8 - After Tax Cash Flow Analysis

8 - After Tax Cash Flow Analysis - After Tax Cash Flows The...

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1/5/2008 R B McCann 1 1/5/2008 After Tax Cash Flows “The difference between death and taxes is death doesn’t get worse every time Congress meets.” - Will Rogers © R B McCann - 2 Cash Flow ± Ending cash – beginning cash = net cash flow ± By convention: z Cash coming in is positive z Cash going out is negative ± Cash is “real” money. z Money in the bank – you can count it. ± Cash flow statement records the sources and uses of cash over an interval of time .
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1/5/2008 R B McCann 2 1/5/2008 © R B McCann - 3 Cash Flow Statement Structure ± Operating Cash Flow z Cash produced (or used) in the business. ± Investing Cash Flow z Cash received from (or invested in) the sale (or purchase) of equipment or other assets. ± Financing Cash Flow z Cash raised (or paid) to finance the business. Items in parenthesis are negative cash flows. © R B McCann - 4 Operating Cash Flows ± Revenue received from the sale of goods or services ± Purchase or production of product or services to be sold ± Operating expenses (period expenses) z Sales & Marketing, G&A, R&D ± Interest on debt ± Lease payments ± Change in working capital ± Income taxes z For this course, we will assume taxes are paid immediately via withholding at the tax rate. ± Any unpaid taxes would otherwise be a future liability. ± Note: Depreciation is operating expense, but not cash flow.
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1/5/2008 R B McCann 3 1/5/2008 © R B McCann - 5 Working Capital ± Cash tied up in the daily operation of the business. z Typical Categories: ± Inventory ± Accounts receivable ± Accounts payable ± Definition: z Current assets (except cash) minus current liabilities ± For our purposes: z WC = Inventory + AR – AP ± Change in working capital is an operating cash flow. z Increase is negative z Decrease is positive Note: The text categorizes working capital as an investment cash flow. © R B McCann - 6 Investing Cash Flows ± Capital investment: purchase of plant and equipment ± Salvage value: sale of plant and equipment ± Gains taxes z Strictly speaking this is an operating item, but analysis is simpler if we group it with the purchase and salvage of capital equipment.
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1/5/2008 R B McCann 4 1/5/2008 © R B McCann - 7 Financing Cash Flows ± Loans: z The borrowed principal is a positive cash flow.
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8 - After Tax Cash Flow Analysis - After Tax Cash Flows The...

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