Cash Flow Statement, Apuntes de Administración de Empresas

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Lesson 03

Cash Flow & Equity

Statement

Financial Statements

Analysis

The Statement of Changes in

Equity

2016-2017 Financial Statements Analysis Equity, is what the company “owes” to its owners.  (^) The role of the statement of changes in equity is to provide a reconciliation of opening and closing equity in a specific period.  (^) It provides details of the various equity accounts that are impacted by the period’s total income.  (^) It also provides information about the effects of transactions with owners (distributions and capital contributions).

Shareholders Equity at the Beginning of the year 1.000 200 100 - - 1. Operations with Owners Dividends - 50 - 50 Issuance of New Capital 200 200 Other variations of Net Equity 50 - 50 - Shareholders Equity at the End of the Year 1.200 250 - - - 1. Example: The Owners of a Company decide the following operations affecting Equity. a) Profit of the year: 100 Which Increase of Reserves: 50 Which distribution of dividends: 50 b) Issuance of New Capital: 200

The Statement of Changes in

Equity

2016-2017 Financial Statements Analysis

2016-2017 Financial Statements Analysis

The Statement of Changes in

Equity

Class Activity:

Prepare the Statement of changes in equity for 2014 and 2015 for New

Co. Ltd.

Use the following information. Starting of operations 2014 with 1.000 €

of Capital.

a) Profit for the year for 2014: 10.000 € 2015: 20.000 €. Every year 80

% is distributed as dividends for the owners and the rest is

retained as reserves.

b) 01.01.2014. Received for free Computer Equipment from the

Innovation program of the city council 10.000 € worth.

c) In 2015, New Capital is raised for 5.000 €, with a share premium of

Analysis:

d) Do you think the owners are “committed” with the future of the

2016-2017 Financial Statements Analysis

The Statement of Changes in

Equity

Capital Share Premium Retained Earnings Profi t for the year Grants & Donations Other Variations in Net Equity Total Equity Shareholders Equity 01.01.201 5^1 .000^1. Profit for the Year * 1 0.000 € Operations with Owners Dividends -2.000 € New Capital Other Variation of Net Equity 8.000 € -8.000 € 1 0.000 € Shareholders Equity 31.12.201 5 1 .000 - 8.000 - 1 0.000 - 1 9. Profit for the Year * 20.000 € Operations with Owners Dividends -4.000 € New Capital 5.000 € 1 0.000 € Other Variation of Net Equity 1 6.000 € -16.000 € Shareholders Equity 31.12.201 6 6.000^1 0.000^ 24.000^ -^1 0.000^ -^ 50.

The Cash Flow Statement

“ Cash is King!”

 (^) A potentially and promising profitable business can fail due to a temporary cash problem.  (^) Cash Planning and Cash Management are vital to the success and survival of every business.  (^) Cash ≠ Profit. The Income Statement shows how much profit has been earned, but this does not necessarily mean that the organization will have cash.  (^) The Cash Flow Statements gives information about the Cash inflows and the Cash outflows of a company, and the business phase where it stands.

Cash from Operating Activities  (^) The Cash generated and paid for everyday activities, and running the business.  (^) Operating activities generally involve producing and delivering goods and providing services.  (^) Types of transactions affecting Cash from Operating Activities:

The Cash Flow Statement-

Operating Activities

2016-2017 Financial Statements Analysis

• Net Profit from the Year
• Depreciation / Amortization
• Increase in Current Assets
• Accounts Receivables Cash Collections
• Other Receivables Cash Collections

• Decrease in Current Liabilities -Accounts Payables Cash Payments - Other Payables Cash Payments = Net Cash from Operating Activities

Cash from Investing Activities  (^) The Cash involved in acquiring assets which will generate profits and cash flows in the future.  (^) Purchase and Sale of Non-Current Assets, such as: Property, Plant, Equipment, Long-term Investments.  (^) Types of transactions affecting Cash from Investing Activities:

The Cash Flow Statement-

Investing Activities

2016-2017 Financial Statements Analysis

+ Sale of Property, Plant, Equipment Assets

+ Sale of short and long term Investments (shares, etc…)

• Purchase of Property, Plant, Equipment Assets
• Purchase of short and long term Investments

= Net Cash from Investing Activities

Company Life cycle

 (^) The Business Life cycle reflects the stages where a company goes through during its lifetime.  (^) In every stage, it faces different risks, and financial needs. Fast Growth Cash Flow Structure Operating: - Investing: - Financing: + Stable Growth Cash Flow Structure Operating: + Investing: + Financing: - Decrease Cash Flow Structure Operating: + Investing: - Financing: -

Cash flows from Operating Activities: Firm A Firm B Net Income 37.500 35. Depreciation & Amortization 16.500 16. Net Cash Flows from Operating Activities 43.500 - 7. Net Cash Flows from Investing Activities - 84.000 13. Net Cash Flows from Financing Activities 43.500 138. Net increase (decrease) in cash 3.000 144. Questions: a) Look at the NCF from Operating Activities. Which firms appears to be healthier? Which are the reasons for the difference? b) Look at the NCF from Investing Activities. Make a guess on what is happening in each firm. c) What can you tell about the Net Cash generation of each firm? d) Make a guess about the business cycle of each firm.

The Cash Flow Statement-

Exercice