Lecture 4 spring 10a - + + and tax expense...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
+ 0 - + 0 - Introduction Growth Maturity Decline Net Income Revenue growth Investing Operations Financing Financing and tax expense are used to approximate interest paid and taxes paid in the cash based ratio. e are the changes in ‘working capital’ or ‘non-cash working capital’. Why does this SCF differ from SBUX’s actual SCF? Spring 2010 NBA 5060 Lecture 4 – The Statement of Cash Flows 1. What to look for in a statement of cash flows 2. Assessing liquidity risk and solvency risk Additional notes (not covered in class): 3. The mechanics of constructing a statement of cash flows. For Next Class: We will discuss the Just for Feet case, handed out in class today. Lecture 4 Page 1 of 17
Background image of page 1

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

View Full DocumentRight Arrow Icon
Lecture 4 Page 2 of 17
Background image of page 2
Analyzing the statement of cash flows and other cash-related items In addition to a profitability analysis, which focuses primarily on earnings (income statement) and invested capital (balance sheet), it is useful to examine the cash flows of the company. This type of analysis can tell us, for example: Primary sources of cash Primary uses of cash Quality of reported earnings Life cycle of the firm and expected growth Liquidity and Solvency of the firm Lecture 4 Page 3 of 17
Background image of page 3

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

View Full DocumentRight Arrow Icon
Key questions to ask using the statement of cash flows: 1. Cash Flow Adequacy Is the cash from operations consistently positive? If not, why not? 2. Quality of Earnings Is the reported net income backed up by cash? Where the numerator is referred to as total accruals. A positive TATA ratio (i.e. greater than 0) is often problematic, especially if the firm has negative earnings. A TATA ratio of less than –5% is usually a good sign, especially if the company has positive earnings. Lecture 4 Page 4 of 17
Background image of page 4
Key uses of cash What is the company spending its cash on? What has the company been investing in? How heavily? Are they growing through acquisitions or internal growth? Primarily: (1) supporting operations (i.e. negative CFO). (2) investments in PPE (internal growth) (3) acquisitions (external growth) (4) Non-operating investments Although R&D or advertising represent investments as well, you will not find these explicitly listed on an indirect statement of cash flows. 4. Sources of cash Where is the company getting its cash from? Is cash from financing positive or negative? What are the means of financing? What are the implications of financing choices for operating cash flow or for shareholder wealth? What do financing activities signal about future growth opportunities? Lecture 4
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/16/2010 for the course NBA 5060 taught by Professor Yehuda,nir during the Spring '08 term at Cornell University (Engineering School).

Page1 / 17

Lecture 4 spring 10a - + + and tax expense...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online