finalBA462presentation

finalBA462presentation - Chapter 7 4/19/10 What effect did...

Info iconThis preview shows pages 1–16. Sign up to view the full content.

View Full Document Right Arrow Icon
4/19/10 Chapter 7
Background image of page 1

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

View Full DocumentRight Arrow Icon
4/19/10 What effect did the expansion have on sales Sales increased by more than 2 million dollars (almost double) but net income decreased from 87,960 to (95,136).
Background image of page 2
4/19/10 What effect did the expansion have on the Decrease in cash, short-term investments Increase in accounts receivable, inventories, gross fixed assets, accumulated depreciation, net fixed assets
Background image of page 3

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

View Full DocumentRight Arrow Icon
4/19/10 What effect did the expansion have on Increase in accounts payable, notes payable, accruals, long term debt Decrease in retained earnings
Background image of page 4
4/19/10 What do you conclude from the statement of Significant source of cash is from financing (rather than from regular business operations) Large cash outflows were on fixed assets (the business expansion) Regular operating activities provided a significant net loss
Background image of page 5

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

View Full DocumentRight Arrow Icon
4/19/10 Free Cash Flow (FCF) Free cash flow is the amount of cash available for distribution to all investors including shareholders and debtors after a company has made all the investments in fixed assets and working capital necessary to sustain ongoing operations.
Background image of page 6
4/19/10 5 Uses of Free Cash Flow Pay interest to debt holders, keeping in mind that the net cost to the company is the after- tax interest expense Repay debt holders (pay off some debt) Pay dividends to shareholders Repurchase stock from shareholders Buy short-term investments or other non- operating assets
Background image of page 7

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

View Full DocumentRight Arrow Icon
4/19/10 Calculation FCF FCF=NOPAT-Net investment in operating capital To Solve for FCF we need to know: NOPAT=EBI T(1-Tax rate) Net operating working capital= operating cur rent assets- operating cur rent liabilities
Background image of page 8
4/19/10 Components of Net Operating Working Net operating working capital= operating cur rent assets- operating cur rent liabilities * operating current assets are assets necessary to operate the business (e.g. cash, accounts receivable, inventory) * non-operating assets include short term investments, investments in subsidies, and land
Background image of page 9

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

View Full DocumentRight Arrow Icon
4/19/10 Calculating Computrons NOPAT for 2009 NOPAT=EBIT(1-Tax rate) =209,100(1-.4)=209,100(.6) =10,464
Background image of page 10
4/19/10 Calculating Computrons Net Operating Working Net operating working capital= operating cur rent assets- operating cur rent liabilities Operating Current Assets: Cash- 7,282, A/R- 632,160, Inventories-1,287,360 Total: 1,926,802 Operating Current Liabilities: A/P- 324,000, Accruals-284,960 Total: 608,960
Background image of page 11

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

View Full DocumentRight Arrow Icon
4/19/10 FCF FCF=NOPAT-Net investment in operating capital NOPAT= 10,464 Net investment in operating capital= 1,119,032 FCF= -1,108,568
Background image of page 12
4/19/10 Return on Invested Capital (ROIC) ROI C=NOPAT/Operating Capital If the ROIC is greater than the rate of return investors require (which is the weighted average cost of capital or WACC) then the firm is adding value A company may have a negative FCF but if the ROIC exceeds the rate require by investors the negative FCF caused by high growth is nothing to worry about Operating Capital is Net Operating Working
Background image of page 13

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

View Full DocumentRight Arrow Icon
4/19/10 Calculating Computrons ROIC ROI C=NOPAT/Operating Capital NOPAT= 10,464 Operating Capital= 1,317,842+939,790= 2,257,632 ROI C= 10,464/2,257,632= 0.5%
Background image of page 14
4/19/10 Economic Value Added (EVA) EVA=EBIT(1-T)-(Total net operating capital) (WACC)
Background image of page 15

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

View Full DocumentRight Arrow Icon
Image of page 16
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/19/2010 for the course BA 464 taught by Professor Kien-quocvanpham during the Spring '10 term at Humboldt State University.

Page1 / 65

finalBA462presentation - Chapter 7 4/19/10 What effect did...

This preview shows document pages 1 - 16. Sign up to view the full document.

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