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1、 Cash Flow AnalysisSession 62023/3/221Cash Flow Analysis This sessionHow to calculate and analysis a corporations Cash Flow analysisHow to evaluate the solvency of a company based on its balance sheet and cash flows2023/3/222Cash Flow Analysis In case you missed the last session.We covered.I&EBalanc
2、e SheetsThe linkages between I&E and Balance Sheets2023/3/223Cash Flow Analysis Business Challenges1.Earn Profits2.Convert Profits to Cash as Fast as Possible2023/3/224Cash Flow Analysis Cash Flow1.From Operating Activities2.From Investing Activities3.From Financing Activities2023/3/225Cash Flow Ana
3、lysis 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 Lia
4、bility&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 Inves
5、ting ActivitiesPurchases 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 2023/3/226C
6、ash Flow Analysis Cash Flow From OperationsBalanceSheetlastyearBalanceSheetthisyearIncome&Expensethis yearChanges in the Balance sheet“closets plus the depreciation adjusted income2023/3/227Cash Flow Analysis Cash Flow from OperationsProfit(“the bottom line”of the I&E Statement)Plus 7 year-to-year c
7、hange adjustments(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 ACCOUNTINGACCOUNTING20
8、23/3/228Cash Flow Analysis Operating 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)2
9、023/3/229Cash Flow Analysis Growth 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 opp
10、osite effect and can experience increased“cash flow”over profit changes 2023/3/2210Cash Flow Analysis Depreciation&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
11、 the I&E Statement is therefore“added back”for cash flow purposes 2023/3/2211Cash Flow Analysis Balance SheetAssetsCash+Accounts Receivable+Inventory+Prepaid Expenses+Property,Plant&Equipment+Accumulated Depreciation=Total AssetsLiabilities&EquityAccounts Payable+Accrued Operating Expenses+Accrued I
12、nterest 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 Expense-Accounts Payable Increase-Accrued Exp
13、enses 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 Stockholders=Increase in Cash for YearBalance Sheet
14、/Cash Flow InteractionsBalance Sheet/Cash Flow Interactions 2023/3/2212Cash Flow Analysis Purchases of Property,Plant&EquipmentFixed Assets to modernize or expand capacity Will be capitalized(depreciated)2023/3/2213Cash Flow Analysis The Depreciation Story1.Capital assets are a cash flow out when th
15、e asset is bought(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
16、 price of the assets on the balance sheet5.The allocated I&E depreciation is“added back”to the Income in the Cash Flow analysis2023/3/2214Cash Flow Analysis Balance SheetAssetsCash+Accounts Receivable+Inventory+Prepaid Expenses+Property,Plant&Equipment+Accumulated Depreciation=Total AssetsLiabilitie
17、s&EquityAccounts 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 Decrea
18、se+Depreciation 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-Dividend
19、s Paid to Stockholders=Increase in Cash for YearBalance Sheet/Cash Flow InteractionsBalance Sheet/Cash Flow Interactions 2023/3/2215Cash Flow Analysis Cash From Financing ActivitiesWhen operating cash flows are insufficient to fund company operations,the finance department must raise cash for the co
20、mpanyLoansLine of credit(short-term debt)Notes,Bonds or Debentures(long-term debt)Issue StockDividends paid to Stockholders are considered a financing cash flow 2023/3/2216Cash Flow Analysis IBM 2001 Cash Flow(M$)Cash Flow From:2001 2000 1999Operations 14,265 9,274 10,111Investing (6,106)(4,248)(1,6
21、69)Financing (5,309)(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 232023/3/2217Cash Flow Analysis IBM 2001 Cash Flow from Operations(M$)2000 2001 Net Income 7,723 8,093Depreciatio
22、n 4,195 4,513Amortization of Software 625 482Deferred income taxes 658 29Gains on asset sales (317)(792)Write-down on impaired investments 405 -Receivables 3,284 (4,720)Inventories 337 (55)Other assets (545)(643)Accounts payable (969)2,245Other Liabilities (1,131)122Cash from Operations 14,265 9,274
23、2023/3/2218Cash Flow Analysis IBM 2001Cash Flow from Investing(M$)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)Pr
24、oceeds from marketable securities and other investments 738 1,393Acquisitions (916)(329)Net Cash used in Investing Activities (6,106)(4,248)2023/3/2219Cash Flow Analysis IBM 2001Cash Flow from Financing(M$)2001 2000Proceeds from new debt 4,535 9,604Short-term borrowings 2,926 (1,400)Payments to sett
25、le debt (7,898)(7,561)Preferred stock transactions net (254)-Common stock transactions net (3,652)(6,073)Cash Dividends paid (966)(929)Net Cash Used in Financing (5,309)(6,359)2023/3/2220Cash Flow Analysis Motorola 2000 Cash FlowsCash Flow From:2000 1999 1998Operations (1,164)2,140 1,295Investing (4
26、,091)(960)(3,079)Financing 5,119 788 1,872Exchange rate changes (100)(33)34Net Change in Cash (236)1,935 122Cash on 1/1 3,537 1,602 1,480Cash on 12/31 3,301 3,537 1,602Days of Cash 33 40 182023/3/2221Cash Flow Analysis Motorola 2000 Cash Flow from Operations(M$)Net Income Net Income 1,318 1,318 Depr
27、eciation Depreciation 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 (1,57
28、0)Deferred income taxes 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 Liabilit
29、ies (514)Other Liabilities (514)Cash from OperationsCash from Operations (1,164)(1,164)2023/3/2222Cash Flow Analysis Cooking!Controlling discretionary expensesRepairs&maintenanceTraining&developmentTravelIncreasing revenue“Stuffing the channels”Lying2023/3/2223Cash Flow Analysis EnronitisEnronDynerg
30、y Inc.,Reliant Resources Inc.,CMS EnergyTycoGEBoeingIBM2023/3/2224Cash Flow Analysis 3 Key Financial Aspects of a Business1.Cash Flows2.Maintaining Solvency3.Profitability2023/3/2225Cash Flow Analysis Solvency-AgainThe Current Ratio:Test of Short-Term SolvencyCurrent Ratio=current assets/current lia
31、bilitiesGeneral 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 12023/3/2226Cash Flow Analysis Solvency-2Debt to Equity RatioDebt to Equity=Total Liabilities/Total EquityMeasure of“leverag
32、ing”of debt.Usually kept below 1Times Interest Earned RatioTIER=Operating Earnings/Interest ExpenseHigher is better,must stay above 12023/3/2227Cash Flow Analysis ProfitabilityReturn on Sales RatioReturn on Sales Ratio=Net Income/RevenueReturn on EquityROE=Income/Stockholders EquityShould beat other
33、 investment options considering risk Return on AssetsROA=Income/Total Assets Measured against companies borrowing interest rate2023/3/2228Cash Flow Analysis We just coveredHow to calculate and a corporations Cash Flow analysisHow to evaluate the solvency of a company based on its balance sheet and cash flows2023/3/2229Cash Flow Analysis For Yourself Read pages 68-158 of Tracys book2023/3/2230Cash Flow Analysis 演讲完毕，谢谢观看！