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1、Cash Flow AnalysisSession 62023/3/161Cash Flow AnalysisThis sessionHow to calculate and analysis a corporations Cash Flow analysisHow to evaluate the solvency of a company based on its balance sheet and cash flows2023/3/162Cash Flow AnalysisIn case you missed the last session.We covered.I&EBalance S
2、heetsThe linkages between I&E and Balance Sheets2023/3/163Cash Flow AnalysisBusiness Challenges1.Earn Profits2.Convert Profits to Cash as Fast as Possible2023/3/164Cash Flow AnalysisCash Flow1.From Operating Activities2.From Investing Activities3.From Financing Activities2023/3/165Cash Flow Analysis
3、Balance SheetAssetsCash+Accounts Receivable+Inventory+Prepaid Expenses+Property,Plant&Equipment+Accumulated Depreciation=Total AssetsLiabilities&EquityAccounts Payable+Accrued Operating Expenses+Accrued Interest Payable+Income Tax Payable+Notes Payable+Capital stock+Retained Earnings=Total Liability
4、&EquityCash Flow StatementCash Flow From Operating ActivitiesNet Income-Accounts Receivable Increase-Inventory Increase-Prepaid Expenses Increase+Depreciation Expense-Accounts Payable Increase-Accrued Expenses Increase-Income Tax Payable=Cash Flow form Operating Activities+Cash Flow From Investing A
5、ctivitiesPurchases of Property,Plant&Equipment+Cash Flows From Financing ActivitiesShort-Term Debt Borrowing+Long-Term Debt Borrowing+Capital Stock Issue+Dividends Paid to Stockholders=Increase in Cash for YearBalance Sheet/Cash Flow InteractionsBalance Sheet/Cash Flow Interactions 2023/3/166Cash Fl
6、ow AnalysisCash Flow From OperationsBalanceSheetlastyearBalanceSheetthisyearIncome&Expensethis yearChanges in the Balance sheet“closets plus the depreciation adjusted income2023/3/167Cash Flow AnalysisCash Flow from OperationsProfit(“the bottom line”of the I&E Statement)Plus 7 year-to-year change ad
7、justments(Balance Sheet)1.Accounts receivable2.Inventory3.Prepaid expenses4.Depreciation5.Accounts Payable6.Accrued Expenses7.Income Tax PayableCash flow,like theCash flow,like theBalance Sheet usesBalance Sheet usesCASH ACCOUNTINGCASH ACCOUNTINGNot ACCRUAL Not ACCRUAL ACCOUNTINGACCOUNTING2023/3/168
8、Cash Flow AnalysisOperating Cash Flow CommentsNet Income is from the bottom line of I&E Statement(Depreciation Adjusted)Increases in Operating Assets decrease cash flow from profit(AR,Inventory,Prepaid Expenses)Increases in liabilities“help”cash flow(AP,Accrued Expenses,Income Tax Payable)2023/3/169
9、Cash Flow AnalysisGrowth Consumes Ca$h!Increasing revenue with controlled expenses will result in increased profitsRevenue increases also drive increases in operating assetsCash increases are not as large as profit increases but are delayed because of AR Declining businesses experience opposite effe
10、ct and can experience increased“cash flow”over profit changes 2023/3/1610Cash Flow AnalysisDepreciation&Operating Cash FlowDepreciation:Since the company paid cash for the fixed assets when it bought them,the company does not consume cash a second time when it uses themThe depreciation of the I&E St
11、atement is therefore“added back”for cash flow purposes 2023/3/1611Cash Flow AnalysisBalance SheetAssetsCash+Accounts Receivable+Inventory+Prepaid Expenses+Property,Plant&Equipment+Accumulated Depreciation=Total AssetsLiabilities&EquityAccounts Payable+Accrued Operating Expenses+Accrued Interest Paya
12、ble+Income Tax Payable+Notes Payable+Capital stock+Retained Earnings=Total Liability&EquityCash Flow StatementCash Flow From Operating ActivitiesNet Income-Accounts Receivable Increase-Inventory Increase-Prepaid Expenses Decrease+Depreciation Expense-Accounts Payable Increase-Accrued Expenses Increa
13、se=Cash Flow form Operating ActivitiesCash Flow From Investing Activities-Purchases of Property,Plant&EquipmentCash Flows From Financing Activities+Short-Term Debt Borrowing+Long-Term Debt Borrowing+Capital Stock Issue-Dividends Paid to Stockholders=Increase in Cash for YearBalance Sheet/Cash Flow I
14、nteractionsBalance Sheet/Cash Flow Interactions 2023/3/1612Cash Flow AnalysisPurchases of Property,Plant&EquipmentFixed Assets to modernize or expand capacity Will be capitalized(depreciated)2023/3/1613Cash Flow AnalysisThe Depreciation Story1.Capital assets are a cash flow out when the asset is bou
15、ght(Cash Flow/Investing)2.The bought assets are added to the Property,Plant&Equipment line of the Balance Sheet3.The appropriate depreciation is allocated for in the period that it is“used”on the I&E4.The sum of the accumulated depreciations from the I&E is subtracted from the purchase price of the
16、assets on the balance sheet5.The allocated I&E depreciation is“added back”to the Income in the Cash Flow analysis2023/3/1614Cash Flow AnalysisBalance SheetAssetsCash+Accounts Receivable+Inventory+Prepaid Expenses+Property,Plant&Equipment+Accumulated Depreciation=Total AssetsLiabilities&EquityAccount
17、s Payable+Accrued Operating Expenses+Accrued Interest Payable+Income Tax Payable+Notes Payable+Capital stock+Retained Earnings=Total Liability&EquityCash Flow StatementCash Flow From Operating ActivitiesNet Income-Accounts Receivable Increase-Inventory Increase-Prepaid Expenses Decrease+Depreciation
18、 Expense-Accounts Payable Increase-Accrued Expenses Increase=Cash Flow form Operating ActivitiesCash Flow From Investing Activities-Purchases of Property,Plant&EquipmentCash Flows From Financing Activities+Short-Term Debt Borrowing+Long-Term Debt Borrowing+Capital Stock Issue-Dividends Paid to Stock
19、holders=Increase in Cash for YearBalance Sheet/Cash Flow InteractionsBalance Sheet/Cash Flow Interactions 2023/3/1615Cash Flow AnalysisCash From Financing ActivitiesWhen operating cash flows are insufficient to fund company operations,the finance department must raise cash for the companyLoansLine o
20、f credit(short-term debt)Notes,Bonds or Debentures(long-term debt)Issue StockDividends paid to Stockholders are considered a financing cash flow 2023/3/1616Cash Flow AnalysisIBM 2001 Cash Flow(M$)Cash Flow From:2001 2000 1999Operations 14,265 9,274 10,111Investing (6,106)(4,248)(1,669)Financing (5,3
21、09)(6,359)(8,625)Exchange rate changes (83)(1470)(149)Net Change in Cash 2,767 (1,480)(332)Cash on 1/1 3,563 5,043 5,375Cash on 12/31 6,330 3,563 5,043Days of cash 30 16 232023/3/1617Cash Flow AnalysisIBM 2001 Cash Flow from Operations(M$)2000 2001 Net Income 7,723 8,093Depreciation 4,195 4,513Amort
22、ization of Software 625 482Deferred income taxes 658 29Gains on asset sales (317)(792)Write-down on impaired investments 405 -Receivables 3,284 (4,720)Inventories 337 (55)Other assets (545)(643)Accounts payable (969)2,245Other Liabilities (1,131)122Cash from Operations 14,265 9,2742023/3/1618Cash Fl
23、ow AnalysisIBM 2001Cash Flow from Investing(M$)2001 2000Plant,rental machines and other property (5,660)(5,616)Disposition of Plant,rental machines and other property 1,165 1,619Investments in software (655)(565)Purchases of marketable securities and other investments (778)(750)Proceeds from marketa
24、ble securities and other investments 738 1,393Acquisitions (916)(329)Net Cash used in Investing Activities (6,106)(4,248)2023/3/1619Cash Flow AnalysisIBM 2001Cash Flow from Financing(M$)2001 2000Proceeds from new debt 4,535 9,604Short-term borrowings 2,926 (1,400)Payments to settle debt (7,898)(7,56
25、1)Preferred stock transactions net (254)-Common stock transactions net (3,652)(6,073)Cash Dividends paid (966)(929)Net Cash Used in Financing (5,309)(6,359)2023/3/1620Cash Flow AnalysisMotorola 2000 Cash FlowsCash Flow From:2000 1999 1998Operations (1,164)2,140 1,295Investing (4,091)(960)(3,079)Fina
26、ncing 5,119 788 1,872Exchange rate changes (100)(33)34Net Change in Cash (236)1,935 122Cash on 1/1 3,537 1,602 1,480Cash on 12/31 3,301 3,537 1,602Days of Cash 33 40 182023/3/1621Cash Flow AnalysisMotorola 2000 Cash Flow from Operations(M$)Net Income Net Income 1,318 1,318 Depreciation Depreciation
27、2,522 2,522 Charges for re-organization 1,483 Charges for re-organization 1,483 Deferred income taxes 658 Deferred income taxes 658 Acquired in-process R&D charges 332Acquired in-process R&D charges 332Sales of investments&businesses (1,570)Sales of investments&businesses (1,570)Deferred income taxe
28、s 239Deferred income taxes 239Write-down on impaired investments 405 Write-down on impaired investments 405 Receivables (1,471)Receivables (1,471)Inventories (2,305)Inventories (2,305)Other assets (532)Other assets (532)Accounts payable (666)Accounts payable (666)Other Liabilities (514)Other Liabili
29、ties (514)Cash from OperationsCash from Operations (1,164)(1,164)2023/3/1622Cash Flow AnalysisCooking!Controlling discretionary expensesRepairs&maintenanceTraining&developmentTravelIncreasing revenue“Stuffing the channels”LyingFraud-go to jail2023/3/1623Cash Flow AnalysisEnronitisEnronDynergy Inc.,R
30、eliant Resources Inc.,CMS EnergyTycoGEBoeingIBM2023/3/1624Cash Flow Analysis3 Key Financial Aspects of a Business1.Cash Flows2.Maintaining Solvency3.Profitability2023/3/1625Cash Flow AnalysisSolvency-AgainThe Current Ratio:Test of Short-Term SolvencyCurrent Ratio=current assets/current liabilitiesGe
31、neral Rule of thumb:Should be greater than 2 to get a short term loanThe Quick Ratio(The acid test ratio)Quick Ratio=(Cash+AR)/Current LiabilitiesShould be less than 12023/3/1626Cash Flow AnalysisSolvency-2Debt to Equity RatioDebt to Equity=Total Liabilities/Total EquityMeasure of“leveraging”of debt
32、.Usually kept below 1Times Interest Earned RatioTIER=Operating Earnings/Interest ExpenseHigher is better,must stay above 12023/3/1627Cash Flow AnalysisProfitabilityReturn on Sales RatioReturn on Sales Ratio=Net Income/RevenueReturn on EquityROE=Income/Stockholders EquityShould beat other investment
33、options considering risk Return on AssetsROA=Income/Total Assets Measured against companies borrowing interest rate2023/3/1628Cash Flow AnalysisWe just coveredHow to calculate and a corporations Cash Flow analysisHow to evaluate the solvency of a company based on its balance sheet and cash flows2023/3/1629Cash Flow AnalysisFor Yourself Read pages 68-158 of Tracys book2023/3/1630Cash Flow Analysis演讲完毕，谢谢观看！