unlocking financial statements - day 4
DESCRIPTION
Jimmy Gentry presents "Unlocking Financial Statements," a business journalism Webinar hosted by the Donald W. Reynolds National Center for Business Journalism at Arizona State University's Cronkite School of Journalism.TRANSCRIPT
Online SeminarDay 4
July 22, 2010
Unlocking Financial Statements
Statement of Cash Flows
Understanding Financial Statements2
Understanding Financial Statements3
Accrual Method Records revenues as soon as the “sale”
occurs Records expenses as soon as the bill is
received IE, transactions enter the financial
records when they occur, not when cash changes hands
Accrual method, therefore, shows “scores,” not real spendable dollars
Understanding Financial Statements4
Statement of Cash Flows Record of cash provided by cash
sources and of cash consumed by cash uses.
Understanding Financial Statements5
Cash Flows (cont.) Information about use of cash Information about investing and financing Ability to continue as a going concern Ability to generate future positive cash
flows Ability to meet obligations and pay
dividends
Understanding Financial Statements6
Cash Flows From operations From investing From financing
Understanding Financial Statements7
Flexibility Companies have some flexibility in
categories for entries. Total change in cash, however, will not
change. Overwhelming majority of all accounting
standards deal with balance sheet and income statement, not cash flows statement.
Cash and Cash Equivalents The category Cash and Cash
Equivalents shows how much “cash” the company had at the start or end of a period.
Note the changes in this category.
Understanding Financial Statements8
Understanding Financial Statements9
Free Cash Powerful tool for making a company
successful Powerful indicator for investors Cash that is left over after productive
capacity is maintained or expanded Permits expansion, paying down debt,
buying back shares, etc.
Understanding Financial Statements10
Free Cash Several ways to calculate it Companies create their own models Gross way to do it:
Cash from operating activities Minus capital expenditures Equals free cash flow
Understanding Financial Statements11
American Standard Model
Cash from operating activities Minus capital expenditures Plus proceeds from disposal of property Plus proceeds from sale and
leasebacks Equals free cash flow
VF Model Cash from operating Minus cash used in investing
Understanding Financial Statements12
Finding Company’s Formula Often requires you to do some digging
in the 10-K
Understanding Financial Statements13