ofCashFlows(财务报表分析,加州大学MBA)xjl.pptx

On Project Report/Readings1.Market value,use number of shares outstanding,do not use average number of shares outstanding2.Identify source of data or quotes3.Common size analysis,show amounts and percentages 4.Only analyze notes that are related to our current lecture5.Take turn to write the report,do not leave to one person6.In final exams,I may provide you with raw materials and a sample article from our readings for you to analyze the raw materials and write a similar article.So get familiar with all articles.Again,understand but do not memorize.Firm NamesEagle Eye:Valuation Analysis StrategyInvestoriumStatement of Cash FlowCash flow from Operating activities:（营运活动）cash receipts from customerscash disbursed to:suppliers of merchandise employees for salariesCash flow from investing activities:（投资活动）purchase of buildings,equipments,plantsproceeds(进帐）from sales of long term assetsCash flow from financing activities:（融资活动）borrowing/repay long term debtsissuing new shares Overview of the Statement of Cash FlowsIn AOL 2000 balance sheet,cash and cash equivalent increased from$936 millions to$2,490 millions.How?The statement of cash flows (a)explains the reasons for a change in cash.(b)classifies the reasons for the change as an operating,investing or financing activity.(c)reconciles net income with cash flow from operations.Montgomery Ward b.f.bankruptThe difference between earnings and cash flows1.I/S Explain change in retained earnings2.I/S is accrued-based3.I/S recognize property rights4.I/S require estimates5.I/S is an opinion 6.I/S is prone to(易于）manipulation7.Firms can survive a long string（长串）of negative earnings1.SCF explain change in cash and cash equivalent2.N/A3.SCF emphasize“actual possessment”4.SCF does not5.SCF is a fact6.SCF is so to a much less degree7.Firms go bankrupt with a long string of negative cash flows(outflow)Cash flow equation A=L+EA=L+Ecash+non-cash A=L+Ecash+current A(other than cash)+non-current A=current L+non-current L+Ecash=current L+non-current L+E-current A(other than cash)-non-current ACash flow from operationCash flows related to selling goods and services;that is,the principle business(主营业务)of the firmThe main source of payoffs to shareholders and creditorsThe reason for the firms to existIf firms do not in the long run generate more cash from operation than the returns of funds to shareholders and creditors,the firms go bankruptCash flow from operation-componentsCash collected from customersCash collected as interest(利息）on loans to othersCash collected as dividends（股利）on investment on other firms stocksCash paid to suppliersCash paid to employeesCash paid to other service providers:landlords,marketing agency,auditors,consultants,Cash paid to governmentCash paid to creditors as interest on borrowed moneyCash flow from investing activitiesCash flows related to the acquisition or sale of non-current assets:investment,land,property,plants,equipmentsTo maintain the current productivity of the operation,a firm must replace assets that they wear out(消耗）To grow its operation,a firm must acquire additional assetsOld assets may be sold as they become obsolete(过时）,or as the firm change productionInvesting activities thus provide resource to generate cash flow from operationsCash flow from investing activities-componentsCash received from sales of land,investment,property,plants and equipmentCash paid to acquire land,investment,property,plants and equipmentCash flow from financing activitiesCash flows related to long-term liabilities and owners equityThe source of cash to be used in investing and operating activitiesTwo sources:shareholders and creditorsThis part of SCF also indicates how much cash the firm returns to its capital providers,i.e.,cash distribution to shareholders and creditorsNote:short-term liabilities generated in operation,such as account payable,is not related to this categoryCash flow from financing activities-componentsCash received from issuing corporate debts or taking up loansCash received from issuing common shares or preferred sharesCash paid to repay debts or loansCash paid to repurchase sharesCash paid to shareholders as dividendsRelations among the cash flows from the three categories of activities1CF from Fin.Act.CF fromInv.ActCFFromOp.Act.Free Cash Flow=Cash flow from operating activities+Cash flow from investing activitiesIf positive,normal operation generates more cash that it consumes,such as the case of a stable firmIf negative,normal operation generates insufficient amount of cash to be self-sustaining,such as a growing firmTwo methods to prepare the operating portion of SCFDirect method of presentation calculates cash flow from operations by subtracting cash disbursements to supplies,employees,and others from cash receipts from customers.The indirect method calculates cash flow from operations by adjusting net income for noncash revenues and expenses.Most firms present their cash flows using the indirect method.SCF-Direct methodThe direct method is simple and straight:Cash collected from customersCash collected as interest(利息）on loans to othersCash collected as dividends（股利）on investment on other firms stocksCash paid to suppliersCash paid to employeesCash paid to other service providers:landlords,marketing agency,auditors,consultants,Cash paid to governmentCash paid to creditors as interest on borrowed moneyIndirect method SCF reconciles net income with cash flow from operationcash=current L+non-current L+E-current A(other than cash)-non-current Acash=current L-current A(other than cash)+non-current L+E non-current AOp.Fin.Inv.Indirect method SCF reconciles net income with cash flow from operationNet Income is accrual-based,when we calculate net income,we do not care whether cash has been received or paidBut current assets and current liabilities accounts are impacted when we calculate net income,e.g.,we debit account receivable and credit revenue when finishing a sales activityIndirect method SCF reconciles net income with cash flow from operationSo in the example above,net income is higher than cash flow from operation because this transaction increases net income by increasing revenues,but does not increase cash because we debit account receivable and no cash is collected yet.Therefore,to get to the balance of cash from net income,we subtract the increase in account receivable account.This procedure confirms to the cash equation in which increase(positive change)in current assets other than cash decrease cash flow from operation.Indirect method SCF reconciles net income with cash flow from operationThe indirect method:Net income+depreciationIncrease in current assets accounts+decrease in current assets accountsdecrease in current liabilities accounts+increase in current liabilities accounts=Cash flow from operationNotes to financial statements-on cash flowsIs cash the king?Cash is the ultimate payoffs to capital providersEstablished finance theory told us the the value of a firm is the present value of all its future dividendsIs cash the king?Earnings do not always go hand-in-hand with cash flows-Operational reason:a growing firm can have fast growth in earnings,but due to the expansion,it is consistently short of cash;a declining firm may have declining earnings but throw out large amount of cash due to lack of investing opportunities-Earnings management reason:A firm may manage the non-cash earnings to increase earnings,but not to increase cash flow.Cash flow pattern for different firmsCash flow from:ABCDOperation$(3)$7$15$8Investing(15)(12)(8)(2)Financing 18 5 (7)(6)Net CF0000New,growing firmGrowing less rapidlyMature,stable firmDeclining firmIs cash the king?-Sloan 1996 Accounting ReviewIs cash the king?-Sloan 1996 Accounting ReviewIs cash the king?-Sloan 1996 Accounting ReviewIs cash the king?-Barth el al.(2001)Investing MottoYou can pocket cash,but you can not pocket earnings!-myself