Cash Flows

Question 1

GAAP & IFRS Treatment of Items

Answer 1

Interest received - IFRS (CFO or CFI) and GAAP (CFO)
Interest paid - IFRS (CFO or CFI) and GAAP (CFO)
Dividends received - IFRS (CFO or CFI) and GAAP (CFO)
Dividends paid - IFRS (CFO or CFI) and GAAP (CFF)
Bank overdrafts - IFRS (cash equivalents) and GAAP (CFF)
Taxes - IFRS and GAAP (CFO)

Question 2

Indirect Method (CFO)

Answer 2

CFO = NI + D&A + Losses - Gains - Equity earnings - Change OA + Change OL

Question 3

Direct Method (CFO)

Answer 3

(Cash collected from customers + cash collected from interest/dividends + cash collected from sale of trading securities)

Less

Cash paid to vendors + Cash paid for SG&A + Cash paid for taxes + Cash paid for interest (US only)

Cash collected = Net sales (inflow) +/- decrease in AR (inflow) or increase in AR (outflow)

Question 4

Free Cash Flow to the Firm (FCFF)

Answer 4

= CFO + Interest x (1-T) - Capex

Use WACC as discount rate when calculating PV FCFF

Question 5

Free Cash Flow to Equity (FCFE)

Answer 5

= CFO - Capex + Change in Debt

Use rCE as discount rate when calculating PV FCF

Question 6

FCFF to FCFE Conversion

Answer 6

FCFE = FCFF - Interest x (1-T) + Change in Debt