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Ch03 - Financial Statements
Ch03 - Financial Statements
Finance, 2/e
Total Assets
Cash Flows
o SOURCES AND USES OF CASH (PP. 63)
• The statement of cash flows shows the company’s cash
inflow (receipts) and cash outflows (payments and
investments) for a period of time. We derive these cash flows
by looking at the firm’s net income during the period and at
changes in balance sheet accounts from beginning of the
period (end of the previous period) to the end of the period.
• In analyzing the statement of cash flows, it is important to
understand that changes in the balance sheet accounts reflect
cash flows.
• Increases in assets or decreases in liabilities and equity are
uses of cash, while decreases in assets or increases in
liabilities and equity are sources of cash (pp. 64)
Diaz Manufacturing Balance Sheets as of
December 31
Diaz Manufacturing Income Statements
Diaz Manufacturing Statement of Cash Flows
Cash Flows
o STATEMENT OF CASH FLOWS ORGANIZATION
• Operating Activities
cash inflows
– sell goods and services
cash outflows
– raw materials
– inventory
– salaries and wages
– utilities
– rent
Cash Flows
o STATEMENT OF CASH FLOWS ORGANIZATION
• Investing Activities
cash outflows and inflows due to
– buying and selling long-term assets such as plant and
equipment
– buying and selling bonds and stocks issued by other firms
IMPORTANT
Cash Flows
o STATEMENT OF CASH FLOWS ORGANIZATION
• Financing Activities
cash inflow
– issue debt
– issue equity
– borrow money
cash outflow
– pay interest or dividends
– repay loan principal
– purchase treasury stock
Interrelations Among the Financial
Statements
Cash Flows
o CASH FLOW TO INVESTORS
• The cash flow that a firm generates for its
investors in a given period, excluding cash
inflows from the sale of securities to investors.
o CASH FLOW AVAILABLE TO INVESTORS FROM
OPERATING ACTIVITIES (CFOA)
CFOA EBIT – Current Taxes
Noncash expenses (3.4)
Cash Flows
o CFOA EXAMPLE
• Diaz Manufacturing
EBIT = $168.4 million
Current Taxes = $44.3 million
Non-cash expenses = $83.1 million
$207.2 million
Cash Flows
o CASH FLOW TO WORKING CAPITAL
• To compute the net cash flows into or out of
working capital
CFNWC 2011
NWC 2011
– NWC 2010
$662.0m - $342.0
$320.0 million
Cash Flows
o CASH FLOW LONG-TERM ASSETS