MGMT310NotesChpt02and03Cash

MGMT310NotesChpt02and03Cash - StatementofCashFlows...

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Statement of Cash Flows Cash Flow from Assets Sources and Uses of Cash Translating BS/IS into Cash Flows Why do we need to adjust the BS/IS numbers? _________________________of income statement We want actual cash flows _____________________ Adjustments to account for: Depreciation Investments Capital Expenditures/Divestitures Net working Capital We will look at 3 ways to adjust MGMT 310: Spring 2011 Dr. Amanda Thompson 1
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3 ways to adjust BS/IS into CF Sources and Uses of CF Will not build, just use idea for intuition Statement of CF Reported with BS and IS in official filings Starts with Net Income Free Cash Flow Most useful for us Removes the _______________________by starting with EBIT!!! Sources and Uses of Cash Cash t+1 = Cash t + Sources Uses = Cash t + (NI + Dep + Cash in) – (Cash out+divs) Cash Inflows(sources) Cash Outflows(Uses) Dividends Decrease in asset account Increase in asset account Increase in liab or eq account Decrease in liab or eq account Decrease in NWC Increase in NWC MGMT 310: Spring 2011 Dr. Amanda Thompson 2
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Statement of Cash Flows Financial statement that summarizes the sources and uses of cash First Line: Beginning Cash Then: Cash divided into 3 categories Operating Activity Investment Activity Financing Activity Last Line: Ending Cash Reported by firms with IS and BS Stmt of CF: Operating Activity Operating Activity = Net Income + Dep – (noncash)NWC Depreciation is a non cash item Meaning: actual cash outflow _______________________ Fixed assets are expensed over time according to a specific ____________________________________ How we treat it Tax deductible (makes tax bill smaller) For Net Income calculation we subtract it as if a “true” expense Add back in after taxes to calculate operating cash measures MGMT 310: Spring 2011 Dr. Amanda Thompson 3
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