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Cash Flow Analysis

And
Financial Planning

Group 3Aquino, F

Daguro, KC Ramos,

What is a Cash flow statement?

A Report that shows how items that affect the balance


sheet and income statement affect the firm's cash
flows
Statement reporting the impact of a firms operating,
investing, and financing activities on cash flows over
an accounting period

What is a Non-cash transaction?


Investing or financing activity that does not affect
the cash inflows or outflows, but involves only
owners equity or long term assets and liabilities.
If it represents significant amount, a non-cash
transaction is disclosed in the notes to the cash flow
statement.

Developing the cash flow


Heading
Company Name
Statement of Cash
Flows
Specified Time Period
Examples:
("For the Three Months
Ended December 31,
2015" or "The Fiscal
Year Ended September
30, 2015")

Developing the cash flow


Operating Activities
Items which are part of
normal ongoing
operations
It converts the items
reported on the
income statement
from the accrual basis
to the cash basis by
using the changes in
the balances of current
asset and current
liability accounts

Developing the cash flow


Investing Activities
Reports the purchase
and sale of long-term
investments and
property, plant and
equipment.
This section of the
cash flow statement
reports changes in the
balances of long-term
asset accounts

Developing the cash flow

Financing Activities
This section of the
cash flow
statement reports
changes in
balances of the
long-term liability
and stockholders'
equity accounts

Developing the cash flow


Summary
It shows the
ending cash
balance from the
prior year, the net
increase or
decrease in cash
and the Cash and
Equivalents for the
year to be reported
at the Statement
of Financial

Direct method

of cash flow statement

The direct method of presenting the statement of


cash flows presents the specific cash flows
associated with items that affect cash flow. Items
that typically do so include:

Cash collected from customers


Interest and dividends received
Cash paid to employees
Cash paid to suppliers
Interest paid
Income taxes paid

Lowry Locomotion
Statement of Cash Flows
For the year ended 12/31/xx
Cash flows from Operating Activities
Cash receipts from customers

$45,800,000

Cash paid to suppliers

(29,800,000)

Cash paid to employees

(11,200,000)

Cash generated from operations

4,800,000

Interest paid

(310,000)

Income Taxes paid

(1,700,000)

Net cash from operating activities

$2,790,000

Cash flows from investing activities


Purchase of property, plant and
equipment

(580,000)

Cash flows from Financing Activities


Proceeds from issuance of common stock

1,000,000

Proceeds from issuance of long term debt

500,000

Principal payments under capital lease


obligation

(10,000)

Dividends paid

(450,000)

Net cash used in financing activities

1,040,000

Net increase in cash and cash


equivalents

3,360,000

Cash and cash equivalents at


beginning of the period

1,640,000

Cash and cash equivalents at end of


the period

$5,000,000

indirect method

of cash flow statement

The presentation of this statement begins


with net income or loss, with subsequent
additions to or deductions from that amount
for non-cash revenue and expense items,
resulting in net income provided by operating
activities.

Brothers Q
Statement of Cash Flows
For the year ended 12/31/xx
Cash flows from Operating Activities
Net income

$3,000,000

Adjustments for:
Depreciation and Amortization

125,000

Provision for losses on accounts


receivable

20,000

Gain on sale of facility

(65,000)
80,000

Increase in Trade receivables

(250,000)

Decrease in Inventories

325,000

Decrease in Trade payables

(50,000)
25,000

Cash generated from operations

3,105,000

Cash flows from investing activities


Purchase of property, plant and
equipment

(500,000)

Proceeds from sale of equipment

35,000

Net cash used in investing activities

(465,000)

Cash flows from Financing Activities


Proceeds from issuance of common stock

150,000

Proceeds from issuance of long term debt

175,000

Dividends paid

(45,000)

Net cash used in financing activities

280,000

Net increase in cash and cash


equivalents

2,920,000

Cash and cash equivalents at


beginning of the period

2,080,000

Cash and cash equivalents at end of

$5,000,000

Direct Method

Reveals
operating cash
receipts and
payments

Indirect Metho

Operating, assumes everything


Investing
recorded as a
And
revenue was a cash
Financing
receipt and
(same amount)

everything recorded
as an expense was
a cash payment

Analyzing the cash flow


Cash Flow Statement

Income Statement

Since it shows actual


cash generated, and it
shows how the company
is
able
to
pay
its
operations and future
growth

Analyzing the cash flow


Generally, this is the cash flow of business entities:
Investing
Activities

Operatin
g
Activities

Financin
g
Activities

Operating
Inflows:
Activities
Sales to customers, Interest and Dividends
received
Outflows:
Purchase of inventory, Salaries and other
operating expenses, Income taxes and
Investing
Interest on debt

Activities
Inflows:
Sale of long-lived assets and investment
securities
Outflows:
Purchase of long-lived assets and
investment securities

Financing Activities
Inflows:
Sale of shares to owners, borrowing from
creditors through notes, loans, mortgages
Outflows:
Dividends distributed, repayment of
principal of debt, reacquisition of shares

Analyzing the cash flow

o
p
Im

n
a
rt

!
!
t!

To shareholders - dividends
Attracted to
Suppliers
companies that
Creditors
produce plenty of
Investors

cash inflow

FCF

Free cash flow (fcf)

The amount of cash that could


be withdrawn from a firm
without harming its ability to
operate and to produce future
cash flows

Free cash flow (fcf)

Depreciation
EBIT(1-T)
FCF=
+

][

and Amortization

Capital
Net Operating
- Expenditures
+ Working Capital

Often referred to as NOPAT


These are added back because these are
noncash expenses that reduce the EBIT but
do not reduce the amount of available cash.

Free cash flow (fcf)

Depreciation
EBIT(1-T)
FCF=
+

][

and Amortization

Capital
Net Operating
- Expenditures
+ Working Capital

Amount of cash the company uses for


investing in its fixed assets
Operating working capital in order to sustain
its ongoing operations

Free cash flow (fcf)


Illustrative Problem
What is the Free Cash Flow of XXX Company if the EBITDA for the
year is P383,800 subject to tax rate of 40%, amortization and
depreciation is P100,000 and the company acquired equipment
during the year for P400,000?
Additional information:
2016

2015

Cash and Cash


Equivalents

P10,000

P80,000

Accounts Receivable

375,000

315,000

Inventories

615,000

415,000

P1,000,000

P810,000

Accounts Payable

P60,000

P30,000

Notes Payable

110,000

60,000

Accruals

140,000

130,000

Total Current
Assets

Free cash flow (fcf)


Illustrative Problem
ANSWE
R!

Depreciation
EBIT(1-T)
FCF=
+

][

and Amortization

Capital
Net Operating
- Expenditures
+ Working Capital

[(EBITDA-Depreciation and Amortization)(1-T)]


+(Depreciation and Amortization)

[(383,800-100,000)(1-0.40)] + 100,000

First Bracket:
= P270,280

Free cash flow (fcf)


Illustrative Problem
ANSWE
R!

Depreciation
EBIT(1-T)
FCF=
+

][

and Amortization

Capital
Net Operating
- Expenditures
+ Working Capital

{Capital Expenditures +[NOWC2016- NOWC2015]}

{400,000 + [800,000-650,000]}

Second Bracket:
= P550,000

Free cash flow (fcf)


Illustrative Problem
ANSWE
R!

Depreciation
EBIT(1-T)
FCF=
+

][

and Amortization

Capital
Net Operating
- Expenditures
+ Working Capital

FCF=
P270,280-P550,000
FCF= P279,720

The End
=D

Group 3Aquino, F

Daguro, KC Ramos,

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