Cash Flow Analysis

And
Financial Planning
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 Position
 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 (580,000)
equipment
Proceeds from sale of equipment 110,000
Net cash from investing activities (470,000)
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 (10,000)
obligation
Dividends paid (450,000)
Net cash used in financing activities 1,040,000

Net increase in cash and cash 3,360,000

equivalents
Cash and cash equivalents at 1,640,000
beginning of the period
Cash and cash equivalents at end of $5,000,000
the period
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 20,000
receivable
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 (500,000)
equipment
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 2,920,000

equivalents
Cash and cash equivalents at 2,080,000
beginning of the period
Cash and cash equivalents at end of $5,000,000
the period
Direct Method Indirect Metho

Operating, assumes everything

Reveals operating
Investing recorded as a
And revenue was a cash
cash receipts and Financing
payments (same amount)
receipt and
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 Financin
g g
Activities Activities
 Operating Activities
Inflows:
Sales to customers, Interest and Dividends
received
Outflows:
Purchase of inventory, Salaries and other
operating expenses, Income taxes and
Interest on debt
Investing 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

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t
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Im To shareholders - dividends

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Suppliers Attracted to
Creditors companies that
produce plenty of cash
Investors
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)

FCF=
[ +
EBIT(1-T) Depreciation
][
and Amortization
- Expenditures
Capital Net Operating
]
+ 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)

FCF=
[ +
EBIT(1-T) Depreciation
][
and Amortization
- Expenditures
Capital Net Operating
]
+ 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

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 P10,000 P80,000
Equivalents
Accounts Receivable 375,000 315,000
Inventories 615,000 415,000
Total Current P1,000,000 P810,000
Assets
Accounts Payable P60,000 P30,000
Notes Payable 110,000 60,000
Accruals 140,000 130,000
 Free cash flow (fcf)
Illustrative Problem

ANSWE
R!
FCF=
[ +
EBIT(1-T) Depreciation
][
and Amortization
- Expenditures
Capital Net Operating
]
+ 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!
FCF=
[ +
EBIT(1-T) Depreciation
][
and Amortization
- Expenditures
Capital Net Operating
]
+ Working Capital

{Capital Expenditures +[NOWC2016- NOWC2015]}

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

Second Bracket:
= P550,000
 Free cash flow (fcf)
Illustrative Problem

ANSWE
R!
FCF=
[ +
EBIT(1-T) Depreciation
][
and Amortization
- Expenditures
Capital Net Operating
]
+ Working Capital

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