class3 - Class #3 Cash Flow Analysis 15.535 - Class #3 1...

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Class #3 “Cash Flow Analysis” 15.535 - Class #3 1
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Quickie Announcements In class on Thursday: Submit form with names of team members and your 3 company choices for project. Matching team members. 15.535 - Class #3 2
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Cash Flow Statement • Cash flow statement – Undo the current period accrual adjustments affecting • Operating, Investing, and Financing activities • Operating activities (income statement) • Changes in receivables and inventories – Real changes and potential fraud/manipulation • Changes in accounts payable and taxes payable • Depreciation 15.535 - Class #3 3
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Cash Flows over the Firm’s Life Cycle: Implications for CF Projections Sales Net Income CFO Financing CF Investing CF 15.535 - Class #3 4
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Indirect Cash Flow Statement: Example Indirect method: Walmart Stores, FY ending January 31, 2001 (‘000 dollars) Net income $6,295 Adjustments Depreciation and amortization 2,868 Increase in Accounts Receivable (422) Increase in Inventories (1,795) Increase in Accounts Payable 2,061 Increase in Accrued Liabilities 11 Deferred income taxes 342 Other 244 Cash flow from operating activities $9,604 15.535 - Class #3 5
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Cash Flow Analysis - Walmart CFO = NI – WC Accruals + Deprec = NI – [ ' NonCash CA - ' CL) + Deprec = NI – [ ' AR + ' Inv - ' AP - ' AccLiab] + Dep = 6,295 – [422+1,795-2,061-11] + 342 + 244 + 2,868 = 6,295 – 422 - 1,795 + 2,061+ 11 + 342 + 244 + 2,868 = 9,604 15.535 - Class #3 6
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Cash Flow Statements: Look for Creativity in Classifying Cash Flows Classification of pre-opening costs by 50-Off Stores (a retailer) Pre-opening costs of $7.7 million as investing activity Operating cash flow in millions • Reported $10.3 • Reclassifying pre-opening costs (7.7) • Adjusted operating cash flow $2.6 The next year, 50-Off Stores changed the classification to operating activity Comparison: The Gap, Inc. Annual Report Costs associated with the opening or remodeling of stores, such as pre-
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class3 - Class #3 Cash Flow Analysis 15.535 - Class #3 1...

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