4 44 Calculating Free Cash Flow from the Cash Flow Statement Nike Inc Add net

# 4 44 calculating free cash flow from the cash flow

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4-44 Calculating Free Cash Flow from the Cash Flow Statement : Nike, Inc. Add net interest payments after tax back in to CFO Reverse the impact of net interest-bearing securities
4-45 Converting Earnings to Free Cash Flows: Nike, Inc. Cash flow from Operations
4-46 A Common Approximation - FCF We can approximate by dealing with accruals separately. Note we get very different numbers, since not all investing expenses are dealt with.
Features of the Income Statement Revenue Accruals Value added that is not cash flow Adjustments to cash inflows that are not value added 1. Dividends don’t affect income 2. Investment doesn’t affect income 3. There is a matching of Value added (revenues) Value lost (expenses) Net value added (net income) 4. Accruals adjust cash flows ExpenseAccruals Value decreases that are not cash flow Adjustments to cash outflows that are not value added 4-47
4-48 The Income Statement: Nike, Inc . Top Line Bottom Line
The Revenue Calculation Revenue = Cash receipts from sales + New sales on credit Cash received for previous periods' sales Estimated sales returns and rebates Deferred revenue for cash received in advance of sale + Revenue previously deferred 4-49
The Expense Calculation Expense = Cash paid for expenses + Amounts incurred in generating revenue but not yet paid Cash paid for generating revenues in future periods + Amounts paid in the past for generating revenues in the current period 4-50
Earnings and Cash Flows Earnings from the business (operating earnings) = Earnings + Net interest (after tax) = Free cash flow + investment + accruals = [C - I]+ I + accruals The earnings calculation adds back investments and puts them back in the balance sheet. It also adds accruals. 4-51
Earnings and Cash Flows: Nike, Inc., 2010 4-52 We can double-check that our accounting is correct by comparing earnings to FCF

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