Chapter 2 (Financial Statements, Cash Flow, and Taxes) Flashcards
the amount of cash available from operations for distribution to all investors (including stockholders and debtholders) after making the necessary investments to support operations.
FCF
net income + change in R/E
payment of cash dividends
Net income \+ Depreciation (same) \+ change in AR (opposite) \+ change in inventories (opposite) \+ change in AP (same) \+ change in Accruals (same)
operating activities
cash used to acquire FA (negative)
+ change in ST invest (opposite)
investing activities
change in notes payable (same)
change in LT debt (same)
Payment of cash dividends)
financing activities
- Pay interest on debt.
- Pay back principal on debt.
- Pay dividends.
- Buy back stock.
- Buy nonoperating assets (e.g., marketable securities, investments in other companies, etc.)
five uses of FCF
EBIT(1 - Tax rate)
NOPAT
if NOPAT is negative it is in a danger signal
Operating CA include
cash, inventory, and receivables
Operating CA exclude
ST investments, because these are not part of operations
operating CL include
AP and Accruals
operating CL exclude
NP, because this is a source of financing, not a part of operations
operating CA - operating CL
NOWC (net operating working capital)
NOWC + NFA
operating capital
NOPAT - net investment in operating capital
FCF
NOPAT \+ Depreciation = OCF \+ change in NOWK \+ change in GFA = ?
FCF
