Statement of Cash Flows “Joan and Joe: A Tale of Woe” Joe added up profits and went to see Joan, Assured of obtaining a much-needed loan. When Joe arrived, he announced with good cheer: “My firm has had an outstanding year, And now I need a loan from your bank.” Eyeing the statements, Joan’s heart sank. “Your profits are fine,” Joan said to Joe. “but where, oh where, is your company’s cash flow? I’m sorry to say: the answer is ‘no’.” --L. Fraser (C) 2007 Prentice Hall, Inc. 4-1 Statement of Cash Flows Provides information about cash inflows and outflows during an accounting period Is developed from Balance Sheet and Income Statement data Important as an analytical tool (C) 2007 Prentice Hall, Inc. 4-2 Why is it important??? •Accrual-based accounting requires reporting revenues when earned and expenses when incurred – not when cash is exchanged. •A company cannot pay employees, creditors and others with accrual-based net income. •Valuation models used in financial analysis are often based on projections of future cash flows. (C) 2007 Prentice Hall, Inc. 4-3 Objectives of the Chapter To explain how the statement of cash flows is prepared To interpret the information presented in the statement (C) 2007 Prentice Hall, Inc. 4-4 Preparing a Statement of Cash Flows (cont.) Four parts of a statement of cash flows: 1. 2. 3. 4. Cash Operating activities Investing activities Financing activities (C) 2007 Prentice Hall, Inc. 4-5 Preparing a Statement of Cash Flows (cont.) Cash includes Cash & Cash equivalents (short-term marketable securities): T-Bills Notes Commercial paper CDs Certificates (C) 2007 Prentice Hall, Inc. Bonds 4-6 Preparing a Statement of Cash Flows (cont.) Operating Activities include Delivering or producing goods for sale and providing services The cash effects of transactions and other events that enter into the determination of income (C) 2007 Prentice Hall, Inc. 4-7 Preparing a Statement of Cash Flows (cont.) Investing Activities include Acquiring/disposing of securities that are not cash equivalents Acquiring/disposing of productive assets Lending money/collecting on loans (C) 2007 Prentice Hall, Inc. 4-8 Preparing a Statement of Cash Flows (cont.) Financing Activities include Borrowing from creditors/repaying the principal Obtaining resources from owners Providing owners with a return on investment (C) 2007 Prentice Hall, Inc. 4-9 Preparing a Statement of Cash Flows (cont.) How Cash Flows During an Accounting Period Inflows Outflows Operating Activities Investing Activities Financing Activities Total Inflows less Total Outflows = Change in cash for the accounting period (C) 2007 Prentice Hall, Inc. 4-10 Calculating Cash Flow from Operating Activities Firms may use one of two methods prescribed by the IASB-FASB: Direct Method Indirect Method The two methods yield identical figures for net cash flow from operating activities because the underlying accounting concepts are the same (C) 2007 Prentice Hall, Inc. 4-11 Calculating Cash Flow from Operating Activities (cont.) The Direct Method Shows cash collections from customers interest and dividends collected other operating cash receipts cash paid to suppliers and employees interest paid taxes paid other operating cash payments (C) 2007 Prentice Hall, Inc. 4-12 Calculating Cash Flow from Operating Activities (cont.) The Indirect Method Starts with net income and adjusts for deferrals accruals noncash items, such as depreciation and amortization nonoperating items, such as gains and losses on asset sales (C) 2007 Prentice Hall, Inc. 4-13 Calculating Cash Flow from Operating Activities (cont.) The Indirect Method 593 firms out of 600 (99%) used the indirect method in 2003 according to Accounting Trends and Techniques (C) 2007 Prentice Hall, Inc. 4-14 Preparing a Statement of Cash Flows (cont.) First Step: Look at changes in balance sheet accounts from beginning to end of accounting period Next Step: Transfer the account changes to the appropriate area of a statement of cash flows (C) 2007 Prentice Hall, Inc. 4-15 Preparing a Statement of Cash Flows (cont.) Inflow - Asset account Outflow + Asset account + Liability account - Liability account + Equity account - Equity account (C) 2007 Prentice Hall, Inc. 4-16 (C) 2007 Prentice Hall, Inc. 4-17 31.12.2009 40.000 48.000 43.000 19.000 150.000 Cash Accounts Receivable, net Inventories Prepaid Expenses Total Current Assets Property, plant & equipment Accumulated Depreciation Property, plant & equipment, net Long-term Investments Total Assets Accounts Payable Accrued Liabilities Total Current Liabilities Long-term debt Deferred tax liability Total Liabilities Share Capital Retained Earnings (C) 2007 Prentice Hall, Inc. Total Liabilities and Equity 67.000 41.000 26.000 90.000 266.000 31.12.2008 24.000 41.500 34.500 15.000 115.000 61.000 - 23.000 38.000 89.000 242.000 31.12.2009 13.000 55.000 68.000 31.12.2008 11.000 71.000 82.000 25.000 4.000 97.000 8.000 3.500 93.500 112.000 57.000 266.000 97.000 51.500 242.000 4-18 31.12.2009 40.000 48.000 43.000 19.000 150.000 Cash Accounts Receivable, net Inventories Prepaid Expenses Total Current Assets Property, plant & equipment Accumulated Depreciation Property, plant & equipment, net Long-term Investments Total Assets Accounts Payable Accrued Liabilities Total Current Liabilities Long-term debt Deferred tax liability Total Liabilities Share Capital Retained Earnings Total Liabilities (C) 2007 Prentice Hall, Inc. and Equity 67.000 41.000 26.000 90.000 266.000 31.12.2008 24.000 41.500 34.500 15.000 115.000 61.000 - 23.000 38.000 89.000 242.000 Cash Oper Oper Oper Invest non cash Invest Invest 31.12.2009 13.000 55.000 68.000 31.12.2008 11.000 71.000 82.000 25.000 4.000 97.000 8.000 3.500 93.500 Finance Oper 112.000 57.000 266.000 97.000 51.500 242.000 Finance Finance Oper Oper 4-19 Cash Accounts Receivable, net Inventories Prepaid Expenses Total Current Assets Property, plant & equipment Accumulated Depreciation Property, plant & equipment, net Long-term Investments Total Assets Accounts Payable Accrued Liabilities Total Current Liabilities Long-term debt Deferred tax liability Total Liabilities Share Capital Retained Earnings Total Liabilities and Equity (C) 2007 Prentice Hall, Inc. 31.12.2009 40.000 48.000 43.000 19.000 150.000 31.12.2008 24.000 41.500 34.500 15.000 115.000 67.000 41.000 26.000 90.000 266.000 61.000 23.000 38.000 89.000 242.000 31.12.2009 13.000 55.000 68.000 - Change 16.000 6.500 8.500 4.000 35.000 6.000 - 18.000 - 12.000 1.000 24.000 31.12.2008 Change 11.000 2.000 71.000 - 16.000 82.000 - 14.000 25.000 4.000 97.000 8.000 3.500 93.500 17.000 500 3.500 112.000 57.000 266.000 97.000 51.500 242.000 15.000 5.500 24.000 4-20 Cash Flow From Operating Activities Net Income for the Year Add:Depreciation Changes in operating assets and liabilities Accounts Receivable Inventories Prepaid Expenses Accounts Payable Accrued liabilities Deferred tax liability Net cash flows from operating activities Cash Flow From Investing Activities Purchase of property, plant & equipment Purchase of long-term investments Cash Outflows from investing activities Cash Flow From Financing Activities Long-term borrowing Increase in share capital Dividends paid Cash Inflows from financing activities Net Change in Cash Cash at the beginning of the year (C) 2007 Prentice Hall, Inc. Cash at the end of the year 5.800 18.000 - - 6.500 8.500 4.000 2.000 16.000 500 8.700 - 6.000 1.000 7.000 - - 17.000 15.000 300 31.700 16.000 24.000 40.000 4-21 Analyzing the Statement of Cash Flows Is an important analytical tool for creditors, investors and other users of financial statement data Firm’s ability to generate cash flows in the future Firm’s capacity to meet cash obligations Firm’s future external financing needs Firm’s success in productively managing investing activities Firm’s effectiveness in implementing financing and investing strategies (C) 2007 Prentice Hall, Inc. 4-22 Cash Flow from Operations It is possible for a firm to be highly profitable and not be able to: Pay dividends or Invest in new equipment Service debt (C) 2007 Prentice Hall, Inc. 4-23 Cash Flow from Operations (cont.) The ongoing operation of any business depends upon its success in generating cash from operations (C) 2007 Prentice Hall, Inc. 4-24 Analysis of the Statement of Cash Flows Should, at a minimum cover the following areas: Cash flow from operating activities Cash inflows Cash outflows (C) 2007 Prentice Hall, Inc. 4-25 Analysis of the Statement of Cash Flows (cont.) Analyst Concerns: The success or failure of the firm in generating cash from operations The underlying causes of the positive or negative operating cash flow The magnitude of positive or negative operating cash flow Fluctuations in cash flow from operations over time (C) 2007 Prentice Hall, Inc. 4-26 Analysis of the Statement of Cash Flows (cont.) Examples of cash flow from operations (CFO) under the indirect method for various companies* $ in millions Net Income Airline $ 548 Computer 6 Recreation ( 107) Retailer 1,106 Semiconductor 8,664 Cash from (used by) Operations $ 2,229 ( 25) 42 1,068 14,823 Primary source (use) of cash within CFO A/P-accrued liab. (other assets) depr./int. payable (gain-asset sales) depreciation *Data from SEC website, www.sec.gov (C) 2007 Prentice Hall, Inc. 4-27 Analysis of Cash Inflows Generating cash from operations is the preferred method for obtaining excess cash to finance: Capital expenditures and expansion Repayment of debt Payment of dividends (C) 2007 Prentice Hall, Inc. 4-28 Analysis of Cash Outflows When analyzing the cash outflows, the analyst should consider the necessity of the outflow and how the outflow was financed Generally, it is best to finance short-term assets with short-term debt and longterm assets with long-term debt or issuance of stock (C) 2007 Prentice Hall, Inc. 4-29 NET DÖNEM KARI / ZARARI Düzeltmeler 1-Amortisman ve İtfa Payları (+) 2-Karşılıklardaki Değişiklikler (+) 3-Faiz Giderleri (+) VARLIK ve BORÇLARDAKİ DEĞİŞİM ÖNCESİ NET NAKİT 5.743.452 1.660.667 958.462 702.205 0 7.404.119 Varlık ve Borçlardaki Değişimler 1-Ticari Alacaklardaki Azalış (+) 2-İlişkili Taraflardan Alacaklardaki Artış (-) 3-Menkul Kıymetlerdeki Azalış (+) 4-Diğer Alacaklardaki Artış (-) 5-Diğer Varlıklardaki Artış (-) 6-Ticari Borçlardaki Azalış (-) 7-İlişkili Taraflara Borçlardaki Azalış (-) 8-Diğer Borçlardaki Azalış (-) 9-Ödenen Vergi 10-Ödenen Kıdem Tazminatı 11-Sermaye Artışından Sağlanan Nakit (-9.092.163) 385.072 (-988.134) 0 32.089 (-5.907.678) (-1.667.430) (-311.472) (-30.586) (-604.024) 0 0 ESAS FAALİYETLERDEN SAĞLANAN NET NAKİT (-1.688.044) Yatırım Faaliyetlerinden Kaynaklanan Nakit 1-Duran Varlık Yatırımları (-) 2-Duran Varlık Satışı (+) 3-Tahsil Edilen Faiz ve Temettüler (+) (-3.707.768) (-3.771.672) 63.904 0 Finansman Faaliyetlerinden Kaynaklanan Nakit NAKİT VE BENZERİ DEĞERLERDEKİ ARTIŞ AZALIŞ 7.028.272 1.632.460 DÖNEM BAŞINDAKİ NAKİT VE BENZERİ DEĞERLER 19.226.451 (C) 2007 Prentice Hall, Inc. DÖNEM SONUNDAKİ NAKİT VE BENZERİ DEĞERLER 20.858.911 4-30 Analysis Cash Inflows Operating Activities Sale of PP&E Proceeds from borrowings 63.904 7.028.272 0% 1% 99% Total Cash Inflows 7.092.176 100% Cash Outflows Operating Activities Purchase of PP&E 1.688.044 3.771.672 Total Cash Outflows 5.459.716 31% 69% 0% 100% (C) 2007 Prentice Hall, Inc. 4-31 İŞLETME FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIMLARI Net dönem karı Net dönem karını iş letme faaliyetlerinden elde edilen Nakit akımına getirmek için yapılan düzeltmeler: Maddi duran varlıkların amortis manı Maddi olmayan duran varlıkların amortis manı Lis ans hakkı avans itfas ı Şüpheli alacak karş ılığı Rees kont giderleri Kıdem tazminatı karş ılığı İş letme s ermayes indeki değiş imler önces i faaliyetlerden elde edilen nakit Ticari alacaklardaki azalış Diğer cari / dönen varlıklardaki (artış ) Diğer cari olmayan / duran varlıklardaki (artış ) Ticari borçlardaki artış / (azalış ) İliş kili taraflara borçlardaki artış / (azalış ) Diğer kıs a vadeli yükümlülüklerdeki artış Diğer uzun vadeli yükümlülüklerdeki artış İş letme faaliyetlerinden elde edilen nakit (net) 19 20 15 7 23 52.101.421 52.895.074 986.155 2.195 1.027.239 (26.748) 6.835 1.454 594.273 2.038 1.027.239 18.570 1.370 205 54.098.551 169.703 (1.105.016) (14.283.727) 15.089 4.805.906 3.325.526 698.499 47.724.531 54.538.769 2.253.062 (614.649) (570.524) (45.984.100) 216.520 9.839.078 (135) (1.518.490) (102.069) (1.620.694) (958) (54.434) 3.158.826 3.103.434 (537.053) (45.350.288) (45.887.341) (612.193) (12.230.965) (12.843.158) 216.496 99.354 YATIRIM FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIMLARI Maddi olmayan duran varlık alımları Maddi duran varlık alımları Alınan ticari amaçla elde tutulan yatırımlar Satılan ticari amaçla elde tutulan yatırımlar Yatırım faaliyetlerinde (kullanılan) / elde edilen nakit (net) 20 5 FİNANSMAN FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIMLARI Finans al kiralama yükümlülüğü geri ödemes i Dağıtılan temettü Finans al faaliyetlerden (kullanılan) nakit (net) HAZIR DEĞERLERDEKİ NET DEĞİŞİM DÖNEM BAŞI HAZIR DEĞERLER (C) 2007 Prentice Hall, Inc. 4 124.430 DÖNEM SONU HAZIR DEĞERLER 4 340.926 4-32 25.076 124.430 Analysis Cash Inflows Operating Activities Sale of financial assets Proceeds from borrowings Total Cash Inflows 2006 47.724.531 47.724.531 Cash Outflows Operating Activities Purchase of PP&E Investment in financial assets Repayment of debt Dividends paid Total Cash Outflows 1.518.625 102.069 537.053 45.350.288 47.508.035 (C) 2007 Prentice Hall, Inc. 100% 0% 0% 100% 2007 9.839.078 3.158.826 12.997.904 76% 24% 0% 100% 0% 3% 0% 1% 95% 100% 55.392 612.193 12.230.965 12.898.550 0% 0% 0% 5% 95% 100% 4-33 Net dönem karı Net dönem karını işletme faaliyetlerinden elde edilen nakit akımına getirmek için yapılan düzeltmeler: Maddi duran varlıkların amortismanı Maddi olmayan duran varlıkların amortismanı Mali borçlara ilişkin kur farkı ve faiz tahakkuku Kıdem tazminatı karşılığı Şüpheli ticari alacak karşılığı Alacak/borç reeskontları Maddi duran varlık satış zararı Parasal kazanç ile netleştirilmiş vergi karşılığı İşletme sermayesindeki değişim öncesi faaliyetlerden elde edilen nakit akımı Ticari alacaklardaki (artış/azalış) İlişkili taraflardan boçlardaki (artış/azalış) Diğer alacaklar (artış/azalış) Stoklardaki (artış/azalış) Diğer dönen varlıklardaki (artış/azalış) Ticari borçlardaki (artış/azalış) İlişkili taraflara boçlardaki (artış/azalış) Alınan avanslardaki (artış/azalış) Borç karşılıklarındaki (artış/azalış) Diğer yükümlülüklerdeki (artış/azalış) Faaliyetlerden elde edilen/kullanılan nakit Ödenen Vergi Ödenen Kıdem tazminatı İşletme faaliyetlerinden elde edilen/kullanılan nakit YATIRIM FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIM I Menkul kiymetlerdeki degişim(net) Maddi duran varlık alımları Maddi olmayan duran varlık alımları Verilen avanslardaki değişim Satılan maddi duran varlıkların net defter değeri Diğer duran varlıklardaki (artış/azalış) Yatırım faaliyetlerinde kullanılan nakit FİNANSM AN FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIM I Mali borçlardaki net değişim (C) 2007 Prentice Hall, Inc. Topluluk dışı paylardaki değişim Ödenen temettü Finansal faaliyetlerden elde edilen nakit (385.057) 2.213.779 - - 19 20 6 23 7 7 958.305 1.024.802 28.654 22.947 41 (152.652) 1.944.397 6.066.564 7 9 10 12 15 7 9 21 23 10 (2.280.283) (1.179.672) 12.657 84.010 671.767 623.118 427.514 20.951 383.209 623.111 - (44.400) (2.884) 35.661 2.076.488 34.613 (370.918) (43.352) (221.620) (29.985) (2.451.833) (38.114) - 19 15 1.082.056 (1.437.876) 6 24 (1.725.056) 199.916 (25.141) 231.187 (232.443) 209.987 647.148 19 20 731 (11.829) (690.541) 868.768 41 23 231.916 1.221.930 1.463.493 21 (813.123) 650.391 3.324.257 (914.625) (290.155) 2.119.477 166.237 (2.270.305) (47.983) 119.381 351.297 70.093 (1.611.280) (312.826) 4-34 (2.537) - (315.363) Analysis Cash Inflows Operating Activities Sale of financial assets Proceeds from borrowings Total Cash Inflows 2007 647.148 1.082.056 1.463.514 3.192.718 Cash Outflows Operating Activities Purchase of PP&E Investment in financial assets Repayment of debt Dividends paid Total Cash Outflows 2.489.947 29.985 813.123 3.333.055 (C) 2007 Prentice Hall, Inc. 20% 34% 46% 100% 2006 2.119.477 540.771 2.660.248 80% 20% 0% 100% 0% 75% 1% 0% 24% 100% 2.318.288 315.363 2.633.651 0% 88% 0% 12% 0% 100% 4-35 Cash Flow From Operating Activities Net Income for the Year Add:Depreciation Changes in operating assets and liabilities Accounts Receivable Inventories Prepaid Expenses Accounts Payable Accrued liabilities Deferred tax liability Net cash flows from operating activities Cash Flow From Investing Activities Purchase of property, plant & equipment Purchase of long-term investments Cash Outflows from investing activities Cash Flow From Financing Activities Long-term borrowing Increase in share capital Dividends paid Cash Inflows from financing activities Net Change in Cash Cash at the beginning of the year (C) 2007 Prentice Hall, Inc. Cash at the end of the year 5.800 18.000 - - 6.500 8.500 4.000 2.000 16.000 500 8.700 - 6.000 1.000 7.000 - - 17.000 15.000 300 31.700 16.000 24.000 40.000 4-36 Cash Inflows Cash Flows from operating activities Long-term borrowing Increase in share capital Total 17.000 15.000 32.000 53% 47% 100% Cash Outflows Cash Flows from operating activities Purchase of PP&E Purchase of long-term investments Dividends paid Total - 8.700 - 6.000 - 1.000 300 - 16.000 54% 38% 6% 2% 100% Net change (C) 2007 Prentice Hall, Inc. 16.000 4-37 Preparing a Statement of Cash Flows (cont.) Examples of change in cash based on business activities for companies in different industries* $ in millions Operating Activities Airline $ 2,229 Computer ( 25) Recreation 42 Retailer 1,068 Semiconductor 14,823 Investing Activities ( 1,210) 118 ( 26) 332 ( 6,362) Financing Change Activities in Cash 213 1,232 1 94 ( 5) 11 ( 53) 1,347 (9,544) (1,083) *Data from SEC website, www.sec.gov (C) 2007 Prentice Hall, Inc. 4-38