Cash Flow

Statement of Cash Flows

Understand the purpose of SCF Distinguish between its three sections Understand the difference between the direct and indirect methods for the Operations section

Understand Cash Flow from Operations and how it is derived from Net Income Practice these concepts

15.515 2003 Session 9

1

Statement of Cash Flows

Beginning Balance Assets = Liabilities + S.E.

∆Cash + ∆OA

=

∆Liabilities

+ ∆CC + NI - Div

Assets Ending Balance

= Liabilities

+

S.E. NI

15.515 2003 Session 9

∆Cash +/- “other stuff” =

2

Statement of Cash Flows

Fixed claimants (lenders)

Residual claimants (shareholders)

Managers

Why do we need a separate financial statement?

15.515 2003

Session 9

3

W. T. Grant Bankruptcy

90

40

-10

1966

1967

1968

1969

1970

1971

1972

1973

1974

-60

-110

-160

15.515 2003

Session 9

4

W. T. Grant Bankruptcy

90

40

-10

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

-60

-110

-160

5

15.515 2003

Session 9

W. T. Grant Bankruptcy

90

Net Income

40 -10 -60 -110 -160

15.515 2003

Session 9

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975

Operating Cash Flow

6

Consolidated Freightways

140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1994 -20,000 -40,000 -60,000 1995 1996 1997 1998 1999 2000 2001 2002

Net Income

Operating Cash Flow

15.515 2003

Session 9

7

Montgomery Wards Bankruptcy

400 200 0 -200 -400 -600 -800 -1000 -1200 -1400

Operating Cash Flow

1991

1992

1993

1994

1995

1996

Net Income

1997

15.515 2003

Session 9

8

Planet Hollywood Bankruptcy

100000 50000 0 -50000 -100000 -150000 -200000 -250000 -300000

Operating Cash Flow

94

95

96

97

98

99

Net Income

15.515 2003

Session 9

9

Enron

6000 5000 4000 3000 2000 1000 0 1995 -1000 -2000

15.515 2003

Session 9

Operating Cash Flow

Net Income...