Module 6
Statement of Cash Flows
Motorola and Blockbuster
Motorola
(in millions)
2000
1999
1998
Net earnings (loss)
$1,318
891
(907)
Net cash flow from ops
(1,164)
2,140
1,295
Blockbuster
(in millions)
2000
1999
1998
Net loss
(75.9)
(69.2)
(336.6)
Net cash flow from ops
1,320.8
1,142.8
1,234.5
History
Statement of Sources and Uses of Funds
Funds Statement
Statement of Changes in Financial
Position
SFAS 95 – Statement of Cash Flows
effective for annual financial statements
for FY ending after 7/15/88
Overview of SCF
One of the major financial statements
Purpose is to provide information about
cash inflows and outflows
Explains the changes in cash
What is cash and cash equivalents??
– Cash
– Short term investments in T-bills, commercial
paper and money market funds
Three classifications of
cash flow activity
Operating
Investing
Financing
Operating Activities
Cash inflows from:
– Sales of goods or services
– Interest
– Dividends
– Sale of trading securities
Cash outflows from:
– Merchandise inventory
– Salaries
– Interest expense
– Purchase of trading securities
Investing Activities
Cash inflows from:
– Sales of property, plant and equip
– Sale of available for sale and held-to-maturity
securities
– Collection of money loaned to others
Cash outflows for:
– Purchase of property, plant and equipment
– Purchase of securities above
– Making loans to others
Financing Activities
Cash inflows from:
– Capital stock
– Debt (loans, bonds, notes)
Cash outflows for:
– Buying back corporate stock (Treasury stock)
– Paying the principal portion of debt
– Paying cash dividends to shareholders
Tips for categorizing
Look at company’s perspective, not the
type of account involved.
Example – dividends
Example – loans
Example – common stock
Users of SCF Info
Management
Stockholders
Creditors
FASB prohibits companies from disclosing
cash flow per share
Presentation Method
Direct v. indirect
Difference lies in operating section
Direct method
– Recommended by FASB
– Shows classes of gross receipts and
disbursements
Indirect method
– Starts with net income (accrual basis) and
adjusts to a cash basis income
– Used by more companies
Operating Income v. Cash Flows
Company
1995
(in 000’s)
1996
(in 000’s)
1997
(in 000’s)
Alaska
Airlines
Inc fm Ops
CF - Op
24,800
104,400
45,600
203,000
76,000
323,200
Boeing
Inc fm Ops
CF - Op
-36,000
2,135,000
1,818,000
3,611,000
-178000
2,100,000
125,763
-38,722
68,805
-24,313
89,620
-90,031
Office Max Inc fm Ops
CF - Op
How do I use the information?
Adjusted Cash Flow to Income Ratio
Disclosure – operating income
Cash inflows primarily coming from asset
sales, borrowing or equity offerings
Computer adjusted cash flow and income
from continuing operations
Cash flow ambiguities
Motley Fool’s view
Enron
(in millions)
2000
1999
1998
Net income
$ 979
893
703
Net cash provided
by operating
activities
4,779
1,228
1,640
Caution Flags
Failure to generate cash from operating
activities
Large fluctuations in cash flow from operating
activities over time
Net income and cash flow from operations not
tracking closely
Net income and cash flow from operations
moving in different directions
Positive cash flow from investing activities
because company is selling off assets to
generate cash
Caution Flags
Positive cash flow from financing activities for
several periods –0 possibly indicating borrowing
needed to offset lack of internet cash generation
Company highlights cash flow in shareholders’
letter, especially in same paragraph discussing
falling stock price
Adjustments to net income from changes in
receivables, inventories, and payables not in line
with sales
Management’s explanation of adjustments to net
income obtuse or missing