statement of cash flows

(C) 2007 Prentice Hall, Inc.(C) 2007 Prentice Hall, Inc.

4-4-11

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


4-4-22

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.


4-4-44

Objectives of the ChapterObjectives of the Chapter

To explain how the statement of To explain how the statement of cash flows is preparedcash flows is prepared

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


4-4-55

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

1.1. CashCash

2.2. Operating activitiesOperating activities

3.3. Investing activitiesInvesting activities

4.4. Financing activitiesFinancing activities

Four parts of a statement of cash flows:


4-4-66


Cash & Cash equivalents (short-term Cash & Cash equivalents (short-term marketable securities):marketable securities):

Cash includes

T-BillsT-Bills NotesNotes

CertificatesCertificatesBondsBondsCDsCDs

Commercial paperCommercial paper


4-4-77

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


4-4-88


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


4-4-99


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


4-4-1010


How Cash Flows During an Accounting Period

Total Inflows less Total Outflows = Change in cash for the accounting period

Operating Activities

Investing Activities

Financing Activities

Inflows

Outflows


4-4-1111

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:


4-4-1212

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


4-4-1313


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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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


4-4-1515


Look at changes in balance sheet Look at changes in balance sheet accounts from beginning to end of accounts from beginning to end of accounting periodaccounting period

Next Step: Step:Transfer the account changes to the Transfer the account changes to the

appropriate area of a statement of appropriate area of a statement of cash flowscash flows

First First Step::


4-4-1616


InflowInflow OutflowOutflow

- Asset account- Asset account + Asset account+ Asset account

+ Liability + Liability accountaccount

- Liability account- Liability account

+ Equity account+ Equity account - Equity account- Equity account


4-4-1717


4-4-1818

31.12.2009 31.12.2008Cash 40.000 24.000 Accounts Receivable, net 48.000 41.500 Inventories 43.000 34.500 Prepaid Expenses 19.000 15.000 Total Current Assets 150.000 115.000

Property, plant & equipment 67.000 61.000 Accumulated Depreciation 41.000 - 23.000 - Property, plant & equipment, net 26.000 38.000 Long-term Investments 90.000 89.000 Total Assets 266.000 242.000

31.12.2009 31.12.2008Accounts Payable 13.000 11.000 Accrued Liabilities 55.000 71.000 Total Current Liabilities 68.000 82.000

Long-term debt 25.000 8.000 Deferred tax liability 4.000 3.500 Total Liabilities 97.000 93.500

Share Capital 112.000 97.000 Retained Earnings 57.000 51.500 Total Liabilities and Equity 266.000 242.000


4-4-1919

31.12.2009 31.12.2008Cash 40.000 24.000 CashAccounts Receivable, net 48.000 41.500 OperInventories 43.000 34.500 OperPrepaid Expenses 19.000 15.000 OperTotal Current Assets 150.000 115.000

Property, plant & equipment 67.000 61.000 InvestAccumulated Depreciation 41.000 - 23.000 - non cashProperty, plant & equipment, net 26.000 38.000 InvestLong-term Investments 90.000 89.000 InvestTotal Assets 266.000 242.000

31.12.2009 31.12.2008Accounts Payable 13.000 11.000 OperAccrued Liabilities 55.000 71.000 OperTotal Current Liabilities 68.000 82.000

Long-term debt 25.000 8.000 FinanceDeferred tax liability 4.000 3.500 OperTotal Liabilities 97.000 93.500

Share Capital 112.000 97.000 FinanceRetained Earnings 57.000 51.500 FinanceTotal Liabilities and Equity 266.000 242.000


4-4-2020

31.12.2009 31.12.2008 ChangeCash 40.000 24.000 16.000 Accounts Receivable, net 48.000 41.500 6.500 Inventories 43.000 34.500 8.500 Prepaid Expenses 19.000 15.000 4.000 Total Current Assets 150.000 115.000 35.000

Property, plant & equipment 67.000 61.000 6.000 Accumulated Depreciation 41.000 - 23.000 - 18.000 - Property, plant & equipment, net 26.000 38.000 12.000 - Long-term Investments 90.000 89.000 1.000 Total Assets 266.000 242.000 24.000

31.12.2009 31.12.2008 ChangeAccounts Payable 13.000 11.000 2.000 Accrued Liabilities 55.000 71.000 16.000 - Total Current Liabilities 68.000 82.000 14.000 -

Long-term debt 25.000 8.000 17.000 Deferred tax liability 4.000 3.500 500 Total Liabilities 97.000 93.500 3.500

Share Capital 112.000 97.000 15.000 Retained Earnings 57.000 51.500 5.500 Total Liabilities and Equity 266.000 242.000 24.000


4-4-2121

Cash Flow From Operating ActivitiesNet Income for the Year 5.800 Add:Depreciation 18.000 Changes in operating assets and liabilitiesAccounts Receivable 6.500 - Inventories 8.500 - Prepaid Expenses 4.000 - Accounts Payable 2.000 Accrued liabilities 16.000 - Deferred tax liability 500 Net cash flows from operating activities 8.700 -

Cash Flow From Investing ActivitiesPurchase of property, plant & equipment 6.000 - Purchase of long-term investments 1.000 - Cash Outflows from investing activities 7.000 -

Cash Flow From Financing ActivitiesLong-term borrowing 17.000 Increase in share capital 15.000 Dividends paid 300 - Cash Inflows from financing activities 31.700

Net Change in Cash 16.000 Cash at the beginning of the year 24.000 Cash at the end of the year 40.000


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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


4-4-2323

Cash Flow from Cash Flow from OperationsOperations

Pay dividends or Pay dividends or Invest in new equipmentInvest in new equipment Service debt Service debt

It is possible for a firm to be It is possible for a firm to be highly profitable and not be able to:highly profitable and not be able to:


4-4-2424

Cash Flow from Operations Cash Flow from Operations (cont.)(cont.)

The ongoing operation of any The ongoing operation of any business depends upon its business depends upon its success in generating cash success in generating cash from operations from operations


4-4-2525

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:


4-4-2626

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:


4-4-2727

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

Examples of cash flow from operations (CFO) Examples of cash flow from operations (CFO) under the indirect method for various under the indirect method for various companies*companies*

Cash from Primary sourceCash from Primary source Net Net (used by) (use) of cash(used by) (use) of cash Income Income OperationsOperations within CFOwithin CFOAirline $ 548 $ 2,229Airline $ 548 $ 2,229 A/P-accrued liab. A/P-accrued liab. ComputerComputer 6 ( 25) (other assets) 6 ( 25) (other assets)RecreationRecreation ( 107) 42 depr./int. payable ( 107) 42 depr./int. payableRetailerRetailer 1,106 1,068 (gain-asset sales) 1,106 1,068 (gain-asset sales)SemiconductorSemiconductor 8,664 14,823 depreciation8,664 14,823 depreciation

*Data from SEC website, *Data from SEC website, www.sec.govwww.sec.gov

$ in millions$ in millions


4-4-2828

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:


4-4-2929

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


4-4-3030

NET DÖNEM KARI / ZARARI 5.743.452

Düzeltmeler 1.660.6671-Amortisman ve İtfa Payları (+) 958.4622-Karşılıklardaki Değişiklikler (+) 702.2053-Faiz Giderleri (+) 0

VARLIK ve BORÇLARDAKİ DEĞİŞİM ÖNCESİ NET NAKİT 7.404.119

Varlık ve Borçlardaki Değişimler (-9.092.163)1-Ticari Alacaklardaki Azalış (+) 385.0722-İlişkili Taraflardan Alacaklardaki Artış (-) (-988.134)3-Menkul Kıymetlerdeki Azalış (+) 04-Diğer Alacaklardaki Artış (-) 32.0895-Diğer Varlıklardaki Artış (-) (-5.907.678)6-Ticari Borçlardaki Azalış (-) (-1.667.430)7-İlişkili Taraflara Borçlardaki Azalış (-) (-311.472)8-Diğer Borçlardaki Azalış (-) (-30.586)9-Ödenen Vergi (-604.024)10-Ödenen Kıdem Tazminatı 011-Sermaye Artışından Sağlanan Nakit 0

(-1.688.044)

Yatırım Faaliyetlerinden Kaynaklanan Nakit (-3.707.768)1-Duran Varlık Yatırımları (-) (-3.771.672)2-Duran Varlık Satışı (+) 63.9043-Tahsil Edilen Faiz ve Temettüler (+) 0

Finansman Faaliyetlerinden Kaynaklanan Nakit 7.028.272NAKİT VE BENZERİ DEĞERLERDEKİ ARTIŞ AZALIŞ 1.632.460

DÖNEM BAŞINDAKİ NAKİT VE BENZERİ DEĞERLER 19.226.451

DÖNEM SONUNDAKİ NAKİT VE BENZERİ DEĞERLER 20.858.911

ESAS FAALİYETLERDEN SAĞLANAN NET NAKİT


4-4-3131

AnalysisAnalysisCash InflowsOperating Activities - 0%Sale of PP&E 63.904 1%Proceeds from borrowings 7.028.272 99%

Total Cash Inflows 7.092.176 100%

Cash OutflowsOperating Activities 1.688.044 31%Purchase of PP&E 3.771.672 69%

0%Total Cash Outflows 5.459.716 100%


4-4-3232

İŞLETME FAALİYETLERİNDEN KAYNAKLANANNAKİT AKIMLARINet dönem karı 52.101.421 52.895.074

Net dönem karını işletme faaliyetlerinden elde edilen Nakit akımına getirmek için yapılan düzeltmeler:Maddi duran varlıkların amortismanı 19 986.155 594.273Maddi olmayan duran varlıkların amortismanı 20 2.195 2.038Lisans hakkı avans itfası 15 1.027.239 1.027.239Şüpheli alacak karşılığı 7 (26.748) 18.570Reeskont giderleri 6.835 1.370Kıdem tazminatı karşılığı 23 1.454 205İşletme sermayesindeki değişimler öncesi faaliyetlerden elde edilen nakit 54.098.551 54.538.769Ticari alacaklardaki azalış 169.703 2.253.062Diğer cari / dönen varlıklardaki (artış) (1.105.016) (614.649)Diğer cari olmayan / duran varlıklardaki (artış) (14.283.727) -Ticari borçlardaki artış / (azalış) 15.089 (570.524)İlişkili taraflara borçlardaki artış / (azalış) 4.805.906 (45.984.100)Diğer kısa vadeli yükümlülüklerdeki artış 3.325.526 216.520Diğer uzun vadeli yükümlülüklerdeki artış 698.499 -İşletme faaliyetlerinden elde edilen nakit (net) 47.724.531 9.839.078

YATIRIM FAALİYETLERİNDEN KAYNAKLANANNAKİT AKIMLARI Maddi olmayan duran varlık alımları 20 (135) (958)Maddi duran varlık alımları (1.518.490) (54.434)Alınan ticari amaçla elde tutulan yatırımlar 5 (102.069) -Satılan ticari amaçla elde tutulan yatırımlar - 3.158.826Yatırım faaliyetlerinde (kullanılan) / elde edilen nakit (net) (1.620.694) 3.103.434

FİNANSMAN FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIMLARI

Finansal kiralama yükümlülüğü geri ödemesi (537.053) (612.193)Dağıtılan temettü (45.350.288) (12.230.965)Finansal faaliyetlerden (kullanılan) nakit (net) (45.887.341) (12.843.158)

HAZIR DEĞERLERDEKİ NET DEĞİŞİM 216.496 99.354

DÖNEM BAŞI HAZIR DEĞERLER 4 124.430 25.076

DÖNEM SONU HAZIR DEĞERLER 4 124.430340.926


4-4-3333

AnalysisAnalysisCash Inflows 2006 2007Operating Activities 47.724.531 100% 9.839.078 76%Sale of financial assets - 0% 3.158.826 24%Proceeds from borrowings - 0% - 0%Total Cash Inflows 47.724.531 100% 12.997.904 100%

Cash OutflowsOperating Activities - 0% - 0%Purchase of PP&E 1.518.625 3% 55.392 0%Investment in financial assets 102.069 0% - 0%Repayment of debt 537.053 1% 612.193 5%Dividends paid 45.350.288 95% 12.230.965 95%Total Cash Outflows 47.508.035 100% 12.898.550 100%


4-4-3434

Net dönem karı (385.057) 2.213.779

Net dönem karını işletme faaliyetlerinden elde edilen nakit akımına getirmek için yapılan düzeltmeler: - -

Maddi duran varlıkların amortismanı 19 958.305 1.024.802

Maddi olmayan duran varlıkların amortismanı 20 28.654 22.947

Mali borçlara ilişkin kur farkı ve faiz tahakkuku 6 12.657 84.010

Kıdem tazminatı karşılığı 23 671.767 623.118

Şüpheli ticari alacak karşılığı 7 427.514 20.951

Alacak/borç reeskontları 7 383.209 623.111

Maddi duran varlık satış zararı - 231.916

Parasal kazanç ile netleştirilmiş vergi karşılığı 41 (152.652) 1.221.930

İşletme sermayesindeki değişim öncesi faaliyetlerden elde edilen nakit akımı 1.944.397 6.066.564

Ticari alacaklardaki (artış/azalış) 7 (2.280.283) (1.179.672)

İlişkili taraflardan boçlardaki (artış/azalış) 9 (44.400) 731

Diğer alacaklar (artış/azalış) 10 (2.884) (11.829)

Stoklardaki (artış/azalış) 12 35.661 (1.725.056)

Diğer dönen varlıklardaki (artış/azalış) 15 (690.541) -

Ticari borçlardaki (artış/azalış) 7 2.076.488 199.916

İlişkili taraflara boçlardaki (artış/azalış) 9 34.613 (25.141)

Alınan avanslardaki (artış/azalış) 21 (370.918) 231.187

Borç karşılıklarındaki (artış/azalış) 23 (43.352) (232.443)

Diğer yükümlülüklerdeki (artış/azalış) 10 209.987 -

Faaliyetlerden elde edilen/kullanılan nakit 868.768 3.324.257

Ödenen Vergi 41 - (914.625)

Ödenen Kıdem tazminatı 23 (221.620) (290.155)

İşletme faaliyetlerinden elde edilen/kullanılan nakit 647.148 2.119.477

YATIRIM FAALİYETLERİNDEN KAYNAKLANAN NAKİT AKIMIMenkul kiymetlerdeki degişim(net) (29.985) 166.237

Maddi duran varlık alımları 19 (2.451.833) (2.270.305)

Maddi olmayan duran varlık alımları 20 (38.114) (47.983)

Verilen avanslardaki değişim - 119.381

Satılan maddi duran varlıkların net defter değeri 19 1.082.056 351.297

Diğer duran varlıklardaki (artış/azalış) 15 - 70.093

Yatırım faaliyetlerinde kullanılan nakit (1.437.876) (1.611.280)

FİNANSMAN FAALİYETLERİNDENKAYNAKLANAN NAKİT AKIMIMali borçlardaki net değişim 6 1.463.493 (312.826)

Topluluk dışı paylardaki değişim 24 21 (2.537)

Ödenen temettü (813.123) -

Finansal faaliyetlerden elde edilen nakit 650.391 (315.363)


4-4-3535

AnalysisAnalysisCash Inflows 2007 2006Operating Activities 647.148 20% 2.119.477 80%Sale of financial assets 1.082.056 34% 540.771 20%Proceeds from borrowings 1.463.514 46% - 0%Total Cash Inflows 3.192.718 100% 2.660.248 100%

Cash OutflowsOperating Activities - 0% - 0%Purchase of PP&E 2.489.947 75% 2.318.288 88%Investment in financial assets 29.985 1% - 0%Repayment of debt - 0% 315.363 12%Dividends paid 813.123 24% - 0%Total Cash Outflows 3.333.055 100% 2.633.651 100%


4-4-3636

Cash Flow From Operating ActivitiesNet Income for the Year 5.800 Add:Depreciation 18.000 Changes in operating assets and liabilitiesAccounts Receivable 6.500 - Inventories 8.500 - Prepaid Expenses 4.000 - Accounts Payable 2.000 Accrued liabilities 16.000 - Deferred tax liability 500 Net cash flows from operating activities 8.700 -

Cash Flow From Investing ActivitiesPurchase of property, plant & equipment 6.000 - Purchase of long-term investments 1.000 - Cash Outflows from investing activities 7.000 -

Cash Flow From Financing ActivitiesLong-term borrowing 17.000 Increase in share capital 15.000 Dividends paid 300 - Cash Inflows from financing activities 31.700

Net Change in Cash 16.000 Cash at the beginning of the year 24.000 Cash at the end of the year 40.000


4-4-3737

Cash InflowsCash Flows from operating activities - Long-term borrowing 17.000 53%Increase in share capital 15.000 47%Total 32.000 100%

Cash OutflowsCash Flows from operating activities 8.700 - 54%Purchase of PP&E 6.000 - 38%Purchase of long-term investments 1.000 - 6%Dividends paid 300 - 2%Total 16.000 - 100%

Net change 16.000


4-4-3838

Preparing a Statement of Cash Preparing a Statement of Cash FlowsFlows (cont.) (cont.) Examples of change in cash based on Examples of change in cash based on business activities for companies in different business activities for companies in different industries*industries*

Operating Investing Financing ChangeOperating Investing Financing Change ActivitiesActivities ActivitiesActivities ActivitiesActivities in Cashin CashAirline $ 2,229Airline $ 2,229 ( 1,210) 213 1,232( 1,210) 213 1,232ComputerComputer ( 25) ( 25) 118 1 94 118 1 94RecreationRecreation 42 ( 26) ( 5) 11 42 ( 26) ( 5) 11RetailerRetailer 1,068 332 ( 53) 1,347 1,068 332 ( 53) 1,347Semiconductor 14,823 ( 6,362) (9,544)Semiconductor 14,823 ( 6,362) (9,544)

(1,083)(1,083)

*Data from SEC website, *Data from SEC website, www.sec.govwww.sec.gov

$ in millions$ in millions

statement of cash flows

Documents

cash inflows

cash receiptscash

cash collections

statement of cash flows

statement of cash flowsjoan

calculating cash flow

net cash flow

prentice hall