Chapter_10 - Chapter 10 Chapter 10 The Analysis of the Cash...

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Unformatted text preview: Chapter 10 Chapter 10 The Analysis of the Cash Flow Statement The Analysis of Cash Flow The Analysis of Cash Flow Statement Statement Link to Previous Chapter This chapter reformulates the cash flow statement to capture the operating and financing activities. This Chapter Chapter 11 lays out the analysis of the reformulated financial statements. Link to Next Chapter Link to Web Page How is the cash flow statement reformulated to separate operating and financing flows? How is free cash flow identified in reformulated statements ? What adjustments must be made to GAAP cash flow statements ? Chapter 9 reformulated the balance sheet and income statement to capture the operating and financing activities. What you will learn from this What you will learn from this chapter chapter • How free cash flow can be calculated from reformulated income statements and balance sheets without a cash flow statement • How the cash conservation equation ties the cash flow statement together to equate free cash flow and financing cash flow • The difference between the direct and indirect calculations of cash from operations • Problems that arise in analyzing cash flows from GAAP statements of cash flow • What reformulated cash flow statements tell you • How to examine the quality of reported cash flow from operations The Calculation of Free Cash The Calculation of Free Cash Flow Flow Three methods to calculate FCF: 1. Use the sources of cash flow equation: that is, free cash flow is operating income adjusted for the change in net operating assets 2. Use the disposition of cash flows equation: that is, free cash flow is net financial expenses, adjusted for the change in net financial obligations, plus dividends to common shareholders. 3. FCF can also be obtained from the reformulated Statement of Cash Flows. NOA OI I C ∆- =- d + NFO FE N I C ∆- =- Calculation of Free Cash Flow: Calculation of Free Cash Flow: Nike, Inc.: 2004 Nike, Inc.: 2004 Method 1 : C – I = OI - ∆ΝΟΑ Operating income 2004 Net operating assets 2004 Net operating assets 2003 Free cash flow 2004 $ 4,551 4,330 $ 1,035 (221) $814 Method 2 : C – I = NFE - ∆Ν FO + d Net financial expenses 2004 Net financial obligations 2004 Net financial obligations 2003 Net dividend 2004 Free cash flow 2004 (289) 302 $ 16 591 207 $814 Calculation of Free Cash Flow: Calculation of Free Cash Flow: Reebok, 2004 Reebok, 2004 Method 1 : C – I = OI - ∆ΝΟΑ Operating income, 2004 Net operating assets, 2004 Net operating assets, 2003 Free cash flow, 2004 $1,212 731 $ 237 481 $ (244) Method 2 : C – I = NFE – ΔNFO + d +MI(income) - ∆ MI(balance sheet) Net financial expenses, 2004 Net financial obligations, 2004 Net financial obligations, 2003 Net dividend, 2004 Minority interest in income Change in minority interest in balance sheet Free cash flow, 2004 (23) (316) $ 18 (293) 23 5 3 ___________ $ (244) The Standard GAAP The Standard GAAP Statement of Cash Flows Statement of Cash Flows Standard Statem ent of Cash Flows...
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This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

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Chapter_10 - Chapter 10 Chapter 10 The Analysis of the Cash...

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