Chap7_2009 - Chapter 7 Funds Analysis Cash-Flow Analysis...

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Unformatted text preview: Chapter 7 Funds Analysis, Cash-Flow Analysis, and Financial Planning Learning Objectives After studying Chapter 7, you should be able to: • Explain the difference between the flow of funds (sources and uses of funds) statement and the statement of cash flows -- and understand the benefits of using each. • Define "funds" and identify sources and uses of funds. • Create a sources and uses of funds statement, make adjustments, and analyze the final results. • Describe the purpose and content of the statement of cash flows as well as implications that can be drawn from it. • Prepare a cash budget from forecasts of sales, receipts, and disbursements -- and know why such a budget should be flexible. • Develop forecasted balance sheets and income statements. • Understand the importance of using probabilistic information in forecasting financial statements and evaluating a firm's condition. Topics • Flow of Funds (Sources and Uses) Statement • Accounting Statement of Cash Flows • Cash-Flow Forecasting • Range of Cash-Flow Estimates • Forecasting Financial Statements Flow of Funds Statement Has been replaced by the cash flow statement (1989) in U.S. audited annual reports. A summary of a firm’s changes in financial position from one period to another; it is also called a sources and uses of funds statement or a statement of changes in financial position . Why Examine the Flow of Funds Statement QUESTION? Why should we bother to understand a Flow of Funds Statement that is no longer required to appear in U.S. audited annual reports? Why Examine the Flow of Funds Statement • Includes important noncash transactions while the cash flow statement does not. • Is easy to prepare and often preferred by managers for analysis purposes over the more complex cash flow statement. • Helps you to better understand the cash flow statement, especially if it is prepared under the “indirect method.” The Flow of Funds Statement: Flow of Funds Statement All of the firm’s investments and claims against those investments. Extends beyond just transactions involving cash . What are “ funds ”? Sources and Uses Statement The letters labeling the boxes stand for U ses , S ources , A ssets , and L iabilities (broadly defined). The pluses (minuses) indicate increases (decreases) in assets or liabilities. A L- + + - S U BW’s Determination of Sources and Uses $ 100 - S 410 - S 616 + U 5 -- 9 + U $ 1,140 N/A 930 N/A (299) N/A $ 631 + U 50 -- 223-- $ 2,044 Cash and C.E. $ 90 Acct. Rec. 394 Inventories 696 Prepaid Exp 5 Accum Tax Prepay 10 Current Assets $ 1,195 Fixed Assets (@Cost) 1030 Less: Acc. Depr. (329) Net Fix. Assets $ 701 Investment, LT 50 Other Assets, LT 223 Total Assets $ 2,169 Assets 2007 2006 +/- S/U BW’s Determination of Sources and Uses $ 100 $10 S 410 16 S 616 80 U 5 -- 9 1 U $ 1,140 N/A 930 N/A (299) N/A $ 631 70 U 50 -- 223-- $ 2,044 Cash and C.E. $ 90 Acct. Rec. 394 Inventories 696 Prepaid Exp 5 Accum Tax Prepay 10 Current Assets...
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Chap7_2009 - Chapter 7 Funds Analysis Cash-Flow Analysis...

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