Financial Statement Analysis I:
Chapter 4
©NACM
General Chapter Notes
A. The Statement of Cash Flows as a Derivative
Statement
B. FASB 95 Analysis: Cash flows from Operations,
Investing, and Financing
Slide 4-1
Cash Flows of the Firm
Slide 4-2
General Chapter Notes (cont.)
C. How to Calculate Cash Flows
1. Net Income
2. Assets
a. Increases are uses of cash (negative cash flows)
b. Decreases are sources of cash
(positive cash flows)
3. Liabilities and Equity
a. Increases are sources of cash (positive cash flows)
b. Decreases are uses of cash (negative cash flows)
4. Classifying cash flows as Operating, Investing or Financing
Slide 4-3
General Chapter Notes (cont.)
D. The ABC Corp. Example Problem
(balance sheets and income statement are provided as links to this module)
Cash Flow Statement - Indirect Method
Cash Flows from Operations
Net Income
$2,500
Depreciation (Change in Accum. Depr.) $1,500
Accounts Receivable
($1,500)
Inventory
$1,000
Accounts Payable
$500
-------CF from Operations
$4,000
Slide 4-4
General Chapter Notes (cont.)
D. The ABC Corp. Example
Cash Flows from Investing
Additions to Prop., Plant, and Eq.
Cash Flows from Investing
Cash Flows from Financing
Current LTD
LTD
Dividends Paid
Cash Flows from Financing
Total Cash Flow - All Activities
Beginning Cash and Mar. Sec.
Ending Cash and Mar. Sec.
($4,000)
-------($4,000)
($500)
$700
($1,000)
-------($800)
($800)
$2,000
-------$1,200
Slide 4-5
General Chapter Notes (cont.)
E. Analysis of Cash Flow Statement for ABC –
What went on during the year
CF from Operations
CF from Investing
CF from Financing
Net Cash Flow
$4,000
($4,000)
($800)
----------($800)
F. Liquidity and Cash Flow Analysis
1. Cash flow problems in the working capital cycle
2. Cash balance
3. Using cash flow analysis in trade credit decisions
Slide 4-6
Notes for Particular Parts of Chapter 4
A. Accrual Accounting for Income versus Cash Flow
B. Cash Flows as a Result of the Firm’s Decisions and
their Outcomes
C. How Interest on Debt is Treated in FASB 95
D. Income Statement Depreciation, Changes in
Accumulated Depreciation, and CF from Operations
E. Direct and Indirect Methods of Calculating Cash Flows
F. Composite Transactions
Slide 4-7
Notes for Particular Parts of Chapter 4 (cont.)
G. Cash Flow and Trade Credit Granting Decisions
H. Profitable but Out of Cash: Nocash Corp.
1. Credit management and inventory management
2. Effects of rapid growth on financing needs
I. Analysis of Cash Flows for Sage Corp.
J. Summary Analysis of Cash Flows
K. Statement Quality and Cash Flow
L. Limitations of Cash Flow Analysis
Slide 4-8
Dragoon Enterprises
Cash Flows From Operations
net income
$
1,050
increase in accum. depreciation
$
100
increase in accounts receivable
$
(550)
decrease in inventory
$
110
increase in accounts payable
$
300
decrease in acc. wages payable
$
(100)
decrease in interest payable
$
(50)
increase in taxes payable
$
150
--------
Total Cash Flow From Operations
$
1,010
Slide 4-9
Dragoon Enterprises
Cash Flows from Investing
increase in gross PP&E
$
(700)
decrease in long term investments
$
140
Total Cash Flow from Investing
$
Total Cash Flow From Operations
$ 1,010
Total Cash Flow from Investing
$
(560)
--------
Total Cash Flow from Financing
$
(100)
(560)
Total Cash Flow (change in cash)
$
350
Beginning Cash
$
850
Total Cash Flow
$
350
Ending Cash
$
1,200
Cash Flows from Financing
decrease in bonds payable
$
(300)
increase in capital stock
$
70
increase in paid in capital
$
330
dividends paid
$
(200)
--------
Total Cash Flow from Financing
$
(100)
Slide 4-10
Gerber Scientific
Summary Analysis Statement of Cash Flows
Year
2010
%
2009
%
2008
%
$25,096
19.4%
$9,774
7.8%
$10,205
3.0%
$464
0.4%
$705
0.6%
$751
0.2%
Sale of Net Assets
$13,709
10.6%
$2,622
2.1%
$345
0.1%
Debt Proceeds
$89,525
69.3% $110,686
88.8% $321,862
95.8%
Inflows
Cash Flow from
Operations
Sale of Investments
Common Stock Activities
Effect of Exchange Rates
Total
$898
$333
0.3%
0.7%
$1,373
0.4%
$1,413
0.4%
$129,127 100.0% $124,685 100.0% $335,949 100.0%
Slide 4-11
Gerber Scientific
Summary Analysis Statement of Cash Flows
Year
2010
%
2009
%
2008
%
$4,489
3.5%
$8,187
6.4%
$8,589
2.6%
$308
0.2%
$457
0.4%
$753
0.2%
Business Acquisitions
$3,473
2.7%
$34,273
26.7%
$4,650
1.4%
Inv. in Intangible Assets
$1,368
1.1%
$828
0.6%
$868
0.3%
$117,176
91.4%
$80,271
62.6% $314,256
95.2%
Debt Issuance Costs
$494
0.4%
$1,174
0.9%
Common Stock Activities
$486
0.4%
Other Financing Activities
$341
0.3%
$3,074
2.4%
Outflows
Capital Expenditures
Purchases of Investments
Debt Repayments
Effect of Exchange Rates
Total
$128,135
100.0% $128,264
Slide 4-12
$993
0.3%
100.0% $330,109
100.0%