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Funds Analysis, Cash-Flow Analysis, and Financial Planning
Funds Analysis, Cash-Flow Analysis, and Financial Planning
7-1
Explain the difference between the flow of funds (sources and uses of funds) statement and the statement of cash flows -- and understand the benefits of using each. Define "funds" and identify sources and uses of funds. Create a sources and uses of funds statement, make adjustments, and analyze the final results. Describe the purpose and content of the statement of cash flows as well as implications that can be drawn from it. Prepare a cash budget from forecasts of sales, receipts, and disbursements -- and know why such a budget should be flexible. Develop forecasted balance sheets and income statements. Understand the importance of using probabilistic information in forecasting financial statements and evaluating a firm's condition.
7-2
of Cash-Flow Estimates
Forecasting
7-3
7-4
Includes important noncash transactions while the cash flow statement does not.
Is easy to prepare and often preferred by managers for analysis purposes over the more complex cash flow statement.
Helps you to better understand the cash flow statement, especially if it is prepared under the indirect method.
7-6
S U
+ -
Cash and C.E. Acct. Rec. Inventories Prepaid Exp Accum Tax Prepay Current Assets Fixed Assets (@Cost) Less: Acc. Depr. Net Fix. Assets Investment, LT Other Assets, LT Total Assets 7-9
+ +
Cash and C.E. Acct. Rec. Inventories Prepaid Exp Accum Tax Prepay Current Assets Fixed Assets (@Cost) Less: Acc. Depr. Net Fix. Assets Investment, LT Other Assets, LT Total Assets 7-10
100 $10 410 16 616 80 5 9 1 1,140 930 (299) 631 70 50 223 2,044
Notes Payable Acct. Payable Accrued Taxes Other Accrued Liab. Current Liab. Long-Term Debt Shareholders Equity Com. Stock ($1 par) Add Pd in Capital Retained Earnings Total Equity 7-11 Total Liab/Equity
U ---N/A S
--S N/A
$ $
Notes Payable Acct. Payable Accrued Taxes Other Accrued Liab. Current Liab. Long-Term Debt Shareholders Equity Com. Stock ($1 par) Add Pd in Capital Retained Earnings Total Equity 7-12 Total Liab/Equity
$ 5
77
U ---N/A S
--S N/A
53
$ $
$ 53 16 77 10
$156 $80 1 5 70 $156
Cash and C.E. $ 90 Acct. Rec.c 394 Inventories 696 Prepaid Exp d 5 Accum Tax Prepay 10 Current Assetse $1,195 Fixed Assets (@Cost)f 1030 Less: Acc. Depr. g (329) Net Fix. Assets $ 701 Investment, LT 50 Other Assets, LT 223 Total Assets b $2,169 7-15
a. How the firm stands on a specific date. b. What BW owned. c. Amounts owed by customers. d. Future expense items already paid. e. Cash/likely convertible to cash within 1 year. f. Original amount paid. g. Acc. deductions for wear and tear.
Notes Payable $ 290 Acct. Payablec 94 Accrued Taxes d 16 Other Accrued Liab. d 100 Current Liab. e $ 500 Long-Term Debt f 530 Shareholders Equity Com. Stock ($1 par) g 200 Add Pd in Capital g 729 Retained Earnings h 210 Total Equity $1,139
7-16
a. Note, Assets = Liabilities + Equity. b. What BW owed and ownership position. c. Owed to suppliers for goods and services. d. Unpaid wages, salaries, etc. e. Debts payable < 1 year. f. Debts payable > 1 year. g. Original investment. h. Earnings reinvested.
Source:
Less Use:
Net Profit
Cash Dividends
$91
38 $53
$ 30 100 $ 70
$ 91 30 16 77 10 $224
7-20
Uses
Primarily through an increase in inventories and expenditures on capital assets.
financing activities.
These cash flows are generally the cash effects of transactions that enter into the determination of net income.
7-24
$ 56
$(100)
7-31
$ ( 5) 77 ( 38)
$ 34
59 60
7-34
+(-)
(b) +(-)
Sales Decrease (increase) in AR Cash received from customers COGS - Depreciation + SGA Increase (decrease) in inventory Cash paid to suppliers and employees
(c)
+(-)
7-35
Income taxes (federal / state) Incr (Decr) in accum. tax prepay Taxes paid
$
$
60 1 61
$(100)
7-36
$ ( 5) 77 ( 38)
$ 34
$ ( 10) 100 $ 90
7-38
Net Income Depreciation Decrease, accounts receivable Increase, inventories Increase, accum. tax prepay Net cash provided (used) by operating activities
91 30 16 ( 80) ( 1) 56
Determine the future cash needs of the firm Plan for the financing of these needs Exercise control over cash and liquidity of the firm
7-39
Sales representatives project sales for the period in question (sales under their control or management). Sales projections are screened and consolidated for product lines. Product line sales projections are consolidated into a single forecast.
7-40
Economists project overall economic and business trends that will affect the firm. Expected market share is projected for current and new product lines. Product line sales projections are consolidated into a single forecast.
7-41
CASH COLLECTIONS Cash sales, current 80% of last months credit sales 20% of 2-month-old credit sales Total sales receipts
7-43
$ 17 169
$ 15 123
39
$225
42
$180
CASH COLLECTIONS Cash sales, current 80% of last months credit sales 20% of 2-month-old credit sales Total sales receipts
7-44
$ 28 108
$ 23 205
$ 18 164
$ 21 128
31
$167
27
$255
51
$233
41
$190
CASH DISBURSEMENTS FOR PURCHASES AND OPERATING EXPENSES 100% of last months purchases Wages paid Other expenses paid Total disbursements (purchases and operating expenses) 7-45 $ 39 90 34 $163 $ 35 94 34 $163
MAR $ 53
APR $ 40
MAY $ 48
JUN $ 50
100% of last months purchases Wages paid Other expenses paid Total disbursements
(purchases and operating expenses) 7-46
$ 64 111 34 $209
$ 53 107 34 $194
$ 40 92 34 $166
$ 48 92 34 $174
40 0 0 $203
0 9 0 $218
7-47
0 0 0 $166
0 10 0 $184
7-48
$ 34
$( 17)
$ 86
$ 92
7-51
$42
$51
$60
$69
$78
7-52
$4
$15
$26
$37
$48
7-53
Allows examination of the relevant factors which may generate uncertainty regarding future cash flows. Enables management to better plan for contingencies that will arise than using a single-point estimate of monthly cash flows.
7-54
Notes Payablea Acct. Payableb Accrued Taxes c Other Accrued Liab. d Current Liab. Long-Term Debt Shareholders Equity Com. Stock ($1 par) Add Pd in Capital Retained Earnings e Total Equity 7-59 Total Liab/Equity
a. Previous balance less amount paid down. b. 100% of June purchases. c. No net change in accruals. d. Decrease in unpaid 200 wages, salaries, etc. 729 e. Increase in retained 265 earnings (See 7-57). $1,194 ASSUMPTIONS $2,036