Tutorial_CF

advertisement
Tutorial
Chapter III
Cash Flow and
Financial Planning
Cash Flow and
Financial Planning - Goals
• Tax depreciation procedures
• The firm’s statement of cash flows
• Financial planning process (short-term
and long-term)
• Cash-planning process (cash budget)
• The pro forma income statement
• The pro forma balance sheet
Depreciation
= systematic charging of a portion of costs of
Fixed Assets against revenues over time.
- The amount is determined by using Modified
Accelerated Cost Recovery System
(MACRS)
- Depreciable value
- Depreciable life
Statement of CF
- Summarizes the firm‘s CF over a given
period of time
CF is divided into
- operating flows
- investment flows
- financing flows
Inflows – Decrease in A, Increase in Liab.,
EAT, Depreciation, Sale of stock
Outflows – Inc. in A, Dec. in Liab., Net loss,
Dividends paid, Repurchase of stock
Formulas
CF from operations = EAT + Depreciation
Operating CF = EBIT*(1-T) + Depreciation =
NOPAT + Depreciation
FCF = OCF – NFAI – NCAI
NFAI = Change in net fixed A + Depreciation
NCAI = Change in current A – Change in
(accounts payable + accruals)
Financial planning process
Long-term financial plans – cover a 2 to 10
years period, Strategic decisions
Short-term financial plans – cover 1 to 2 years
period, Operating financing
Cash Budget = a statement of a firm‘s
planned inflows and outflows of cash. As a
basis is used the sales forecast provided by
the marketing department.
Financial planning process
Profit planning – Pro-Forma Statements
Pro-Forma Statements = projected income
statements and balance sheets, two inputs
are needed - the sales forecast and the
financial statements for the preceding year.
Preparing Pro-Forma Income Statement –
percent-of-sales method
Preparing Pro-Forma Balance Sheet –
judgmental approach
Exercise 3 - 3
• Determine OCF
• Sales of $2,500,000
• Cost of goods sold $ 1,800,000
• Operating expenses $300,000
• Depreciation expenses $200,000
• Tax rate 35%
Exercise 3 – 3 Solution
• OCF = [EBIT * (1-t)] + Depreciation
• EBIT = $2,500,000 - $1,800,000 $300,000 = $400,000
• OCF = [$400,000 * (1 - 0.35)] + $200,000
= $460,000
Exercise 3 - 4
• Calculate FCF
• Increase in fixed assets $300,000
• Depreciation $200,000
• Increase in current assets $150,000
• Increase in accounts payable $75,000
• OCF was $700,000
Exercise 3 – 4 Solution
• FCF = OCF - NFAI - NCAI
• NFAI = change in fixed assets + depreciation
• NFAI = $300,000 + $200,000 = $500,000
• NCAI = change in current assets - change in
(acc. payable + accruals)
• NCAI = $150,000 - $75,000 = $75,000
• OCF = $700,000
• FCF = $700,000 - $500,000 - $75,000 =
$125,000
Exercise 3 - 5
• Estimate net profits before taxes
• Sales forecast of $650,000
• Fixed costs of $250,000
• Variable costs 35% of Sales
• Operating expenses include fixed costs of
$28,000 and variable costs 7,5% of sales
• Interest expenses are $20,000
Exercise 3 – 5 Solution
Problem 3 - 2
• Accounting cash flow
• Earnings after taxes $50,000
• Depreciation $28,000
• Amortization $2,000
• What was the firms accounting cash flow
from operations?
Problem 3 – 2 Solution
• Earnings after taxes $50,000
• Plus: Depreciation $28,000
• Plus: Amortization $ 2,000
• Cash Flow from operations $80,000
Note: Deprec. and Amor. are non-cash charges. Depreciation is
charged against tangible assets, amortization is charged against
intangible assets.
Problem 3 - 4
• Depreciation and accounting Cash Flow
• Asset original cost of $180,000 has a 5-year
• MACRS recovery period, now in 3rd year (19%)
• Accruals $15,000
• Current assets $120,000
• Interest expense $15,000
• Sales revenue $400,000
• Inventory $70,000
• Total cost before deprec., int. and tax $290,000
• Tax rate on ordinary income 40%
Problem 3 – 4 Solution
Problem 3 - 5
Problem 3 – 5 Solution
Problem 3 - 7
• Cash receipts
• Sales of $65,000 in April, $60,000 in May
• Sales of $70,000 in June, $100,000 in July
and in August
• Half of sales are for cash and the other
half is collected evenly over next 2 months
• What are firms expected cash receipts for
June, July and August?
• Use Excel sheet (Problem 3-7.xlsx)
Problem 3 – 7 Solution
Problem 3 - 8
• Cash disbursement schedule for April, May and June
• Sales from February: $500,000 $500,000 $560,000 $610,000
$650,000 $650,000
• Purchases: 60% of next month’s sales, 10% in cash, 50% after 1
month, 40% after 2 month
• Rent: $8,000 per month
• Wages and Salaries: Fixed $6,000/month + 7% of sales
• Taxes: $54,500 due in June
• Fixed asset outlays: New equipment in April for $75,000
• Interest payments: A payment of $30,000 is due in June
• Cash dividends: $12,500 will be paid in April
• Principal payments and retirements: None
• Use Excel sheet (Problem 3-8.xlsx)
Problem 3 – 8 Solution
Problem 3 - 14
• Pro forma income statement
• Use the percent of sales method to
prepare a pro forma income statement
• Use fixed and variable cost data to
develop a pro forma income statement
• Use Excel sheet (Problem 3-14.xlsx)
Problem 3 – 14 Solution a)
Problem 3 – 14 Solution b)
•Using fixed and
variable costs higher
profit is projected
• Percent of sales
method is more
conservative, but
fixed and variable
costs method is more
accurate
Problem 3 - 17
• Pro forma balance sheet
• Analyze expected performance and
financing needs for 2008 - 2yrs ahead
• Prepare pro forma balance sheet dated
Dec. 31. 2008
• Discuss the financing changes suggested
by the statement prepared
• Use Excel sheet (Problem 3-17.xlsx)
Problem 3 – 17 Solution
Company must arrange for additional
financing of at least $775,000
over the next two years based on the given
constraints and projections
Download
Related flashcards

Credit

13 cards

Banking

21 cards

Payment systems

18 cards

Finance

16 cards

Banks of Germany

43 cards

Create Flashcards