Lecture2 - working capital management

Profit 68600 dividends 30800 retained earnings 37800

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Unformatted text preview: d New equity issued Equity retired Increases in CL items Decreases in CL items Decreases in CA items (excl. cash) Increases in CA items (excl. cash) Decreases in fixed assets Increases in fixed assets Operating Cash Flow Dividends ∆Cash = Sources – Uses Cash 15 Sources and Uses of Cash: Examples • • • • • • • • • • Invest in receivables use Increase accounts payable source Invest in inventory use Increase prepayments use Increase notes payable source Pay dividends use Increase accrued expenses source Buy marketable securities use Increase taxes payable source Invest in fixed assets use 16 Sources & Uses of Cash – Example Income Statement Net sales 765,000 COGS 459,000 SG & A 91,800 Advertising 26,775 Rent 45,000 Depreciation 5,225 Profit before tax 137,200 Tax 68,600 Net Profit 68,600 Dividends 30,800 Retained earnings 37,800 17 Balance Sheet 1995 Assets Cash AR Inventory PP & E Less accum. Dep. Total Assets 35,000 84,500 75,000 168,750 56,250 307,000 Liabilities and Equity AP 55,000 Accrued expenses 8,450 Long-term debt 30,000 Common stock 25,000 Retained earnings 188,550 Total liab. & equity 307,000 1996 Change 42,000 7,000 94,250 9,750u 78,750 3,750u 181,475 12,725u 61,475 335,000 60,500 5,150 15,000 28,000 226,350 335,000 5,500 s -3,300 u -15,000 u 3,000 s 18 Sources of Cash Cash from operations Net income 68,600 Depreciation 5,225 Decrease in net working capital Increased AP Issued new equity Total sources of cash 5,500 3,000 82,325 19 Uses of Cash Purchased fixed assets 12,725 Paid dividend 30,800 Increase in net working capital Increased inventory 3,750 Increased AR 9,750 Reduced accrued expenses 3,300 Reduced long-term debt 15,000 Total uses of cash 75,325 Change in cash balance $7,000 20 Statement of Cash Flows For reporting purposes, firms present the information about the change in cash using the Statement of Cash Flows Operating activities Net income Depreciation Increase in accounts payable 68,600 5,225 5,500 ­3,750 Increase in inventory Increase in accounts receivable Reduction in accrued expenses CF from operating activities...
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