L_5_ - Outline Lecture 5 Lecture Organization Cash Flows...

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Unformatted text preview: Outline Lecture 5 Lecture Organization Cash Flows (continue) The Concept of Cash Flow Cash flow analyzes how cash is generated from utilizing assets and how it is paid to those that finance the purchase of the assets Cash Flows Between the Firm and the Financial Markets Cash Flow Summary I. The cash flow identity Cash flow from assets = Cash flow to creditors (bondholders) + Cash flow to stockholders (owners) II. Cash flow from assets = Operating cash flow Net capital spending Additions to net working capital (NWC) III. Cash flow to creditors = Interest paid Net new borrowing IV. Cash flow to stockholders = Dividends paid Net new equity raised Cash Flow Summary Cash flow from assets = Operating cash flow Net capital spending Additions to net working capital (NWC) where Operating cash flow = Earnings before interest and taxes (EBIT) + Depreciation Taxes Net capital spending = Ending net fixed assets Beginning net fixed asset + Depreciation Change in NWC = Ending NWC Beginning NWC Hermetic, Inc. Balance Sheet as of December 31 ($ in thousands) Assets 2005 2006 Current assets Cash $ 45 $ 50 Accounts receivable 260 310 Inventory 320 385 Total $ 625 $ 745 Fixed assets Net plant and equipment 985 1100 Total assets $1610 $1845 Hermetic, Inc. Balance Sheet (concluded) Liabilities and equity 2005 2006 Current liabilities Accounts payable $ 210 $ 260 Notes payable 110 175 Total $ 320 $ 435 Long-term debt 205 225 Stockholders equity Common stock and paid-in surplus 290 290 Retained earnings 795 895 Total $1085 $1185 Total liabilities and equity $1610 $1845 Income Statement ($ in thousands) Net sales Cost of goods sold Depreciation...
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This note was uploaded on 06/22/2011 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.

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L_5_ - Outline Lecture 5 Lecture Organization Cash Flows...

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