2. Contents
Compare cash flows from operating, investing, and
financing.
Contrast cash flow statements prepared under IFRS and
US GAAP.
Distinguish between the direct and indirect methods of
presenting cash from operating activities.
Analyze and interpret both reported and common-size
cash flow statements.
Calculate and interpret free cash flow to the firm, free
cash flow to equity, and performance and coverage cash
flow ratios.
3. Statement Structure
Cash flows from operations
+ Cash flows from investing activities
+ Cash flows from financing activities
= Change in cash
+ Beginning cash balance
= Ending cash balance
Supplemental disclosure: non-cash financing
and investing activities
4. Operating Activities (USGAAP)
Cash inflows from
Sale of goods or
services
Returns on loans
(interest)
Return on equity
securities (dividends)
Cash outflows for
Payments for
acquisitions of inventory
Payments to employees
Payments for taxes
Payments for interest
Payments for other
expenses
The cash effects of transactions and other events
that enter into the determination of net income:
5. Investing Activities (USGAAP)
Cash inflows from
Receipts for loans
collected
Sales of debt or equity
securities
Sales of plant, property,
and equipment
Cash outflows for
Loans to other entities
Investment in debt or
equity securities
Purchase of plant,
property, and
equipment
Lending money and collecting on those loans
and acquiring and selling investments and
productive long-term assets:
6. Financing Activities (USGAAP)
Cash inflows from
Sale of equity securities
Sale of bonds,
mortgages, notes, and
other short- and long-
term borrowings
Cash outflows for
Payment of dividends
Reacquisition of capital
stock
Payment of amounts
borrowed
Borrowing and repaying long-term loans;
issuing equity securities; payment of
dividends to shareholders:
7. Item Operating Investing Financing
1. Payment of federal income taxes.
2. Dividend payments to shareholders.
3. Repayment of long-term debt.
4. Loans made to another company.
5. Collection of accounts receivable.
6. Salaries paid to employees.
7.Payment of interest on bond debt.
8. Dividends received from investments.
9. Cash paid to acquire treasury stock.
10. Purchase of equipment for cash.
9. Statement of Cash Flows – An Example
B A T
90,000
$ 40,000
$ (24,000)
$
26,000
(48,000) (25,000)
13,000
(27,000)
15,000
$ 15,000
$ 15,000
$
Cash Flows of Competing Companies
all numbers in thousands
Cash provided (used) by operating
activities
Cash provided (used) by investing
activities:
Repayment of debt
Net increase (decrease) in cash
Proceeds from sale of operating
assets
Purchase of operating assets
Cash provided (used) by financing
activities:
Proceeds from issuance of debt
10.
11. The Product life cycle & cash flows
A series of phases all products go through
The phases are often referred to as the:
introductory phase
growth phase
maturity phase
decline phase.
The phase a company is in affects its cash
flows.
12. Introductory phase & cash flows
To support asset purchases the company may
issue stock or debt. Expect:
cash from operations to be negative
cash from investing to be negative.
cash from financing to be positive.
13. Growth phase & cash flows
The company is striving to expand its production
and sales.
Expect:
small amounts of cash to be generated from operations
cash from investing to be negative.
cash from financing to be positive.
14. Maturity phase & cash flows
Sales and production level-off
Expect:
cash from operations to exceed investing needs.
cash from investing to be neutral.
cash from financing to be negative.
15. Decline phase & cash flows
Sales and production decline
Expect:
cash from operations to decline.
cash from investing to possibly become positive.
cash from financing to possibly become negative.
17. A B C D
Net cash from operating activities (60) 30 120 (10)
Net cash from investing activities (100) 25 30 (40)
Net cash from financing activities 70 (110) (50) 120
Net Income (40) 10 100 (5)
Point in Time
(in $ millions)
Matching scenarios of cash flows with phases of
the product life cycle.
19. Methods to prepare Statement of Cash Flows
Direct Method vs. Indirect Method
Different in calculating net cash flow from operating
activities:
The DIRECT method deducts from operating cash
receipts the operating cash disbursements.
The INDIRECT method adjusts net income for items
that affected reported net income but did not affect cash.
20. Jan. 31, 2020 Jan. 31, 2019 Jan. 31, 2018
Cash flows from operating activities:
Cash received from customers $ 48,892,924 $ 47,836,136 $ 42,981,601
Cash paid to vendors and employees (48,118,538) (47,263,258) (41,668,923)
Interest paid, net (87,886) (97,293) (86,544)
Income taxes paid (93,410) (95,450) (131,632)
Net cash provided by operating activities 593,090 380,135 1,094,502
Cash flows from investing activities:
Proceeds from sale of business, net of cash divested 0 8,985 0
Acquisition of businesses, net of cash acquired (209,923) (124,223) (2,249,849)
Expenditures for property and equipment (48,352) (40,995) (192,235)
Software and software development costs (36,470) (20,419) (39,702)
Other 4,491 4,943 2,567
Net cash used in investing activities (290,254) (171,709) (2,479,219)
Cash flows from financing activities:
Borrowings on long-term debt 300,000 0 1,008,148
Principal payments on long-term debt (345,177) (208,591) (861,394)
Cash paid for debt issuance costs (4,341) 0 (6,348)
Net repayments on revolving credit loans (9,005) (11,288) (16,028)
Payments for employee withholdings on equity awards (9,428) (7,102) (6,027)
Proceeds from the reissuance of treasury stock 1,660 1,771 1,543
Acquisition of noncontrolling interest (7,553) 0 0
Repurchases of common stock (170,191) (107,025) 0
Other 529 0 0
Net cash (used in) provided by financing activities (243,506) (332,235) 119,894
Effect of Exchange Rate on Cash and Cash Equivalents (17,087) (32,696) 94,860
Net increase (decrease) in cash and cash equivalents 42,243 (156,505) (1,169,963)
Cash and cash equivalents at beginning of year 799,123 955,628 2,125,591
Cash and cash equivalents at end of year 841,366 799,123 955,628
Consolidated Statement Of Cash Flows - USD ($) $ in
Thousands
12 Months Ended
23. Use this table when adjusting Net
Income to Operating Cash Flows.
Change in Balance During Year
Increase Decrease
Current Subtract from net Add to net income.
Assets income.
Current Add to net income. Subtract from net
Liabilities income.
Indirect Method
24. Company B reported revenues of $60 million, total expenses of
$35 million, and net income of $15 million in the most recent
year. If accounts receivable were $32 million at the beginning of
the year and $15 million at the end of the year, how much cash
did the company receive from customers?
A . $33 million.
B . $60 million.
C . $77 million.
25. Company O reported cost of goods sold for the year of $150
million. Inventory declined from $40 million to $24 million.
Accounts payable decreased from $35 million to $25 million.
How much cash did the company pay to its suppliers during the
year?
A . $144 million.
B . $156 million.
C . $176 million.
26. Cash Flows from Operating Activities
(Indirect Method)
Noncash expenses
Nonoperating losses
Decreases in current
assets
Increases in current
liabilities
Nonoperating gains
Increases in current
assets
Decreases in current
liabilities
Net Income
Additions Deductions
Net cash flow from operating activities
27. Net income is £132,000, accounts payable increased
£10,000 during the year, inventory decreased £6,000
during the year, and accounts receivable increased
£12,000 during the year. Under the indirect method,
what is net cash provided by operating activities?
(a) £102,000.
(b) £112,000.
(c) £124,000.
(d) £136,000.
28. The following data are available for Allen Clapp
Corporation.
Net income
Depreciation expense
Dividends paid
$2,000,000
400,000
600,000
Gain on disposal of land
Decrease in accounts receivable
Decrease in accounts payable
100,000
200,000
300,000
Net cash provided by operating activities is:
(a) $1,600,000.
(b) $2,200,000.
(c) $2,400,000.
(d) $2,800,000.
29. The following data are available for Orange Peels
Corporation.
Sale of land
Sale of equipment
$100,000
50,000
Issuance of ordinary shares 70,000
Purchase of equipment 30,000
Payment of cash dividends 60,000
Net cash provided by investing activities is:
(a) $120,000.
(b) $130,000.
(c) $150,000.
(d) $190,000.
30. The following data are available for Something Strange!
Increase in accounts payable
Increase in bonds payable
Sale of investment
Issuance of ordinary shares
Payment of cash dividends
€ 40,000
100,000
50,000
60,000
30,000
Net cash provided by financing activities is:
(a) €90,000.
(b) €130,000.
(c) €160,000.
(d) €170,000.
31.
32.
33.
34.
35.
36.
37. Evaluation of the sources and uses of cash
Step 1
• What are major sources and uses of cash flow? (operating,
investing, or financing activities?)
• Is operating cash flow positive and sufficient to cover capital
expenditures?
Step 2
• What are major determinants of operating cash flow?
• Is operating cash flow higher or lower than net income? Why?
Step 3
• Where is the cash coming from to cover investments?
• Why are assets being sold? What would be effects on the
company?
Step 4
• Is the company raising capital or repaying capital? Why?
• What are the nature of its capital sources?
38. 2020 2019 2018
Net Income (8,885) 1,686 1,412
Net cash provided by (used in) operating activities (6,543) 3,815 3,533
Net cash used in investing activities (4,342) (2,243) (1,973)
Net cash provided by (used in) financing activities 10,994 (1,568) (1,672)
Net increase (decrease) in cash 109 4 (112)
Cash at beginning of the year 390 286 398
Cash at end of the year 499 290 286
American airlines group
Consolidated Statement of cash flows
39.
40. 2021 2020 2019
Net Income (12,965) (11,178) 2,537
Net cash provided by (used in) operating activities (6,759) (6,455) 8,819
Net cash used in investing activities (1,945) 3,353 (1,284)
Net cash provided by (used in) financing activities 8,766 1,798 (8,182)
Net increase (decrease) in cash 62 (1,304) (647)
Cash at beginning of the year 1,653 2,957 3,603
Cash at end of the year 1,715 1,653 2,956
Vietnamairlines
Consolidated Statement of cash flows
46. Free cash flow
The excess of operating cash flow over capital expenditures is
known generically as free cash flow.
Free cash flow to equity
(FCFE) is the cash flow
available to the company’s
common stockholders after
all operating expenses and
borrowing costs (principal
and interest) have been
paid and necessary
investments in working
capital and fixed capital
have been made.
Free cash flow to the firm
(FCFF) is the cash flow
available to the company’s
suppliers of debt and equity
capital after all operating
expenses have been paid
and necessary investments
in working capital and fixed
capital have been made.
