FIN 300 Lecture Notes - Lecture 2: Operating Cash Flow, Capital Cost Allowance, Cash Flow

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24 Jan 2017

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Chapter  Cot’d

Cash Flow Identity (Cash flow from assets) CFFA = Cash flow to creditors + Cashflow to shareholders

Cash flow from assets (Cash flow from assets) = Operating cash flow – net capital spending – additions

to net working capital (NWC)

Operating cash flow OCF= Earnings before interest and taxed + depreciation – taxes

Net capital spending = ending net fixed assets – beginning next fixed assets + depreciation

Additions to NWC = Ending NWC – Beginning NWC

Working Capital = Current Assets – Current Liabilities

Using Table from 2.1

Ex. Creditors = Int.Paid(Income statement) – Net New Borrowing(Long term debt) (Balance sheet) = $70-

(454-408)= $24

S/H = Dividends(Income Statement) – Net New Equity(common shares)(Balance sheet) = $65 –(640-

600)= $25

CFFA = 24+25 = $49

Ex. Operating Cash Flow = EBIT(I/S) + depreciation(I/S) – taxes(I/S) = 694 + 65 – 250 = $509

Ex.Net Capital Spending = End NFA – Beg NFA + Depreciation = 1709 – 1644 + 65 = $130

Ex Additions to NWC = End NWC – Beg NWC = (1403 – 389) – (1112 – 428)=1014 – 684 = $330

Ex Cash flow from assets = OCF – NCS – NWC = 509 – 130 – 330 = $49

Capital Cost Allowance

- CCA is depreciation for tax purposes

- CCA is deducted before taxes and acts as a tax shield

- Every asset is given a certain class, what rate to depreciate and how to depreciate.

- Half year Rule – first year only half of assets cost can be used for CCA

Chapter 3

Sources and Uses of Cash

- Sources

o Cash inflow occurs when we sell something

o Decrease in assets account increase in liability or equity

- Uses

o Cash outflow – ours whe we uy soethig

o Increase in asset account

o Decrease in liability or equity

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Document Summary

Cash flow identity (cash flow from assets) cffa = cash flow to creditors + cashflow to shareholders. Cash flow from assets (cash flow from assets) = operating cash flow net capital spending additions to net working capital (nwc) Operating cash flow ocf= earnings before interest and taxed + depreciation taxes. Net capital spending = ending net fixed assets beginning next fixed assets + depreciation. Additions to nwc = ending nwc beginning nwc. Working capital = current assets current liabilities. Creditors = int. paid(income statement) net new borrowing(long term debt) (balance sheet) = - (454-408)= . S/h = dividends(income statement) net new equity(common shares)(balance sheet) = (640- Operating cash flow = ebit(i/s) + depreciation(i/s) taxes(i/s) = 694 + 65 250 = . Ex. net capital spending = end nfa beg nfa + depreciation = 1709 1644 + 65 = . Ex additions to nwc = end nwc beg nwc = (1403 389) (1112 428)=1014 684 = .

Related Questions

Graffiti Advertising, Inc., reported the following financialstatements for the last two years.

2016 Income Statement
Sales	$	567,200
Costs of goods sold		274,005
Selling and administrative		124,729
Depreciation		54,572
EBIT	$	113,894
Interest		19,384
EBT	$	94,510
Taxes		37,804
Net income	$	56,706
Dividends	$	10,000
Addition to retained earnings	$	46,706

GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2015
Cash	$	13,360	Accounts payable	$	9,500
Accounts receivable		18,990	Notes payable		14,504
Inventory		13,798	Current liabilities	$	24,004
Current assets	$	46,148
			Long-term debt	$	136,480
Net fixed assets	$	344,546	Owner's equity	$	230,210
Total assets	$	390,694	Total liabilities and ownersâ equity	$	390,694

GRAFFITI ADVERTISING, INC. Balance Sheet as of December 31, 2016
Cash	$	14,346	Accounts payable	$	10,516
Accounts receivable		21,095	Notes payable		16,470
Inventory		22,758	Current liabilities	$	26,986
Current assets	$	58,199
			Long-term debt	$	152,400
Net fixed assets	$	406,307	Owner's equity	$	285,120
Total assets	$	464,506	Total liabilities and ownersâ equity	$	464,506

a. Calculate the operating cash flow.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)

Operating cash flow $

b. Calculate the change in net working capital.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)

Change in net working capital $

c. Calculate the net capital spending. (Donot round intermediate calculations and round your answer to thenearest whole number, e.g., 32.)

Net capital spending $

d. Calculate the cash flow from assets. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and round your answer to the nearestwhole number, e.g., 32.)

Cash flow from assets $

e. Calculate the cash flow to creditors.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)

Cash flow to creditors $

f. Calculate the cash flow to stockholders.(A negative answer should be indicated by a minus sign. Donot round intermediate calculations and round your answer to thenearest whole number, e.g., 32.)

Cash flow to stockholders $

goldchimpanzee38

1. Bowyer Driving Schoolâs 2014 balance sheet showed net fixed assets of $4.4 million, and the 2015 balance sheet showed net fixed assets of $5.1 million. The companyâs 2015 income statement showed a depreciation expense of $240,000.What was net capital spending for 2015?

2. The 2014 balance sheet of Sugarpovaâs Tennis Shop, Inc., showed long-term debt of $5.5 million, and the 2015 balance sheet showed long-term debt of $5.9 million. The 2015 income statement showed an interest expense of $135,000. What was the firmâs cash flow to creditors during 2015?

3. Billyâs Exterminators, Inc., has sales of $746,000, costs of $300,000, depreciation expense of $52,000, interest expense of $36,000, and a tax rate of 35 percent. What is the net income for this firm?

4. The 2014 balance sheet of Sugarpova's Tennis Shop, Inc., showed long-term debt of $6.3 million, and the 2015 balance sheet showed long-term debt of $6.5 million. The 2015 income statement showed an interest expense of $220,000. During 2015, the company had a cash flow to creditors of $20,000 and the cash flow to stockholders for the year was $75,000. Suppose you also know that the firmâs net capital spending for 2015 was $1,480,000, and that the firm reduced its net working capital investment by $91,000.What was the firmâs 2015 operating cash flow, or OCF?

5. Braam Fire Prevention Corp. has a profit margin of 9.70 percent, total asset turnover of 1.42, and ROE of 18.61 percent. What is its firm's debt-equity ratio?

6. Based only on the following information for Bennington Corp., did cash go up or down? By how much?


Decrease in inventory	$510
Decrease in accounts payable	160
Increase in notes payable	740
Increase in accounts receivable	210

browntoad569

What are the Balance Sheet Ratios (debt-to-asset and debt-to-equity ratios) for the following financial information for 2015 and 2016? (PLEASE SHOW WORK SO I CAN UNDERSTAND HOW THIS WAS DONE. Thank you)

AMAZON.COM INC (AMZN) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	107006	135987
Cost of revenue	71651	88265
Gross profit	35355	47722
Operating expenses
Sales, General and administrative	20411	27284
Other operating expenses	12711	16252
Total operating expenses	33122	43536
Operating income	2233	4186
Interest Expense	459	484
Other income (expense)	-206	190
Income before income taxes	1568	3892
Provision for income taxes	950	1425
Other income	-22	-96
Net income from continuing operations	596	2371
Net income	596	2371
Net income available to common shareholders	596	2371
Earnings per share
Basic	1.28	5.01
Diluted	1.25	4.9
Weighted average shares outstanding
Basic	467	474
Diluted	477	484
EBITDA	8308	12492

AMAZON.COM INC (AMZN) CashFlowFlag BALANCE SHEET
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Assets
Current assets
Cash
Cash and cash equivalents	15890	19334
Short-term investments	3918	6647
Total cash	19808	25981
Receivables	6423	8339
Inventories	10243	11461
Deferred income taxes
Total current assets	36474	45781
Non-current assets
Property, plant and equipment
Land	9770	13998
Fixtures and equipment	18417	25989
Other properties	1866	2454
Property and equipment, at cost	30053	42441
Accumulated Depreciation	-8215	-13327
Property, plant and equipment, net	21838	29114
Goodwill	3759	3784
Intangible assets
Deferred income taxes	1084
Other long-term assets	2289	4723
Total non-current assets	28970	37621
Total assets	65444	83402
Liabilities and stockholders' equity
Liabilities
Current liabilities
Accounts payable	20397	25309
Accrued liabilities	10384	13739
Deferred revenues	3118	4768
Total current liabilities	33899	43816
Non-current liabilities
Long-term debt	8235	7694
Capital leases	5948	7519
Deferred taxes liabilities		392
Other long-term liabilities	3978	4696
Total non-current liabilities	18161	20301
Total liabilities	52060	64117
Stockholders' equity
Common stock	5	5
Additional paid-in capital	13394	17186
Retained earnings	2545	4916
Treasury stock	-1837	-1837
Accumulated other comprehensive income	-723	-985
Total stockholders' equity	13384	19285
Total liabilities and stockholders' equity	65444	83402

AMAZON.COM INC (AMZN) Statement of CASH FLOW
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Cash Flows From Operating Activities
Net income	596	2371
Depreciation & amortization	6281	8116
Investments losses (gains)	5
Deferred income taxes	81	-246
Stock based compensation	2119	2975
Accounts receivable	-1755	-3367
Inventory	-2187	-1426
Accounts payable	4294	5030
Accrued liabilities	913	1724
Other working capital	1292	1955
Other non-cash items	281	-689
Net cash provided by operating activities	11920	16443
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-4589	-6737
Acquisitions, net	-795	-116
Purchases of investments	-4091	-7756
Sales/Maturities of investments	3025	4733
Net cash used for investing activities	-6450	-9876
Cash Flows From Financing Activities
Long-term debt issued	353	621
Long-term debt repayment	-4235	-4361
Excess tax benefit from stock based compensation	119	829
Repurchases of treasury stock
Net cash provided by (used for) financing activities	-3763	-2911
Effect of exchange rate changes	-374	-212
Net change in cash	1333	3444
Cash at beginning of period	14557	15890
Cash at end of period	15890	19334
Free Cash Flow
Operating cash flow	11920	16443
Capital expenditure	-4589	-6737
Free cash flow	7331	9706
Supplemental schedule of cash flow data
Cash paid for income taxes	273	412
Cash paid for interest	478	496

blackgiraffe860

FIN 300 Lecture Notes - Lecture 2: Operating Cash Flow, Capital Cost Allowance, Cash Flow

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