Term
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Definition
provides info:
-about a co. cash receipts and cash payments during an accounting period
-about a co. operationg, investing and financing activities
-about the impact of accrual accounting events on cash flows
-to asses the firm's liquidity, solvency and financial flexibility |
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Term
| Cash flows from Operating Activities (CF0) |
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Definition
| -inflows and outflows of cash related to a firm's day to day business activities |
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Term
| Cash flow from Investing Activities (CFI) |
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Definition
inflows and outflows of cash generated from the purchase and disposal of LT investments
--> include plant, machinery, equipment, intangible assets, and non-trading debt and equity securities
-CFs associated with the purchase and sale of highly liquid cash equivalents and of securities for trading purchases ar classified under CFO |
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Term
| Cash Flow from Financing Activities (CFF) |
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Definition
-cash inflows and outflows generate from issuance and repayment of capital (interest bearing debt and equity)
-indirect ST borrowings from suppliers that are classified as A/P and changes in receivables from customers are not considered financing activities, they are operating activities |
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Term
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Definition
analyst use to determine whether:
-regular operations generate enough cash to sustain business
-enough cash is generated to pay off existing debts
-firm is likely to need additional financing
-unexpected obligations can be met
-firm can take advantage of new business opportunities as they rise |
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Term
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Definition
| cash from customers; cash to employees; interest and dividends received (US GAAP); cash to suppliers; cash paid for other expenses; trading securities; interest and taxes paid (US GAAP) |
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Term
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Definition
| cash from/to fixed assets, long term investments, |
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Term
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Definition
| proceeds from debt issuance, issuance of equity instruments, repayment of LT debt, payments made to repurchase stock, dividend payments |
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Term
| Non-cash investing and and financing activities |
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Definition
-not reported on the CF statement
-required to disclose any significant non cash investing and financing activities in a separate note or a supplementary schedule to the CF statement |
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Term
| CFS under IFRS vs US GAAP |
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Definition
differ along:
-classification of CF. IFRS offers more flexibility
-presentation format
-refer to table |
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Term
| Direct vs Indirect Method of CFS |
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Definition
-methods differ only in the presentation of CFO section
-calculated values for CFO are the same under both |
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Term
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Definition
-convert accrual-basis IS in to a cash-basis IS
-similar to IS; starts w cash sales and deducts all cash payments for direct and indirect costs to arrive at CF from operations |
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Term
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Definition
-apply a series of adjustments to NI
-adjustments are made for non cash items, non operating items, and changes in working capital accounts resulting from accrual accounting |
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Term
| Argument in favor of Direct Method |
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Definition
-explicitly lists the actual sources of operating cash inflows and outflows, whereas indirect method only provides net results for these inflows and outflows
-useful in evaluating past performance and making projections of future CFs |
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Term
| Arguments for Indirect mETHOD |
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Definition
-provides list of times that are responsible for the difference between NI and operating cash flow
-facilitates forecasts of future cash flows since forecasts of future NI will only have to be adjusted for changes in BS accounts that are caused by differences between accrual and cash accounting |
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Term
| links between CFS and IS and BS |
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Definition
-increase in an asset is a use of cash
-increase in liability is a source of cash
CFO+CFI+CFF = Change in cash
--> change in cash = year end balance - beginning of year cash balance
***refer to equation sheet
-CFI is calculated from changes in asset balances under the non-current assets section
-CFF is calculated from changes in the equity and concurrent debt section of the bS
When the timing of an expense or revenue item differs from the associated CF, it is reflected in changes in balance sheet accounts |
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Term
| Preparation of direct CFS (step 1) |
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Definition
-start w sales on IS
-go through easy IS account and adjust it for changes in related working capital accounts on the BS
-remove effects of timing difference between recognition of revenues and expenses and the actual receipt or pmt of cash |
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Term
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Definition
-assets increase --> use of cash
-assets decrease --> source of cash
-liabilities increase --> source of cash
-liabilities decrease --> use of cash |
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Term
| Preparation of direct CFS (step 2) |
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Definition
-determine whether changes in these working capital accounts indicate a source or use of cash
-put the right sign in front of the IS item! |
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Term
| Preparation of direct CFS (step 3) |
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Definition
| -ignore all non-operating items (e.g. gain/loss on sale of plant and equipment) and non cash charges (e.g. depreciation and amortization) |
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Term
| Adjusted Total Sales (Direct method) |
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Definition
-known as cash collected from customers
Cash collections = Sales - Increase in A/R |
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Term
| Adjusted COGS (direct method) |
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Definition
known as cash payments to suppliers
- COGS - increase in inventory + increase in A/P |
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Term
| Adjusted Salaries and Wages (direct method) |
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Definition
Cash paid to employees
- wages and salaries + increase in wages and salaries payable |
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Term
| Depreciation ((direct method) |
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Definition
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Term
| Other operating expenses (direct method) |
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Definition
cash paid for other operating expenses
-Other operating expenses (accrual basis) + decrease in prepaid expenses + increase in other accrued liabilities |
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Term
| Gain on Sale of Equipment(direct method) |
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Definition
| -relates to sale of long-lived asset so proceeds are classified under investing activities! |
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Term
| Interest expense ((direct method)) |
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Definition
cash paid for interest
-interest expense-decrease in interest payable |
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Term
| Income tax expense (direct method) |
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Definition
cash paid for income taxes
- income tax expense + increase in taxes payable |
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Term
| Preparation of Indirect CFS (Step 1) |
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Definition
-Start w NI
-go up the IS and remove effects of all non cash expenses and gains from NI |
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Term
| Preparation of Indirect CFS (Step 2) |
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Definition
remove the effects of all non operating activities from NI
(e.g. effect of a gain on sale of fixed assets) |
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Term
| Preparation of Indirect CFS (Step 3) |
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Definition
make adjustments for changes in all working capital accounts
-add all sources of cash (increases in CL and declines in CA) and subtract all uses of cash |
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Term
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Definition
| -calculated by examining the change in the gross asset account that result from investing activities |
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Term
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Definition
-indicates the historical cost of the fixed assets owned by the company at the BS date
-if figure for gross fixed assets changes from one year to the next, there has been an investing activity |
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Term
| Ending Gross fixed assets |
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Definition
| = beginning gross fixed assets + purchase price of new fixed assets - historical cost of disposed fixed assets = ending gross fixed assets |
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Term
| Calculation of cash proceeds from sale of equipment |
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Definition
{Historical Cost of equipment sold - Accumulated depreciation of equipment sold} + gain/(-)loss from equipment sold = cash proceeds from sale of equipment
** { } enclosed values is equal to book value of equipment sold |
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Term
| Historical Cost of Equipment Sold Calculation |
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Definition
| = Beginning Balance equipment + Equipment purchased - ending balance equipment |
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Term
| Accumulated Depreciation on Equipment sold |
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Definition
| = Beginning balance AD + Depreciation Expense - End Balance AD |
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Term
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Definition
-determined by measuring the CF between the firm and supplier of capital
-CF between firm and its shareholder occur when equity is issued, shares are repurchased, or dividends are repaid
-CFF is the sum of net cash flow from creditors and net CF from shareholders |
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Term
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Definition
| = new borrowings - principle amount repaid |
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Term
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Definition
| = new equity issued - share repurchased - cash dividends paid |
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Term
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Definition
| = beginning dividends payable + dividends declared - ending dividends payable |
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Term
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Definition
| = Beginning RE + NI - End RE |
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Term
| converting CF from indirect to direct (step 1) |
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Definition
-aggregate all revenues and all expenses
(including non operating rev and exp) |
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Term
| converting CF from indirect to direct (step 2) |
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Definition
| -remove the effect of non cash items from aggregate revenues and expenses and separate the adjusted revenues and expenses into their respective CF items |
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Term
| converting CF from indirect to direct (step 3) |
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Definition
| -convert the accrual based items into cash based amounts by adjusting for changes in corresponding working accounts |
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Term
| Reported CF Statement Analysis (sources and uses of cash) |
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Definition
| -inflows of cash from financing activities are not sustainable. in LT, company must generate positive CFs from operating activities that exceed capital expenditures and payments to providers of debt and equity capital |
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Term
| Reported CF Statement Analysis (changes in operating CF) |
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Definition
-CFO should be compared to NI
-if high NI is not translated into high CFO, indicates aggressive revenue recognition policies
-ideally, CFO > NI
-variability of operating CF and NI is an important determining of the overall risk inherent in the company |
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Term
| Reported CF Statement Analysis (Investing CF) |
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Definition
| -increasing outflows may imply capital expenditures. analysts should evaluate how the company plans to finance these investments |
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Term
| Reported CF Statement Analysis (Financing CF) |
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Definition
-if debt issuance contributes significantly to financing CF, the repayment schedule must be considered
-increasing use of cash to repay debt, repurchase stock or to make dividend payments may indiviate a lack of lucrative investment opportunities for the co. |
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Term
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Definition
1. express each item as a percentage of net revenues
2. express each cash inflow item as a percentage of total cash inflows and each cash outflow as a percentage of total cash outflows |
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Term
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Definition
| -excess of a company's operating CFs over capital expenditure undertaken during the year |
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Term
| Free Cash Flow to the Firm (FCFF) |
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Definition
-cash that is available to equity and debt holders after the company has met all its operating expenses, and satisfied its capital expenditure and working capital requirements
**under iFRS, is co. has classified interest and dividends received as investing activities or dividends paid were deducted from CFO, it should all be added back to CFO |
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Term
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Definition
cash that is available only to common shareholders
-positive FCFE suggests that the co has operating CFs available after payments have been made for capital expenditure and debt repayment
** under IFRS, if co has deducted dividends paid in calculating CFO, dividends must be added back to calculated FCFE |
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Term
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Definition
can be categorized as performance rations and coverage (solvency) ratios
*refer to book |
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Term
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Definition
CFO/Net Revenue
cash generating per unit of revenue |
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Term
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Definition
CFO/Avg total assets
cash generated from all resources, equity and debt |
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Term
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Definition
CFO/Avg Shareholders' Equity
cash generated from owner resources |
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Term
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Definition
CFO/operating income
the ability of business operations to generate cash |
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Term
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Definition
(CFO-preferred dividends)/# of common shares outstanding
-operating CF available for each shareholder |
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Term
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Definition
CFO/Total Debt
-leverage and financial risk |
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Term
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Definition
(CFO+Interest paid+Taxes paid) / interest paid
ability to satisfy interest obligations |
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Term
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Definition
CFO/Cash paid for long term assets
ability to buy LT assets w operating CFs |
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Term
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Definition
CFO/Cash paid for LT debt repayment
-ability to meet debt obligations w operating CF |
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Term
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Definition
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Term
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Definition
CFO/ Cash outflows for investing and financing activities
ability to buy LT assets, debt obligations and make dividend payments from operating CFs |
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