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Cash Flow Statement Analysis

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Course: Corporate Finance

Year of Study: II

Cash Flow Statement Analysis.

1. Prepare the cash flow statements using the following data of the "WxL" Company




Balance Sheet:

December 31st 2004

December 31st 2005

A source of cash

A use of Cash

Cash

30.000

15.000

15.000

0

Accounts receivable

250.000

230.000

20.000

0

Inventory

100.000

170.000

0

70.000

Buildings&equipment (Gross Value)

168.000

192.000

0

24.000

Minus Fixed assets depreciation

33.000

42.000

9.000

0

Buildings&equipment (Net Value)

135.000

150.000

0

15.000

Land

37000

41000

0

4.000

 

 

 

 

 

Taxes payables

2.000

2.000

0

0

Notes Payable

32.000

39.000

7.000

0

Accounts Payable

45.000

50.000

5.000

0

Bonds Payable

310.000

327.000

17.000

0

Accumulated Retained Earnings

113.000

138.000

25.000

0

Common Stock

50.000

50.000

0

0

 

 

 

 

 

Rules:

Any increase in assents and any decrease in liabilities and equity means we use cash

Any decrease in assets and any increase in liabilities and equity means we generate cash

CF from operating activities:

Net Income = 30.000 RON

+ Increase in Depreciation = 9.000 RON

+ Decrease of Accounts Receivables = 20.000 RON

- Increase in inventories = 70.000 RON

+ Increase in Notes Payable = 7.000 RON

+ Increase in Accounts Payable = 5.000 RON

= Operating CF = 1.000 RON

CF from investment activities

- Increase in gross Building & Equipment = 24.000 RON

- Increase in lande = 4.000 RON

= Investment CF = -28.000 RON

CF from financing activities

+ Increase in Bonds Payable = 17.000 RON

- Paid dividends = 5.000 RON

= Financing Cash-Flow = 12.000 RON

Total CF = 1.000 - 28.000 + 12.000 = -15.000 RON

CF Statement:

Cash on December 31st 2004: 30.000 RON

CF during 2005: (15.000) RON

Cash on December 31st 2005: 15.000 RON

2. Prepare the cash flow statements using the following data of the "BCC" Company:

Balance sheet

2002

2003

Income statement

2003

Cash

500

100

Sales

60000




Marketable securities

1000

0

Cost of good sold

45000

Accounts Receivables

6000

10000

Rent expenses

6000

Inventories

4500

9350

Salaries expense

5000

Prepaid expenses

550

400

Advertising expense

1500

Total Current Assets

12550

19850

EBITDA

2500

Gross Fixed Assets

25000

30000

Depreciation

1500

less: accumulated depreciation

7500

9000

EBIT

1000

Net Fixed Assets

17500

21000

Interest expense

800

Total Assets

30050

40850

EBT

200

Accounts Payable

8000

12200

tax expense (40%)

80

Notes Payable

2000

4000

Net Income

120

Dividend payable

0

60

Accruals

1000

2500

Statement of Retained Earnings

Total Current Liabilities

11000

18760

Beginning balance, January 1, 2003

50

Long-term debt

9000

12000

Net income

120

Common stock

10000

10000

Dividend declared

80

Retained Earnings

50

90

Ending balance, December 31, 1993

90

Total Equity

10050

10090

Total liabilities and Equity

30050

40850

     Determine the operating cash flow, investment cash flow and financing cash flow for year 2003.

     What is the tax shield the company has got as a result of the increase in depreciation expenses, as well as in interest expense? (Depreciation and interest expenses in 2002 were 1250 and 600 ).

     How much the operating cash flow has increased because of tax shields surplus the company has got?


Quik quiz:

/           What are the differences between accounting profit and cash flow?

/           What is the effect of the noncash expenses on the cash flow?

/           What are the effects of changes in net working capital on operating cash flow?

/           Which state of affairs of the company leads to profit and negative cash flow for its stockholders?

/           What is the difference between operating cash flow and total cash flow of the firm?

 

3. Homework

&   Questions an Problems - Financial Cash Flow (pg 31,32 - Ross, Westerfield, Jaffe - Corporate finance, fourth edition, Irwin, 1996)

&   Quiz 8/pg127 (R.A. Brealey, S.C. Myres, A.J. Marcus - Fundamentals of Corporate Finance, Mc Graw Hill, 2001);

&   Practice Problems 13,14,17,18/pg128,129 (R.A. Brealey, S.C. Myres, A.J. Marcus - Fundamentals of Corporate Finance, Mc Graw Hill, 2001);












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