income statement and cash flows.pptx
TRANSCRIPT
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8/22/2019 INCOME STATEMENT AND CASH FLOWS.pptx
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FORECASTING CASH FLOWS
Cash
Accounts Receivables
Inventory
Fixed Assets
(Long-Term Assets)
Accounts Payables
Tax Payable
Payroll Payable
Short-Term Debt
Long-Term Debt
Capital Contributions
Assets
(Use of Funds)
Investments
Liabilities
and Equity
(Sources of
Funds)
Investments are
expected to
produce cash
flows to pay debt-
holders andshareholders
Debt-holders and
shareholders
expect a return
for theircontributionRetained Earnings
Current Earnings
To forecast ability of investments to produce cash flows we must first forecast
earnings.
Statement of Financial Situation(Balance Sheet)
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8/22/2019 INCOME STATEMENT AND CASH FLOWS.pptx
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FORECASTING CASH FLOWS
Working Capital
(Current Assets
Current Liabilities)Long-Term Debt
Capital Contributions
Assets
(Use of Funds)
Investments
Liabilities
and Equity
(Sources of
Funds)
Investments are
expected to
produce cash
flows to pay debt-
holders andshareholders
Debt-holders and
shareholders
expect a return
for theircontributionRetained Earnings
Current Earnings
Statement of Financial Situation(Balance Sheet)
Fixed Assets
(Long-Term Assets)
To forecast ability of investments to produce cash flows we must first forecast
earnings.
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8/22/2019 INCOME STATEMENT AND CASH FLOWS.pptx
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FORECASTING CASH FLOWS
Cash
Long-Term Debt
Capital Contributions
Assets
(Use of Funds)
Investments
Liabilities
and Equity
(Sources of
Funds)
Investments are
expected to
produce cash
flows to pay debt-
holders andshareholders
Debt-holders and
shareholders
expect a return
for theircontributionRetained Earnings
Current Earnings
Statement of Financial Situation(Balance Sheet)
Fixed Assets
(Long-Term Assets)
To forecast ability of investments to produce cash flows we must first forecast
earnings.
Non- Cash Working
Capital
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8/22/2019 INCOME STATEMENT AND CASH FLOWS.pptx
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INCOME STATEMENTS AND CASH FLOWS
Revenues
Cost of Goods Sold
= GROSS PROFIT
- Selling, General & Administrative (SG&A)
- Research & Development (R&D)
= EARNINGS BEFORE INTEREST, TAX AND DEPRECIATION (EBITDA)
- Depreciation & Amortization (D&A)= EARNINGS BEFORE INTEREST & TAXES (EBIT)- Interest Expenses
- Tax Expense
= NET INCOME
NET INCOME = (EBIT Int)(1-Tax) = EBIT(1-Tax)Int (1-Tax)EBIT(1-Tax) = NOPAT
EBIT = Operating Income (OI)
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8/22/2019 INCOME STATEMENT AND CASH FLOWS.pptx
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EBIT (1-Tax)Depreciation & Amortization
INVESTMENTS IN WORKING CAPITAL
+Change in Accounts Payables
-Change in Accounts Receivable-Change in Inventories
CAPITAL EXPENDITURE
= FREE CASH FLOW FROM OPERATIONS
Plus Non-Cash Expenses
Less Short-Term
Investments
Less Long-Term
Investments
INCOME STATEMENTS AND CASH FLOWS
Do Free Cash Flows from Operations depend on how the firm is financed?
At what rate should be discounted the Free Cash Flows from Operations ?