Chapter 10Incremental Cash Flow.ppt

Chapter 10Incremental Cash Flow Three Financial Statements Fundamental Accounting Relationship Cash Flow Identity to Sources and Uses Estimating Incremental Cash Flow Capital Spending and Depreciation Disposal of Capital Equipment Projected Cash Flow for Project Three Financial Statements Income Statement – Measure of performance over a specific time Statement of Financial Position or Balance Sheet – Listing of all assets, liabilities, and ownership claims Sources and Uses of Cash or Statement of Cash Flow – Where dollars came from and where dollars were spent Three Financial Statements Income Statement bottom line is net income Net income is not cash flow Accrual Accounting – timing of cash and recording of economic transaction different Noncash items – depreciation for example Want operating cash flow OCF Use modified income statement Interest expense is not part of OCF Three Financial Statements The Balance Sheet Categories Cash Account Key element is change in cash over the period Cash includes money, checking accounts, etc. Working Capital Accounts Current Assets and Current Liabilities Assets and Liabilities typically converted to cash or paid over the business cycle Long-Term Debt Owner’s Accounts Snapshot of company at a specific point in time Three Financial Statements Statement of Cash Flow or Sources and Uses of Cash Cash flow from business operations Cash flow from financing From Owners residual claims From Lenders fixed claims Cash flow for capital spending Purchase of capital equipment Recapture cash from sale of assets Ties to the change in Cash Account over the period Fundamental Accounting Relationship Accounting Identity in two forms Assets ≡ Liabilities + Owner’s Equity Cash Flow from Assets ≡ Cash Flow to Creditors + Cash Flow to Owners Building the Cash Flow Identity Cash Flow from Assets Operating Cash Flow – Increases in Net Working Capital – Increases in Capital Spending Work through components,