chap007CashFlowAnalysis(财务报表分析-台湾中兴大学)

1、7CHAPTERCash Flow AnalysisCash Flow AnalysisMcGraw-Hill/Irwin 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.Statement of Cash FlowsStatement of Cash Flows Relevance of Cash FlowsCash Defined - refers to cash and cash equivalents.Cash equivalents are short-term, highly liquid investments

2、that are (1) readily convertible to known amounts of cash, and (2) near maturity (typically within 3 months) with limited risk of price changes due to interest rate shifts.Statement of Cash FlowsStatement of Cash Flows Relevance of Cash FlowsCash is the beginning and the end of a companys operating

3、cycle.Net cash flow is the end measure of profitability.Cash repays loans, replaces equipment, expands facilities, and pays dividends.Analyzing cash inflows and outflows helps assess liquidity, solvency, and financial flexibility.Liquidity is the nearness to cash of assets and liabilities.Solvency i

4、s the ability to pay liabilities when they mature.Financial flexibility is the ability to react to opportunities and adversities.Statement of Cash FlowsStatement of Cash Flows Relevance of Cash FlowsStatement of cash flows (SCF) helps address questions such as: How much cash is generated from or use

5、d in operations? What expenditures are made with cash from operations? How are dividends paid when confronting an operating loss? What is the source of cash for debt payments? What is the source of cash for redeeming preferred stock? How is the increase in investments financed? What is the source of

6、 cash for new plant assets? Why is cash lower when income increased? What is the use of cash from new financing?Statement of Cash FlowsStatement of Cash Flows Cash Flow RelationsIllustration: Consider two consecutive years balance sheets divided into (1) cash, and (2) all other balance sheet account

7、s:Accounts Year 1 Year 2Cash and cash equivalents $3,000 $5,000Noncash accounts:Noncash current assets$(9,000) $(11,000)Noncurrent assets (6,000) (8,000)Current liabilities 8,000 10,000Long-term liabilities 3,000 5,000Equity accounts 7,000 9,000 Net noncash balance $3,000 $5,000Note:Change in cash f

8、rom Year 1 to Year 2 (increase of $2,000) = Change in noncash balance sheet accounts ($2,000 increase) from Year 1 to Year 2Interrelations between cash and noncash balance sheet accounts can be generalized:v Net changes in cash are explained by net changes in noncash balance sheet accounts.v Changes

9、 within or among noncash balance sheet accounts do not affect cash. Yet, there is disclosure of all significant financing and investing activities in a separate schedule of noncash investing and financing activities.v Changes within the components of cash are not reported.Statement of Cash FlowsStat

10、ement of Cash Flows Cash Flow RelationsStatement of Cash FlowsStatement of Cash Flows Reporting by ActivitiesStatement of cash flows reports receipts and payments by operating, financing, and investing activitiesOperating activitiesOperating activities are the earning related activities of a company

11、.Investing activitiesInvesting activities are means of acquiring and disposing of noncash assets.Financing activitiesFinancing activities are means of contributing, withdrawing, and servicing funds to support business activities.Statement of Cash FlowsStatement of Cash Flows Net Cash Flows from Oper

12、ationsIndirect Method-Net income is adjusted for non-cash income (expense) items and accruals to yield cash flow from operationsDirect Method-Each income item is adjusted for its related accruals*Both methods yield identical results-only the presentation formatdiffers.Statement of Cash FlowsStatemen

13、t of Cash FlowsIndirect MethodIndirect MethodNet Cash Flows from Operations Net Income+ Depreciation+/- Gains (losses) on sales of assets+/- Cash generated (used) by current assets & liabilities Net cash flows from operating activitiesStatement of Cash FlowsStatement of Cash Flows Depreciation A

14、dd-Back Sales- Expenses- Depreciation and amortization expense Net Income+ Depreciation expense+/- Gains (losses) on sales of assets+/- Cash generated (used) by current assets and liabilities Net cash flows from operating activitiesAdd BackStatement of Cash FlowsStatement of Cash Flows Income vs. Ca

15、sh Flows ExampleConsider a $100 sale on account(1)In period of sale, net income is increased by $100 but no cash has been generated.(2)(3)Net Income100(4)Depreciation and amortization expense 0(5)Gains (losses) on sale of assets 0(6)Change in accounts receivable (100)(7)Net Cash flow from operations

16、 0zIn period of collection no income is recorded.Net Income 0Depreciation and amortization expense 0Gains (losses) on sale of assets 0Change in accounts receivable 100Net Cash flow from operations100Statement of Cash FlowsStatement of Cash FlowsConstructing the Statement Increase DecreaseAssets(Outf

17、low) InflowLiabilitiesInflow (Outflow)Statement of Cash FlowsStatement of Cash FlowsConstructing the Statement1.The company purchased a truck during the year at a cost of $30,000 that was financed in full by the manufacturer.2.A truck with a cost of $10,000 and a net book value of $2,000 was sold du

18、ring the year for $7,000. There were no other sales of depreciable assets.3.3.Dividends paid during Year 2 are $51,000Statement of Cash FlowsStatement of Cash FlowsSteps in Constructing the Statement(1) Start with Net Income(2) Adjust Net Income for non-cash expenses and gains(3) Recognize cash infl

19、ows (outflows) from changes in current assets and liabilities(4) Sum to yield net cash flows from operations(5) Changes in long-term assets yield net cash flows from investing activities(6) Changes in long-term liabilities and equity accounts yield net cash flows from financing activities(7) Sum cas

20、h flows from operations, investing, and financing activities to yield net change in cash(8) (8) Add net change in cash to the beginning cash balance to yield ending cashStatement of Cash FlowsStatement of Cash FlowsSteps in Constructing the StatementNote: assets costing $30,000 were purchased during

21、 Year 2 and were financed in whole by the manufacturer.Statement of Cash FlowsStatement of Cash FlowsSpecial TopicsEquity Method Investments Under equity method accounting, investor records its proportionate share of investee company profits. The position of reported earnings in excess of dividends

22、received should be eliminated as it is non-cash earnings.Acquisitions of Companies with Stock Acquisitions made with stock are non-cash. As a result, changes in balance sheet accounts reflecting the acquired company will not equal cash inflows (outflows) reported in the Statement of Cash Flows.Postr

23、etirement Benefit Costs The excess of net postretirement benefit expense over cash benefits paid must be added to net income in computing net cash flows from operationsSecuritization of Accounts Receivable Reductions in receivables as a result of securitization increases net cash flows from operatio

24、ns. Securitizations are a financing activity and should be interpreted as such. Deriving Operating Cash Flows from Income for Gould.AmountItem(in thousands)ExplanationNet income, accrual basis$ 54Starting point of conversionAdd (deduct) adjustment to cash basis:Depreciation35Depreciation has no cash

25、 outflow.Gain on sale of assets(5)Remove gain (because it is onoperating)cash inflow is cash from investing activities.Increase in receivables(9)Cash flow from sales is less than accrual sales.Decrease in inventories6Cash outflow for inventory exceeds accrual inventory cost included in cost of sales

26、.Decrease in prepaids3Cash outflow occurred when prepaids were purchased-current expense is non-cashDecrease in accounts payable(5)Cash outflows for purchases (included in cost of goods sold) is less than accrual purchases cost.Increase in accrued expenses4Expense has been recognized but no cash pai

27、d _yet.Cash flows from operations (Exhibit 7.3)$113Cash From OperationsCash From Operations Indirect Method for CFOGould CorporationCash Flows from Operations ($ thousands)For Year Ended December 31, Year 2Cash flows from operating activities:Cash receipts from customers a $651,000Cash paid for inve

28、ntories b (360,000)Cash paid general, selling, and administrative expenses c (176,000) _Net cash flows from operations $113,000Computations:a Sales of $660,000 less increase in accounts receivables of $9,000.b Cost of goods sold of $363,000 less decrease in inventories of $6,000 plus decrease in acc

29、ounts payable of $5,000 c General, selling, and administrative expenses of $218,000 less (noncash) depreciation and amortization of $35,000, less decrease in prepaid expenses of 3,000, less increase in accrued expenses of 4,000.Cash From OperationsCash From Operations Converting Indirect to DirectCa

30、sh From OperationsCash From Operations Reporting Formats for CFOCompanies Reporting Cash Flows using Indirect or Direct FormatsIndirect Method97%Direct Method3%Cash From OperationsCash From Operations Interpreting Accrual Income and Operating Cash FlowNet income plus major noncash expenses (typicall

31、y depreciation and amortization)Cash From OperationsCash From Operations Alternative Cash Flow MeasureAssume two companies (A and B) each invest $50,000 in machinery yielding $45,000 per year cash flows before depreciation. Assuming a five year useful life and no salvage value for the machinery, res

32、ults for the entire five-year period are:Five-Year PeriodCash provided by operations ($45,000 x 5 years)$225,000Cost of the machine$ (50,000)Income from operating machine$175,000Average yearly net income$ 35,000Cash From OperationsCash From Operations Alternative Cash Flow Measure - Illustration Com

33、pany A: Company B: Straight-Line Sum-of-the-Years- DepreciationDigits Depreciation Income beforeYearDepreciationDepreciation Net Income Depreciation Net Income1$ 45,000$10,000$ 35,000$16,667$ 28,3332 45,000 10,000 35,000 13,334 31,6663 45,000 10,000 35,000 10,000 35,0004 45,000 10,000 35,000 6,667 3

34、8,3335 45,000 10,000 35,000 3,332 41,668Total$225,000$50,000$175,000$50,000$175,000Income before depreciation for these two companies is identical-this faithfully reveals identical earning power.Income after depreciation is considerably different across the yearsthis does not reflect changes in earn

35、ing power. Cash From OperationsCash From Operations Alternative Cash Flow Measure - IllustrationWhile both successful and unsuccessful companies can experience problems with cash flows from operations, the reasons are markedly different.We must interpret changes in operating working capital items in

36、 light of economic circumstances.Inflationary conditions add to the financial burdens of companies and challenges for analysis.Cash From OperationsCash From Operations Business Conditions and Cash FlowsCash flows from operationsDeduct: Net capital expenditures required to maintain productive capacit

37、yDividends on preferred stock and common stock (assuming a payout policy)EqualsFree cash flow (FCF)Cash From OperationsCash From Operations Free Cash FlowPositive free cash flow reflects the amount available for business activities after allowances for financing and investing requirements to maintai

38、n productive capacity at current levels.Growth and financial flexibility depend on adequate free cash flow.Recognize that the amount of capital expenditures needed to maintain productive capacity is generally not disclosedinstead, most use total capital expenditures, which is disclosed, but can incl

39、ude outlays for expansion of productive capacity.Cash From OperationsCash From Operations Free Cash FlowThe statement of cash flows is useful in identifying misleading or erroneous operating results or expectations.Cash From OperationsCash From Operations Cash Flow as ValidatorsCash Flow Adequacy Ra

40、tio Measure of a companys ability to generate sufficient cash from operations to cover capital expenditures, investments in inventories, and cash dividends:Three-year sum of cash from operationsThree-year sum of expenditures, inventory additions, and cash dividendsCash Reinvestment Ratio Measure of

41、the percentage of investment in assets representing operating cash retained and reinvested in the company for both replacing assets and growth in operations:Operating cash flow DividendsGross plant + Investment + Other assets + Working capitalCash From OperationsCash From Operations Specialized Cash

42、 Flow RatiosForm AWorksheet to Compute Cash Flow from Operations (CFO)Direct PresentationFor:_Year Ended _(in thousands)YearCash receipts from operations:Net sales or revenues(a)*1$Other revenue and income(see also lines 22 and 25)*2(I) D in current receivables3(I) D in noncurrent receivables(b)4Oth

43、er adjustments(c)5Total Cash receipts6Cash disbursements for operations:Total expenses (include interest and taxes)(a)*7Less expenses and losses not using cash: Depreciation and amortization8 Noncurrent deferred income taxes9 Other _10 Other _11 Other _12Changes in current operating assets and liabi

44、lities:I (D) in inventories13I (D) in prepaid expenses14(I) D in accounts payable15(I) D in taxes payable16(I) D in accruals17I or D other _18I or D other _19I or D in noncurrent accounts(b)20Total Cash disbursements(d)21Cash Flow AnalysisCash Flow AnalysisConverting CFO to Direct FormatForm A (Continued)Worksheet to Compute Cash Flo