Lecture 14 0315 - ORIE 350 March 15, 2007 Cash Flows Prelim...

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ORIE 350 March 15, 2007 Cash Flows
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Prelim II Prelim II is March 27 th . Covers Homework #4 to #7. Leases are NOT included. Treasury stock/stock in other corp. is NOT included. Be sure to check for conflicts
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Conflicts BEE 222 BIOAP 458 ECE 320 ENGRD 203 M&AE 470 M&AE 570
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SOCF answers the questions: 1. If the company is profitable, why is it short of cash? 2. Is the company making regular capital expenditures? 3. Did the company use cash to pay down long term debt?
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Cash Terms Solvency – ability of a company to pay its debts as they mature. Liquidity – ability of a company to generate adequate amounts of cash for specific purposes, and also refers to the assets and liabilities “nearness to cash.” Financial flexibility – the ability of the company to adapt during a period of financial adversity, to obtain financing, to liquidate non-operating assets for cash, and to modify operations to increase short-run cash flows.
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Introduction Positive net income on the income statement indicates that revenues exceeded costs and expenses for the accounting period. That’s good, but we need cash to pay bills. Remember: cash = currency + checking account balances (We’ll modify this slightly to include cash equivalents )
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SOCF Overview The statement of cash flows (SOCF) is an indication of a company's ability to pay bills. It presents the sources of a company's cash inflows and the uses of cash outflows. The statement highlights the internal generation of cash. It also details investments and external financing.
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Internal Usage of the SOCF 1. Assess liquidity – determine if short-term financing is necessary. 2. Determine dividend policy – decide whether to declare a dividend. 3. Help plan for future investing and financing needs.
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External Usage of the SOCF External users, such as shareholders, creditors, suppliers, and even customers, use the SOCF to assess management’s ability to : Manage cash flows Generate positive future cash flows. Pay its liabilities on time Pay interest and principal payments on debt Pay dividends. Pay warranty claims
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SOCF Classification or “Where did you get that money?” There are three classifications of cash inflows and outflows presented on the SOCF: operating activities, investing activities, and financing activities. This is important! Changes in the level of each is an important signal.
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For example, if cash outflow for investment activities drops, it means we are not replacing our long term assets with new ones. Maybe we are trying to use very old computers to save cash. If cash flow from financing is all of a
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This note was uploaded on 03/04/2008 for the course ORIE 350 taught by Professor Callister during the Fall '08 term at Cornell University (Engineering School).

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Lecture 14 0315 - ORIE 350 March 15, 2007 Cash Flows Prelim...

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