Cashflow

Analysis
Rini Novrianti Sutardjo Tui
Business Cashflow
 Cashflow Rules

Assets increase =
use of cash

Liability increase =
source of cash
Liability decrease =
use of cash

Assets decrease =
source of cash
Constructing Cashflow
 Operating Activities

Involves activities firm does

on a day-to-day basis

Focus of
activities is
generating
Producing Paying net income
Buying Collecting
and selling expenses
inventory credit sales – the
product and taxes
beginning of
a cashflow
statement.

Money from operating

transactions runs through
current balance sheet accounts
 Operating Activities
Example of cashflow from operating activities
 Investing Activities

Because the
net value
includes an
Examine the adjustment
change in for
gross fixed depreciation
assets, not
Typically net fixed
include assets
purchasing
fixed assets
 Financing Activities

Deal with the capital accounts, long-term debt and equity

 Statement of Cashflow
Belfry Company
Statement of Cash Flows
For the period ended 12/31/X2
CASH FROM OPERATING ACTIVITIES
Net income $ 1,000
Depreciation $ 500 While the firm was
Net changes in current accounts $ (600) profitable it still had to
Cash from operating activities $ 900 borrow money and sale
CASH FROM INVESTING ACTIVITIES stock to finance the
Purchase of fixed assets $ (2,000) increase in fixed assets
CASH FROM FINANCING ACTIVITIES
Increase in long-term debt $ 1,200
Sale of stock $ 800
Dividend paid $ (500)
Cash from financing activities $ 1,500
NET CASH FLOW $ 400

Beginning cash balance $ 1,000

Net cash flow $ 400
Ending cash balance $ 1,400
 Free Cashflow

Under normal conditions most firms generate positive cash flow from
operations

Cash generated
Some of these funds are used to maintain long-
beyond reinvestment
run competitive position
needs

Replace worn-out Pay dividends on

fixed assets preferred stock
 Free Cashflow
Free Cash Flow (FCF) is the amount of cash flow
available to debt and equity holders after
meeting all operating needs and paying for its
investment in net operating working capital and
fixed assets and other assets

After Tax Free

Operating Investment
Cash in Assets Cash
Flows Flow

Investment Investment
in Net in Fixed
Investment
Operating Assets and
in Assets
Working Other
Capital Assets
 After Tax Cashflow Calculation

Revenue
- Operating costs
- Depreciation
- Depletion
Revenue
- Amortization
- Operating costs
- Write-offs
- Capital costs
Taxable income
Before-tax cashflow - Income tax
- Income tax + Depreciation
After-tax cashflow + Depletion
+ Amortization
+ Write-offs
- Capital costs
After-tax cashflow
 Business Costs to be Expensed

Tax Benefit

Could be deducted in full

in the year incurred

Research Mining Mining

Operating Experiment. Devlp.
Expl.
Costs Costs Costs
Costs
Financial Situations that Affect Cashflow

Before
tax

Carry-
Cashflow Expense
forward

Stand-
alone