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Statement of Cash FlowsStatement 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

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Statement of Cash FlowsStatement of Cash Flows Provides information about Provides information about

cash inflows and outflows cash inflows and outflows during an accounting periodduring an accounting period

Is developed from Balance Is developed from Balance Sheet and Income Statement Sheet and Income Statement datadata

Important as an analytical tool Important as an analytical tool

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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.

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Objectives of the ChapterObjectives of the Chapter

To remind you the prep. of To remind you the prep. of statement of cash flowsstatement of cash flows

To interpret the information To interpret the information presented in the statement presented in the statement

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Preparing a Preparing a Statement of Cash Flows Statement of Cash Flows (cont.)(cont.)

1.1. Cash (cash and cash Cash (cash and cash equivalents)equivalents)

2.2. Operating activitiesOperating activities

3.3. Investing activitiesInvesting activities

4.4. Financing activitiesFinancing activities

Four parts of a statement of cash flows:

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Preparing a Preparing a Statement of Cash FlowsStatement of Cash Flows (cont.)(cont.)

Delivering or producing goods Delivering or producing goods for sale and providing servicesfor sale and providing services

The cash effects of transactions The cash effects of transactions and other events that enter and other events that enter into the determination of into the determination of incomeincome

Operating Activities includeOperating Activities include

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Preparing a Preparing a Statement of Cash Flows Statement of Cash Flows (cont.)(cont.)

Acquiring/disposing of securities Acquiring/disposing of securities that are not cash equivalentsthat are not cash equivalents

Acquiring/disposing of productive Acquiring/disposing of productive assetsassets

Lending money/collecting on Lending money/collecting on loans loans

Investing Activities include

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Preparing a Preparing a Statement of Cash Flows Statement of Cash Flows (cont.)(cont.)

Borrowing from Borrowing from creditors/repaying the principalcreditors/repaying the principal

Obtaining resources from Obtaining resources from ownersowners

Providing owners with a return Providing owners with a return on investment on investment

Financing Activities include

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Calculating Cash Flow Calculating Cash Flow from Operating Activitiesfrom Operating Activities

Direct MethodDirect MethodIndirect MethodIndirect Method

The two methods yield identical figures The two methods yield identical figures for net cashfor net cash flow from operating flow from operating activities because theactivities because the underlying underlying accounting concepts are the sameaccounting concepts are the same

Firms may use one of two methods prescribed by the IASB-FASB:

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Calculating Cash Flow Calculating Cash Flow from Operating Activitiesfrom Operating Activities (cont.)(cont.)

Shows Shows cash collections from customerscash collections from customers interest and dividends collectedinterest and dividends collected other operating cash receiptsother operating cash receipts cash paid to suppliers and cash paid to suppliers and

employeesemployees interest paidinterest paid taxes paidtaxes paid other operating cash paymentsother operating cash payments

The Direct Method

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Calculating Cash Flow Calculating Cash Flow from Operating Activitiesfrom Operating Activities (cont.)(cont.)

Starts with net income and adjusts for Starts with net income and adjusts for deferralsdeferrals accruals accruals noncash items, such as depreciation noncash items, such as depreciation

and amortizationand amortization nonoperating items, such as gains nonoperating items, such as gains

and losses on asset sales and losses on asset sales

The Indirect Method

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Calculating Cash Flow Calculating Cash Flow from Operating Activitiesfrom Operating Activities (cont.)(cont.)

593 firms out of 600 (99%) used 593 firms out of 600 (99%) used the indirect method in 2003 the indirect method in 2003 according to according to Accounting Trends Accounting Trends and Techniquesand Techniques

The Indirect Method

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Analyzing the Analyzing the Statement of Cash FlowsStatement of Cash Flows

Is an important analytical tool for Is an important analytical tool for creditors, investors and other users of creditors, investors and other users of financial statement data financial statement data

Firm’s ability to generate cash flows in Firm’s ability to generate cash flows in the futurethe future

Firm’s capacity to meet cash obligationsFirm’s capacity to meet cash obligations Firm’s future external financing needsFirm’s future external financing needs Firm’s success in productively managing Firm’s success in productively managing

investing activitiesinvesting activities Firm’s effectiveness in implementing Firm’s effectiveness in implementing

financing and investing strategiesfinancing and investing strategies

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Analysis of the Statement Analysis of the Statement of Cash Flowsof Cash Flows

Cash flow from operating Cash flow from operating activitiesactivities

Cash inflowsCash inflows Cash outflowsCash outflows

Should, at a minimum cover the followingShould, at a minimum cover the following

areas:areas:

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Analysis of the Statement Analysis of the Statement of Cash Flowsof Cash Flows (cont.) (cont.)

The success or failure of the firm in The success or failure of the firm in generating cash from operationsgenerating cash from operations

The underlying causes of the positive The underlying causes of the positive or negative operating cash flow or negative operating cash flow

The magnitude of positive or negative The magnitude of positive or negative operating cash flowoperating cash flow

Fluctuations in cash flow from Fluctuations in cash flow from operations over timeoperations over time

Analyst Concerns:Analyst Concerns:

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Analysis of Cash InflowsAnalysis of Cash Inflows

Capital expenditures and expansionCapital expenditures and expansion Repayment of debtRepayment of debt Payment of dividendsPayment of dividends

Generating cash from operations is Generating cash from operations is the preferred method for obtaining the preferred method for obtaining excess cash to finance:excess cash to finance:

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Analysis of Cash Analysis of Cash OutflowsOutflows When analyzing the cash outflows, When analyzing the cash outflows,

the analyst should consider the the analyst should consider the necessity of the outflow and how necessity of the outflow and how the outflow was financedthe outflow was financed

Generally, it is best to finance short-Generally, it is best to finance short-term assets with short-term debt term assets with short-term debt and long-term assets with long-and long-term assets with long-term debt or issuance of stockterm debt or issuance of stock

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Common Size Cash Flow Common Size Cash Flow StatementStatement

Summarize all significant cash Summarize all significant cash inflows, take the total and inflows, take the total and compute their proportion to compute their proportion to total cash inflowstotal cash inflows

Summarize all significant cash Summarize all significant cash outflows, take the total and outflows, take the total and compute their proportion to compute their proportion to total cash inflowstotal cash inflows

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     2006 2006 2005 2005Cash Flow From Operating Activities 2.476 58% 2.094 75%Proceeds from sale of assets 29 1% 12 0%Capital Increase 5 0% - 0%Proceeds from L/T borrowings 1.564 37% 100 4%Proceeds from S/T borrowings 209 5% 582 21%Total Cash Inflows 4.283 100% 2.788 100%

Purchase of PP&E 745 18% 662 25%Repayment of debt 577 14% 85 3%Acquisition of treasury stock 1.119 27% 1.194 44%Changes in scope of consolidation 1.066 26% 182 7%Dividends Paid 634 15% 563 21%Total Cash Outflows 4.141 100% 2.686 100%

Net Change in Cash 142 102

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Faaliyetlerden kaynaklanan nakit akımları:Net dönem karı 55.172.359 47.911.464Ana ortaklık dışı pay (462.708) 7.219.059Amortisman ve tükenme payları 49.438.616 27.913.406Kıdem tazminatı karşılığı 3.674.140 2.141.936Ertelenen vergi 12.125.573 11.048.289Negatif şerefiye geliri (3.465.178) (10.449.502)Faiz geliri (2.838.554) (2.772.801)Faiz gideri 20.876.539 16.532.524Maddi duran varlık satış (karı)/zararı-net (2.124.810) (394.281)Devlet teşviklerinin (itfası) /artışı 184.831 (499.693)Servis sözleşmesi iptalinden doğan yükümlülükdeki değişim 748.655 597.910Personel prim tahakkuku 3.048.627 2.454.907Satım amaçlı elde tutulan maddi varlık değer düşüklüğü 1.736.000 -Maddi duran varlık değer düşüklüğü - 4.403.213İştirak değer düşüklüğü 13.387.770 -Vergi 11.256.879 4.431.936Varlık ve yükümlülüklerdeki değişimler öncesi sağlanan nakit akımıİşletme varlık veyükümlülüklerindeki değişiklikler:Menkul kıymetlerdeki değişim - 167.852Ticari alacaklardaki değişim (5.286.158) (15.152.774)İlişkili taraflardan alacaklardaki değişim (1.239.641) 3.899.238Stoklardaki değişim (31.288.695) (14.158.109)Diğer kısa vadeli alacaklardaki değişim 10.529.352 (19.647.770)Diğer uzun vadeli alacaklardaki değişim 839.991 (11.634.513)Diğer dönen varlıklardaki değişim 1.331.021 19.766.869Diğer duran varlıklardaki değişim (788.406) 2.990.138Ticari borçlardaki değişim 5.043.302 (2.945.735)İlişkili taraflara borçlardaki değişim 1.885.224 (3.620.333)Diğer kısa vadeli borçlardaki değişim 639.501 6.247.697Diğer kısa vadeli yükümlülüklerdeki değişim (3.716.300) (23.750.754)Diğer uzun vadeli borçlar ve yükümlülüklerdeki değişim (2.182.443) 6.263.921Finansal kiralama borçlarındaki değişim (806) (246.762)İşletme faaliyetlerinde kullanılan nakit akımı 138.524.681 58.717.332Ödenen kıdem tazminatı (1.602.358) (1.994.946)Ödenen vergiler (6.549.458) (6.683.182)İşletme faaliyetlerinde kullanılan net nakit 130.372.865 50.039.204

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Yatırım faaliyetlerinden kaynaklanan nakit akımları:Maddi ve maddi olmayan duran varlık alımları (40.550.442) (48.781.519)Maddi duran varlık satışından elde edilen nakit 14.271.461 5.013.635İşletme birleşmelerinde kullanılan nakit (61.508.063) (21.319.860)Alınan faiz 2.838.554 2.772.801Finansal varlık sermaye artışına katılım - (4.603.966)Yatırım faaliyetlerinde kullanılan net nakit (84.948.490) (66.918.909)Ödenen temettüler (27.188.056) (11.937.570)Ana ortaklık dışı paya ödenen temettü (1.951.615) (2.641.675)Banka kredilerindeki değişim 48.303.013 26.651.950Ana oratklık dışı payın sermaye artışı - 2.722.400Sermaye artışı 850.000.000 -Sermaye geri ödemesi (744.716.797) -Ana ortaklığa yapılan transfer (163.847.102) -Hisse senedi ihraç primleri 107.235.000 -Ödenen faiz (20.876.539) (16.532.524)Finansal faaliyetlerde sağlanan / (kullanılan) net nakit 46.957.904 (1.737.419)

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2006 2006 2005 2005Cash Flow From Operating Activities 130.372.865 11% 50.039.204 57%Interest Received 2.838.554 0% 2.772.801 3%Increase in Capital 957.235.000 83% 2.722.400 3%Sale of PP&E 14.271.461 1% 5.013.635 6%Proceeds from bank borrowings 48.303.013 4% 26.651.950 31%Total Cash Inflows 1.153.020.893 100% 87.199.990 100%

Purchase of PP&E 40.550.442 4% 48.781.519 46%Payments for acquisitions 61.508.063 6% 21.319.860 20%Payments for financial investments - 0% 4.603.966 4%Dividends Paid 29.139.671 3% 14.479.245 14%Purchase back of shares 908.563.899 86% - 0%Interest Paid 20.876.539 2% 16.532.524 16%Total Cash Outflows 1.060.638.614 100% 105.717.114 100%

Net Change in Cash 92.382.279 18.517.124 -

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- Operating cash flows are positive and much higher than net income for the period and the cash flows from operating activities of the prior year. The main reason of the difference between net income and the operating cash flows is the effect of non-cash expenses.

- The main use of cash for the period is the repayment of capital which was financed thru equity, which also makes sense.

- Company’s operating cash flows are adequate to meet investments and interest payments. This is a positive indication for the future performance of the company.

- The company can pay dividends. In fact the amount of dividends paid from 2005 to 2006 almost doubled. This is something valued by the shareholders.

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Net dönem karı 113.772.996 93.663.165Amortisman gideri 16.339.018 20.011.111İtfa payları 141.179 117.114Kıdem tazminatı karşılığı-net 1.091.779 149.146Maddi varlık satış karı -36.781 -1.070Faiz geliri -11.234.575 -5.540.130Faiz gideri 2.052.606 4.088.247Vergi gideri 29.293.797 39.253.787Ticari alacaklardaki (artış)/azalış -31.409.296 266.185İlişkili taraflardan alacaklardaki azalış 31.934.484 82.169.555Stoklardaki (artış)/azalış -1.677.155 22.332.572Diğer dönen varlıklardaki azalış 28.369 550.966Ticari borçlardaki artış 7.189.044 3.464.721İlişkili taraflara borçlardaki (azalış)/artış -1.004.284 10.277.748Diğer kısa vadeli yükümlülüklerdeki (azalış)/artış -981.143 1.477.153Uzun vadeli diğer yükümlülüklerdeki azalış -244.805 -1.174.471Ödenen vergiler -33.141.923 -48.928.877

Esas faaliyetlerden sağlanan net nakit 122.370.663 222.203.996

Yatırım faaliyetleri:

Yatırım harcamaları -3.718.951 -4.515.638Maddi varlık satışı 36.781 1.070Elde edilen faizler 11.259.363 4.672.318

Yatırım faaliyetlerinden sağlanan net nakit 7.577.193 157.750

Finansman faaliyetleri:

Banka kredilerindeki geri ödeme -8.055.000 -114.236.059Ödenen temettü -94.000.000 -47.000.000Ödenen faiz -2.149.683 -6.672.288

Finansman faaliyetlerinde kullanılan net nakit -104.204.683 -167.908.347

Nakit ve nakit benzeri değerlerdeki net artış 25.743.173 54.453.399

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2006 2006 2005 2005Cash Flow From Operating Activities 122.370.663 92% 222.203.996 98%Interest Received 11.259.363 8% 4.672.318 2%Sale of PP&E 36.781 0% 1.070 0%Total Cash Inflows 133.666.807 100% 226.877.384 100%

Purchase of PP&E 3.718.951 3% 4.515.638 3%Repayment of bank borrowings 8.055.000 7% 114.236.059 66%Dividends Paid 94.000.000 87% 47.000.000 27%Interest Paid 2.149.683 2% 6.672.288 4%Total Cash Outflows 107.923.634 100% 172.423.985 100%

Net Change in Cash 25.743.173 54.453.399

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- The company is very successful in terms of generating cash flows. o First of all, for both years there is a consistent positive cash

flows from operations. o The cash flows from operations are adequate to cover

investing activities plus they are adequate to pay back loans. o The company can also pay dividends. In the last year they

almost doubled the dividends that they paid. - From the perspective of the investor the company has a supreme

cash flow performance. It is a very CASH RICH entity: Generating operating cash flows; paying dividends, increasing cash.

- The only negative indication for this company is the decreasing amount of operating cash flows compared to 2005, although net income increased. That is basically due to increase in accounts receivable.