Chapter07 accounting insane.pptVIP

* Not tested * Working capital – current assets – current liability * * * * How much cash we have to cover expenditures more long term Reinvestment ratio – how much is reinvested for assets and growth more long term Declare dividend none Pay dividend financing Pay back bonds with interest principle goes to financing interest goes to revenue Stock dividend not recorded Prepare statement of cash flow How much assets were bought or sold in the group work and the one in the powerpoints derive how much was bought or sold Beginning assets ending assets 2 years of BS and transaction with gain or loss, in that case u know the end the beginning u derive what was bought Analysis of Cash Flows Free Cash Flow Another definition that is widely used: FCF = NOPAT - Change in NOA (net operating profits after tax (NOPAT) less the increase in net operating assets (NOA)) Analysis of Cash Flows Growth and financial flexibility depend on adequate free cash flow. Recognize that the amount of capital expenditures needed to maintain productive capacity is generally not disclosed—instead, most use total capital expenditures, which is disclosed, but can include outlays for expansion of productive capacity. Free Cash Flow Positive free cash flow reflects the amount available for business activities after allowances for financing and investing requirements to maintain productive capacity at current levels. Analysis of Cash Flows The SCF is useful in identifying misleading or erroneous operating results or expectations. Cash Flow as Validators SCF provides us with important clues on: Feasibility of financing capital expenditures. Cash sources in financing expansion. Dependence on external financing. Future dividend policies. Ability in meeting debt service requirements. Financial flexibility to unanticipated needs/opportunities. Financial practices of management. Quality of earnings. Specialized Cash Flow Ratios Cash Flow Adequacy Ratio – Measure of a compan