CashFlowAnalysis Session6 Thissession HowtocalculateandanalysisacorporationsCashFlowanalysisHowtoevaluatethesolvencyofacompanybasedonitsbalancesheetandcashflows Incaseyoumissedthelastsession Wecovered I EBalanceSheetsThelinkagesbetweenI EandBalanceSheets BusinessChallenges EarnProfitsConvertProfitstoCashasFastasPossible CashFlow FromOperatingActivitiesFromInvestingActivitiesFromFinancingActivities BalanceSheetAssetsCash AccountsReceivable Inventory PrepaidExpenses Property Plant Equipment AccumulatedDepreciation TotalAssetsLiabilities EquityAccountsPayable AccruedOperatingExpenses AccruedInterestPayable IncomeTaxPayable NotesPayable Capitalstock RetainedEarnings TotalLiability Equity CashFlowStatementCashFlowFromOperatingActivitiesNetIncome AccountsReceivableIncrease InventoryIncrease PrepaidExpensesIncrease DepreciationExpense AccountsPayableIncrease AccruedExpensesIncrease IncomeTaxPayable CashFlowformOperatingActivities CashFlowFromInvestingActivitiesPurchasesofProperty Plant Equipment CashFlowsFromFinancingActivitiesShort TermDebtBorrowing Long TermDebtBorrowing CapitalStockIssue DividendsPaidtoStockholders IncreaseinCashforYear BalanceSheet CashFlowInteractions CashFlowFromOperations BalanceSheetlastyear BalanceSheetthisyear Income Expensethisyear ChangesintheBalancesheet closetsplusthedepreciationadjustedincome CashFlowfromOperations Profit thebottomline oftheI EStatement Plus7year to yearchangeadjustments BalanceSheet AccountsreceivableInventoryPrepaidexpensesDepreciationAccountsPayableAccruedExpensesIncomeTaxPayable Cashflow liketheBalanceSheetusesCASHACCOUNTINGNotACCRUALACCOUNTING OperatingCashFlowComments NetIncomeisfromthebottomlineofI EStatement DepreciationAdjusted IncreasesinOperatingAssetsdecreasecashflowfromprofit AR Inventory PrepaidExpenses Increasesinliabilities help cashflow AP AccruedExpenses IncomeTaxPayable GrowthConsumesCa h IncreasingrevenuewithcontrolledexpenseswillresultinincreasedprofitsRevenueincreasesalsodriveincreasesinoperatingassetsCashincreasesarenotaslargeasprofitincreasesbutaredelayedbecauseofARDecliningbusinessesexperienceoppositeeffectandcanexperienceincreased cashflow overprofitchanges Depreciation OperatingCashFlow Depreciation Sincethecompanypaidcashforthefixedassetswhenitboughtthem thecompanydoesnotconsumecashasecondtimewhenitusesthemThedepreciationoftheI EStatementistherefore addedback forcashflowpurposes BalanceSheetAssetsCash AccountsReceivable Inventory PrepaidExpenses Property Plant Equipment AccumulatedDepreciation TotalAssetsLiabilities EquityAccountsPayable AccruedOperatingExpenses AccruedInterestPayable IncomeTaxPayable NotesPayable Capitalstock RetainedEarnings TotalLiability Equity CashFlowStatementCashFlowFromOperatingActivitiesNetIncome AccountsReceivableIncrease InventoryIncrease PrepaidExpensesDecrease DepreciationExpense AccountsPayableIncrease AccruedExpensesIncrease CashFlowformOperatingActivitiesCashFlowFromInvestingActivities PurchasesofProperty Plant EquipmentCashFlowsFromFinancingActivities Short TermDebtBorrowing Long TermDebtBorrowing CapitalStockIssue DividendsPaidtoStockholders IncreaseinCashforYear BalanceSheet CashFlowInteractions PurchasesofProperty Plant Equipment FixedAssetstomodernizeorexpandcapacityWillbecapitalized depreciated TheDepreciationStory Capitalassetsareacashflowoutwhentheassetisbought CashFlow Investing TheboughtassetsareaddedtotheProperty Plant EquipmentlineoftheBalanceSheetTheappropriatedepreciationisallocatedforintheperiodthatitis used ontheI EThesumoftheaccumulateddepreciationsfromtheI EissubtractedfromthepurchasepriceoftheassetsonthebalancesheetTheallocatedI Edepreciationis addedback totheIncomeintheCashFlowanalysis BalanceSheetAssetsCash AccountsReceivable Inventory PrepaidExpenses Property Plant Equipment AccumulatedDepreciation TotalAssetsLiabilities EquityAccountsPayable AccruedOperatingExpenses AccruedInterestPayable IncomeTaxPayable NotesPayable Capitalstock RetainedEarnings TotalLiability Equity CashFlowStatementCashFlowFromOperatingActivitiesNetIncome AccountsReceivableIncrease InventoryIncrease PrepaidExpensesDecrease DepreciationExpense AccountsPayableIncrease AccruedExpensesIncrease CashFlowformOperatingActivitiesCashFlowFromInvestingActivities PurchasesofProperty Plant EquipmentCashFlowsFromFinancingActivities Short TermDebtBorrowing Long TermDebtBorrowing CapitalStockIssue DividendsPaidtoStockholders IncreaseinCashforYear BalanceSheet CashFlowInteractions CashFromFinancingActivities Whenoperatingcashflowsareinsufficienttofundcompanyoperations thefinancedepartmentmustraisecashforthecompanyLoansLineofcredit short termdebt Notes BondsorDebentures long termdebt IssueStockDividendspaidtoStockholdersareconsideredafinancingcashflow IBM2001CashFlow M CashFlowFrom 200120001999Operations14 2659 27410 111Investing 6 106 4 248 1 669 Financing 5 309 6 359 8 625 Exchangeratechanges 83 1470 149 NetChangeinCash2 767 1 480 332 Cashon1 13 5635 0435 375Cashon12 316 3303 5635 043Daysofcash301623 IBM2001CashFlowfromOperation