ 3,8411 - 3,651
36、1 155 411 422$ 3,7499$ 922Note: 22000 CCOGS aand opperatiing exxpensee are combiined aas theere iss insuufficiient iinformmationn to sseparaate thhem.d.Bothh comppaniess are crediit rissks. AAlthouugh booth arre proofitabble, ttheir CFO iis inccreasiingly negattive. If cuurrentt trennds coontinuue t
37、heey facce posssiblee insoolvenccy. Hooweverr, beffore rrejectting bboth lloans outriight, it iss impoortantt to kknow wwhetheer CFOO and incomme difffer bbecausse thee comppaniess are doingg poorrly orr becaause tthey aare grrowingg too fast.Both coompaniies inncreassed saales oover tthe 5 year per
38、iood; Coompanyy M byy 50%, Comppany GG by mmore tthan 3300%. Are tthese saless reall (willl cassh colllectiions mmateriializee)? Iff theyy are growwing ttoo faast, it maay be advissable to maake thhe loaan butt alsoo to fforce the ccompanny to curtaail itts groowth uuntil CFO ccatchees up. One way t
39、to verrify wwhetheer thee gap is thhe ressult oof salles too poorr creddit riisks iis to checkk if tthe grrowth in reeceivaables is pproporrtionaal too the saless growwth. SSimilaar cheecks ccan bee madee for the ggrowthh in iinventtoriess and payabbles. In thhis caase, tthe innventoory off M coompa
40、nyy has doublled frrom 19996 too 20000 whille COGGS inccreaseed by only 56%. The iinventtory iincreaase woould bbe onee areaa to iinvesttigatee furtther.There iis a ssignifficantt diffferencce in the iinvesttment patteern off the two ccompannies. Compaany M has mmade ppurchaases oof PPEE eachh yearr
41、, whiile Coompanyy G haas madde litttle nnet innvestmment iin PPEE overr the periood. Yeet Commpany G hass growwn mucch fasster. Does this refleect thhe natture oof thee busiiness (Comppany GG is mmuch lless ccapitaal inttensivve) orr has Compaany G used off bbalancce sheeet fiinanciing teechniqques?The cassh froom finnancinng p