Lecture08 - Lecture 8 Statement of Cash Flows 1 In the news...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Lecture 8 Statement of Cash Flows
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 In the news… Software Maker Triples its Profit By REUTERS Published: February 1, 2008 BOSTON (Reuters) — CA Inc., the maker of business software, reported Thursday that quarterly profit more than tripled as it cut expenses and the weak dollar helped bolster revenue from overseas operations. The company posted fiscal third-quarter net income from continuing operations of $163 million , or 31 cents a share, compared with $50 million , or 9 cents, a year earlier. Revenue rose 10 percent, to $1.1 billion, during the quarter, which ended Dec. 31. The company said that total revenue would have climbed 4 percent in constant currency. North American revenue was up 5 percent in the third quarter while revenue from international operations was up 17 percent, or 4 percent on a constant currency basis, compared with the period last year. Expenses before interest and income taxes fell to $851 million, from $907 million. Cash flow from continuing operations fell 60 percent, to $233 million (was $587 million in Q3 of 2006).
Image of page 2
3 Goals of Today’s Class Understand the three sections of the Statement of Cash Flow Understand how to get from net income (on the income statement) to cash flow from operations (on the cash flow statement) Idea of “Free Cash Flow”
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 Business Background Positive cash flows permit a company to… Expand its operations. Expand its operations. Replace needed assets. Replace needed assets. Take advantage of market opportunities. Take advantage of market opportunities. Pay dividends to owners. Pay dividends to owners.
Image of page 4
5 Purpose of the Statement of Cash Flows To report about how the entire firm’s operating, investing, and financing activities have affected its cash balances during the period covered by the statement. In this context, “Cash” is defined as cash balances plus marketable securities with original maturities of three months or less. The cash flow statement should display all of the cash inflows within each of the three categories 1. Operations 2. Investing 3. Financing
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 Net Income ($2,278.5) ≠ change in Cash ($887) Why?
Image of page 6
7 Differences between Change in Cash and Net Income Net Income almost never reflects the actual change in cash-on-hand Accruals change net income without changing cash For example, depreciation expense lowers net income with no related change to cash-on-hand Purchases and sales can change cash without changing net income For example, purchasing equipment for cash lowers the cash balance but it does not immediately change net income Obtaining or paying off debt can change cash without changing net income For example, obtaining a new loan will increase cash without an immediate change in net income Issuing or repurchasing equity can change cash without changing net income For example, repurchasing Treasury Stock will decrease cash without a change in net income
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
8 Net Income includes a bunch of non-cash accruals that are a normal part of business operations The firm spent or obtained cash when
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern