财务报表分析答案7

1、Chapter 7Cash Flow An alysisREVIEWCash is the residual of cash in flowsless cash outflows for all prior periods of a compa ny.Net cash flows, or simply cash flows, refer to the curre nt period's cash in flows less cash outflows. Cash flows are differentfrom accrual measuresof performanee. Cash f

2、lowmeasures recog nize in flows whe n cash is received n ot n ecessarily earn ed, and outflowswhen cash is paid not necessarilyincurred. The statement of cash flows reports cash flow measures for three primary bus in ess activities: operat in g, in vesti ng, and financing.Operating cash flows, or ca

3、sh flows from operations, is the cash basiscounterparttoaccrual net in come. In formati on on cash flows helps us assess a compa ny's ability to meet obligati ons, pay divide nds, in crease capacity, and raise financin g. It also helps usassess the quality of earnings and the depe ndence of in c

4、ome onestimates andassumptions regarding future cash flows. Thischapter describes cash flows and theirreleva neeto our an alysisof finan cialstateme nts. We describecurre ntreport ingrequirements and their implicationsfor our analysis of cash flows. We explain usefulanalytical adjustments to cash fl

5、ows using financialdata to improve our analysis. Wedirect specialatte nti onto tran sacti onrecon structio n,T-acco unt, and con vers ion an alyses.7-1OUTLINEStateme nt of Cash FlowsReleva nee of CashReport ing by ActivitiesCon struct ing the Cash Flow Stateme ntSpecial TopicsReport ing Cash Flows f

6、rom Operati onsIn direct MethodDirect MethodCon vert ing from In direct to Direct MethodAdjustments to Cash Flow ComponentsAdditi onal Disclosures and Adjustme ntsAnalysis Implications of Cash FlowsLimitations in Cash Flow ReportingIn terpret ing Cash Flows and Net In comeAlter native Cash Flow Meas

7、uresCompa ny and Econo mic Con diti onsFree Cash FlowCash Flows as ValidatorsSpecialized Cash Flow RatiosCash Flow Adequacy RatioCash Rein vestme nt RatioAppe ndix 7A An alytical Cash Flow Worksheets7-2ANAL YSIS OBJECTIVESExpla in the releva nee of cash flows in an alyz ing bus in ess activities.Des

8、cribe report ing of cash flows by bus in ess activities.Describe the preparati on and an alysis of the stateme nt of cash flows.In terpret cash flows from operat ing activities.An alyze cash flows un der alter native compa ny and bus in ess con diti ons.Describe alter native measures of cash flows a

9、nd their usef uln ess.Illustrate an analytical tool in evaluating cash flows (Appendix 7A).7-3QUESTIONS1. The term cash flow was probably first coined by analysts. They recognized that theaccrual system of in comemeasureme ntpermits the in troduct ionof a variety ofalter native acco un ti ng treatme

10、 nts and con seque nt distorti ons. The crude con cept ofcash flow net in come plus major non cash expe nses (such as depreciati on) was derived to bypass these distorti ons and bri ng in come measureme ntcloser to thediscipline of actual cash flows. This cash flow measure, still a popular surrogate

11、 for cash from operations (CFO), is crude because it falls short of reliably approximating in most cases the correct measure of CFO.Confusionwith the term cash flow derives from several sources. One source ofcon fusi on stems from the in itial and in correctcomputati on of the crude measure ofcash f

12、low as in come plus major non cash expe nses. The figure fails to reflect actual cash flows. Ano ther and more serious con fusi on arises from the asserti on by some,and particularly by man agers dissatisfied by the level of their reported net in come, that cash flow is a measure of performa nee sup

13、erior to or more valid tha n net in come.This asserti on implicitly assumes that depreciati on, and other non cash costs, are not genuine expe nses. Experie nee shows that only net in come is properly regarded as a measure of performa nee and can be related to the equity in vestme nt as an in dicato

14、r of operat ing performa nee. If we add back depreciati on tonet in come and compute theresult ing retur n on in vestme nt, we are, in effect, confusing the retur n on in vestme nt with an eleme nt of retur n on in vestme nt in fixed assets.2. While fragmentary information on the sources and uses of

15、 cash can be obtained fromcomparative bala nee sheets and from in come stateme nts, a comprehe nsive picture of this importa nt area of activity can be gained only from a stateme nt of cash flows (SCF).The SCF provides in formati on to help an swer questi ons such as:? What amount of cash is gen era

16、ted by operati ons? What utilizati on is made of cash provided by operati ons? What is the source of cash in vested in new pla nt and equipme nt? What use is made of cash from a new bond issue or the issua neeof com monstock? How is it possible to con ti nue the regular divide nd in the face of an o

17、perati ng loss? How is debt repayme nt achieved? What is the source of cash used to redeem the preferred stock? How is the in crease in in vestme nts finan ced? Why, despite record profits, is the cash position lower than last year?3. SFAS 95 requires that the statement of cash flows classify cash r

18、eceipts and cash payments by operating, financing and investing activities.Operating activities encompass all the earning-relatedactivities of the enterprise.They en compass, in additi on to all the in come and expe nse items found on the in come stateme nt, all the net in flows and outflows of cash

19、 that operati ons impose onthe en terprise. Such operati ons in elude activities such as the exte nsion of credit to customers, in vestme nt in inven tories, and obta ining credit from suppliers. This means operati ng activities relate to all items in the stateme nt of in come (with minor exceptions

20、) as well as to balanee sheet items that relate to operations mostly working7-4capital accounts such as accounts receivable, inventories, prepayments, accounts payable, and7-5accruals. SFAS 95 also specifies that operating activities include all transactions and events that are not of an investing o

21、r financing nature.Financing activities include obtaining resources from owners and providing them witha returnof ora return on(dividends)theirinvestment.They alsoincludeobtainingresourcesfromcreditors and repayingtheamounts borrowedorotherwisesettlingthe obligations.Investingactivitiesincludeacquir

22、ingandselling orotherwisedisposingof bothsecuritiesthatarenot cash equivalentsand productiveassetsthat are expected togeneraterevenuesoverthe long-term.They alsoincludelending money andcollecting on such loans.4. We can distinguish among three categories of adjustments that convert accrual basis net

23、 income to cash from operations: (i) Expenses, losses, revenues, and gains that do not use or generate cash such as those involving noncash accounts (except those in ii), (ii) Net changes in noncash accounts (mostly in the operating working capital group) that relate to operations these modify the a

24、ccrual-based revenue and expense items included in income, (iii) Gains and losses (such as on sales of assets) that are transferred to other sections of the SCF so as to show the entire cash proceeds of the sale.5. The two methods of reporting cash flow from operations are:Indirect Method : Under th

25、is method net income is adjusted for noncash items required to convert it to CFO. The advantage of this method is that it is a reconciliation that discloses the differences between net income and CFO. Some analysts estimate future cash flows by first estimating future income levels and then adjustin

26、g these for leads and lags between income and CFO (that is, noncash adjustments).Direct (or Inflow-Outflow) Method : This method lists the gross cash receipts and disbursements related to operations. Most respondents to the Exposure Draft that preceded SFAS 95 preferred this method because this pres

27、entation discloses the total amount of cash that flows into the enterprise and out of the enterprise due to operations. This gives analysts a better measure of the size of cash inflows and outflows over which management has some degree of discretion. As the risks that lenders are exposed to relate m

28、ore to fluctuations in CFO than to fluctuations in net income, information on the amounts of operating cash receipts and payments is important in assessing the nature of those fluctuations.6. The function of the income statement is to measure the profitability of the enterprise for a given period. T

29、his is done by matching expenses and losses with the revenues and gains earned. While no other statement measures profitability as well as the income statement, it does not show the timing of cash flows and the effect of operations on liquidity and solvency. The latter is reported on by the SCF. Cas

30、h from operations (CFO) reflects a broader concept of operations relative to net income. It encompasses all earning-related activities of the enterprise. CFO is concerned not only with expenses and revenues but also with the cash demands of these activities, such as investments in customer receivabl

31、es and in inventories as well as the financing provided by suppliers of goods and services. CFO focuses on the liquidity aspect of operations and is not a measure of profitability because it does not include important costs such as the use of long-lived assets in operations or important7-6orrevenues

32、 such as the equity in the earnings of nonconsolidated subsidiaries affiliates.7-77. The SCF sheds light on (i) the effects of earning activities on cash resources, (ii) whatassetsare acquired,and (iii)howassetsare financed.It alsocan highlightmoreclearlythe disti ncti on betwee nnetin come and cash

33、 providedby operati ons.Theability of an en terprise to gen erate cash from operati ons on a con siste nt basis is animporta nt in dicatorof finan cialhealth. Nobus in ess cansurviveover the longrunwithoutgen erat ingcash fromitsoperati ons. However,the in terpretati on ofCFOfigures and trends must

34、be made with care and with a full understandingof allsurro unding circumsta nces.Prosperousas well as faili ng en tities can find themselves un able to gen erate cashfrom operations at any given time, but for different reasons. The entity caught in the"prosperitysqueeze" of hav ing to in v

35、est its cash in receivables and inven tories tomeet ever- in creas ing customer dema nd will ofte n find that its profitability will facilitate financing by equity as well as by debt. That same profitability should ultimately tur nCFO into a positive figure. The unsuccessful firm, on the other hand,

36、 will find its cash drained by slowdow ns in receivable and inven tory tur no vers, by operat ing losses, or by a comb in ati on of these factors. These con diti ons usually contain the seeds of further losses and cashdrains andalsocan lead to difficulties inobtaining tradecredit. In such cases, ala

37、ck of CFOhasdifferent implications. Theunsuccessful orfinan cially pressed firmcan in creaseitsCFO by reduci ng acco untsreceivable andinven tories, but usually this is done at the expe nse of services to customers that can further depress future profitability. Even if the un successful firm man age

38、s to borrow, the costs of borrowing only magnify the ultimate drains of its cash. Thus, profitability is a key con siderati on, and while it does not in sure CFO in the short run, it is esse ntial to a healthy finan cial con diti on in the long run.Changes in operating working capital items must be

39、similarly interpretedin light ofatte nding circumsta nces. An in crease in receivables can mea n expa nding con sumer dema nd for en terprise products or it can mea n an in ability to collect amounts due in a timely fashi on. Similarly, an in crease in inven tories(and particularly of the rawmateria

40、l comp onent) can imply preparati ons for an in crease in product ion in resp onse to con sumer dema nd. It also can imply (particularly if the fini shed goods comp onent of inven tories is in creas ing) an in ability to sell due to, say, whe n an ticipated dema nd did not materialize.8. A valuable

41、analytical derivative of the SCF is "free cash flow." As with any otheranalytical measure, analysts mustpay careful attention to components of thiscomputation. Here, as in the case of any cash flow measures,ulterior motives maysometimes affect the validity of the computati on. One of the a

42、n alytically most usefulcomputations of free cash flow is:Cash from Operatio ns (CFO)-Capitalexpendituresrequired to maintain productive capacity used in generatingin come-Dividends (on preferred stock and maintenance of desired payout on common stock)=Free Cash Flow (FCF)7-8Positive FCF implies tha

43、t this is the amount available for company purposes after provisions for financing outlays and expenditures to maintain productive capacity at current levels. Internal growth and financial flexibility depend on an adequate amount of FCF. Note that the amount of capital expenditures needed to maintai

44、n productive capacity at current levels is generally not disclosed by companies. It is included in total capital expenditures, which also can include outlays for expansion of productive capacity. Breaking down capital expenditures between these two components is difficult. The FASB considered this i

45、ssue, but in SFAS 95 it decided not to require classification of investment expenditures into maintenance and expansion categories.9. For financial statement analysis, the SCF provides clues to important matters such as:? Feasibility of financing capital expenditures and possible sources of such fin

46、ancing.? Sources of cash to finance an expansion in the business.? Dependence of the firm on external sources of financing (such as debt or equity).? Future dividend policies.? Ability to meet future debt service requirements.? Financial flexibility, that is, the firm's ability to generate suffi

47、cient cash so as to respond to unanticipated needs and opportunities.? Insight into the financial habits of management and indications of future policies.? Signals regarding the quality of earnings.7-9EXERCISESExercise 7-1 (20 mi nutes)The Year 11 CFO of Campbell is higher (by $403.7 million) than i

48、ts Year 11 net in come for two main reas ons:1. Some items decreased net in come but did not use cash specifically:a. Depreciation and amortization are expenses not requiringa cash outlay($208.6).b. Deferred in come taxes are an expe nse that has no prese ntcash payme nt($35.5).c. Several charges an

49、d expenses did not require outlays of cash ($63.2).d. A decrease in inventory implies that cost of sales are charged by reducinginven tory levels rather tha n by mak ing cash payme nts of $48.7.2. Some items gen eratedoperati ngcashin flowdid not en ter in to thedeterm in ati on of net in comespecif

50、ically:a. The decrease in accounts receivable means that cash is collected beyond the amounts recog ni zed as sales reve nue in the in come stateme nt ($17.1).b. There are several other items that had a similar effect, amounting to $30.6.Exercise 7-2 (40 mi nutes)a. SFAS 95 requires that the SCF cla

51、ssify cash receipts and paymentsbyoperating, financing, and investing activities.(1) Operating activities encompass all the earning-relatedactivities of theen terprise. They en compass, in additi on to all the in come and expe nse itemsfound on the in come stateme nt, all the net in flows and outflo

52、ws of cash that operati ons impose on the en terprise. Such operati ons in clude activities suchas the extension of credit to customers, investment in inventories, and obtaining credit from suppliers.This means operatingactivities relate to allitems in the stateme nt of in come (with minor exceptio

53、ns) as well as to bala nce sheet items that relate to operati ons mostly worki ng capital acco unts such as acco unts receivable, inven tories,prepayme nts,acco untspayable, andaccruals. SFAS 95 also specifies that operati ng activities in clude all transactions and events that are not of an investi

54、ng or financing nature.(2) Financing activities in clude obta ining resources from owners and providing them with a return of or a return on (dividends) their investment.They also in clude obtai ning resources from creditors and repay ing the amounts borrowed or otherwise settli ng the obligati ons.

55、(3) Inv esti ng activitiesin clude acquiri ng and sell ing or otherwise dispos ing ofboth securities that are not cash equivalentsand productive assets that areexpected to gen erate reve nues over the Ion g-term. They also in clude lending money and collect ing on such loa ns.7-10Exercise 7-2 conclu

56、dedb. SFAS 95 requires that all significant financing and investing activities be disclosed. For example, noncash transactions that include the conversion of debt to equity, the acquisition of assets through the issuance of debt, and exchanges of assets or liabilities, should be disclosed in a separ

57、ate schedule of noncash investing and financing activities.c.(1) Net income is the starting point of the computation of CFO.SFAS 95 doesnot require the separate disclosure of extraordinary items in the SCF.(2) Depreciation is added back as an expense not requiring cash.(3) The write-off of uncollect

58、ible receivables does not affect cash. Similarly, the bad debt expense does not require an outlay of cash. Since this corporation uses the indirect method for presentation of CFO, no additional adjustment is needed beyond the adjustment for the change in the net accounts receivable, which includes the credit to the allowance for doubtful accounts.(4) T