CashFlowAnalysis：現(xiàn)金20flow 20analysis

1、.Classes of Ratios¨ Liquidity§ Current§ Quick¨ Efficiency§ Receivables turnover§ Inventory turnover§ Payables turnover§ Fixed asset turnover§ Debt/equity¨ Profitability§ Interest coverage§ Fixed charge coverage§ Net profit margin§

2、 ROA§ ROE¨ Valuation§ Price/Earnings§ Market/BookDupont TheoryROE =Net IncomeSalesAssets_SalesAssetsEquityKEY FINANCIAL RATIOS¨ Profitability¨ Efficiency¨ Leverage¨ Liquidity:KEY FINANCIAL RATIOS . . . PROFITABILITYRatioCalculationDefinitionAnalysisOperating P

3、rofit Margin(Operating Profit/Net Sales) X 100·Represents the percentage of profits retained from each sales dollar·Ratio should remain stable or increase over time·Understanding of any changes requires a detailed breakdown of operating expensesNet Profit Margin(Net Profit/Net Sales)

4、X 100·Measures the ability of the business to generate profit from each sales dollar·In general, this ratio should move in the same direction as the gross and operating profit margins·Variances require a closer look at non-operating expenses, e.g., interest expensesDirect Cost & E

5、xpense Ratios(Cost of Goods Sold/Net Sales) X 100·Indicates the percentage of each sales dollar used to fund the expenses·Upward trends in any of these ratios may indicate reasons for declining profitability·Downward trends may indicate good cost controlKEY FINANCIAL RATIOS . . . EFFI

6、CIENCYDefinition of Efficiency: Effectiveness of a companys management in managing its resources and activities.RatioCalculationDefinitionAnalysisInventory Days on Hand(Inventory/Cost of Goods Sold) X 360 Days·Indicates managements ability to efficiently manage inventory·Low ratio is good&

7、#183;A large increase may indicate a deliberate management decision to make bulk pur-chases in anticipation of a possible supply disruptionInterpretation: Division of the inventory turnover ratio into 365 days yields the average length of time units are in inventory.RatioCalculationDefinitionAnalysi

8、sAccounts Receivable Days on Hand(Net Accounts Receivable/Net Sales) X 360 Days·Indicates managements ability to collect its receivables·Critical to cash flow·Analyze receivable aging schedule and receivable concentrations·Poor receivable quality can significantly increase this r

9、atio and greatly impact cash flowInterpretation: This figure expresses the average time in days that receivables are outstanding. Generally, the greater number of days outstanding, the greater the probability of delinquencies in accounts receivable. A comparison of a companys daily receivables may i

10、ndicate the extent of a companys control over credit and collections. The terms offered by a company to its customer, however, may differ from terms within the industry and should be taken into consideration.KEY FINANCIAL RATIOS . . . EFFICIENCY (Cont.)RatioCalculationDefinitionAnalysisAccounts Paya

11、ble Days on Hand(Accounts Payable/Cost of Goods Sold) X 360 Days·Measures financing provided by trade creditors to company and managements paying habits·Increasing days on hand may indicate cash flow problems·In general, a firm with cash flow problems relies more on its trade creditor

12、s·If A/R days increase significantly, it may indicate a short-term solution to cash flow problemsReturn on Assets (ROA)Net profit After Taxes/ Total Assets·Measures return on investment represented by the assets of the business·Analyze as net profit generated by management based upon

13、utilizing the total business assetsReturn on EquityNet Profit/Tangible Net Worth·Measures rate of return on owners equity·This measures managements ability to operate a profitable business·If the return is good, the company should be able to generate additional equityInterpretation: T

14、his ratio measures the number of times accounts and notes payable (trade) turn over during the year. The higher the turnover of payables, the shorter the time between purchase and payment. If a companys payables appear to be turning more slowly than the industry, then the company may be experiencing

15、 cash shortages, disputing invoices with suppliers, enjoying extended terms, or deliberately expanding its trade credit. The ratio comparison of company to industry suggests the existence of these possible causes or others. If a firm buys on 30-day terms, it is reasonable to expect this ratio to tur

16、n over in approximately 30 days. A problem with this ratio is that it compares one days payables to cost of goods sold and does not take seasonal fluctuations into account.KEY FINANCIAL RATIOS . . . LEVERAGEDefinition of Leverage: Compares the funds supplied by business owners with financing supplie

17、d by creditors. Measures debt capacity and ability to meet obligations.RatioCalculationDefinitionAnalysisDebts to AssetsTotal Liabilities/Total Assets·Indicates the degree to which assets are funded by external creditors·The lower the ratio, the greater the cushion against creditor losses

18、in the event of liquidationDebt to Net WorthTotal Liabilities/Net Worth·Measures how many dollars of outside financing there are for each dollar of owners equity·This ratio indicates firms capacity to borrow more·High ratio equals high riskInterpretation: This ratio expresses the rela

19、tionship between capital contributed by creditors and that contributed by owners. It expresses the degree of protection provided by the owners for the creditors. The higher the ratio, the greater the risk being assumed by creditors. A lower ratio generally indicates long-term financial safety. A fir

20、m with a low debt/worth ratio usually has greater flexibility to borrow in the future. A more highly leveraged company has a more limited debt capacity.RatioCalculationDefinitionAnalysisInterest Coverage(Net Profit before Tax + Interest Expense)/ Interest Expense·Measures the degree to which ea

21、rnings can decline without affect-ing the companys ability to meet annual interest costs·This calculation does not include leased assets and obligations under lease contractsInterpretation: This ratio is a measure of a firms ability to meet interest payments. A high ratio may indicate that a bo

22、rrower would have little difficulty in meeting the interest obligations of a loan. This ratio also serves as an indicator of a firms capacity to take on additional debtKEY FINANCIAL RATIOS . . . LEVERAGE (Cont.)RatioCalculationDefinitionAnalysisDebt CoverageNet Profit + Depreciation & Amortizati

23、on/Current Maturities Long-Term Debt·Measures the degree to which earnings plus noncash expense can decline without affecting the companys ability to meet current payments on long-term debt·This calculation does not include leased assets and obligations under lease contractsInterpretation:

24、 This ratio expresses the coverage of current maturities by cash flow from operations. Since cash flow is the primary source of debt retirement, this ratio measures the ability of a firm to service principal repayments and is an indicator of additional debt capacity. Although it is misleading to say

25、 that all cash flow is available for debt service, the ratio is a valid measure of the ability to service long-term debt.KEY FINANCIAL RATIOS . . . LIQUIDITYDefinition of Leverage: The ability of the companys management to meet current obligations.RatioCalculationDefinitionAnalysisCurrent RatioCurre

26、nt Assets/Current Liabilities·Current assets available to pay current obligations·Must be aware of A/R and inventory quality; if either is poor, this measure can be misleading. Calculated as of a given date, one day later ratio may change drastically.Interpretation: This ratio is a rough i

27、ndication of a firms ability to service its current obligations. Generally, the higher the current ratio, the greater the “cushion” between current obligations and a firms ability to pay them. The stronger ratio reflects a numerical superiority of current assets over current liabilities. However, th

28、e composition and quality of current assets is a critical factor in the analysis of an individual firms liquidity.RatioCalculationDefinitionAnalysisQuick RatioCash + Marketable Securities + Net A/Rs/ Current Liabilities·A more accurate measure of current liquid assets available to pay current o

29、bligations·Same analysis applies as above, but the quality of marketable securities must be assessedInterpretation: Also known as the “Acid Test” ratio, it is a refinement of the current ratio and is a conservative measure of liquidity. The ratio expresses the degree to which a companys current

30、 liabilities are covered by the most liquid current assets. Generally, any value of less than 1 to 1 implies a strong “dependency” on inventory or other current assets to liquidate short-term debtCASH FLOWDIRECT METHOD191919SalesNet(Inc) Dec in ReceivablesCash from SalesCost of Goods Sold*(Inc) Dec

31、in InventoriesInc (Dec) in PayablesCash Production CostsGross Cash MarginSelling,General & Administrative Expense*(Inc) Dec in PrepaidsInc (Dec) in Accruals(Inc) Dec Other AssetsCash Operating ExpenseCash from OperationsMiscellaneous Cash Income*Income Taxes Paid*Net Cash from OperationsInterest

32、 ExpenseDividends Paid/Owner WithdrawalsFinancing CostsNet Cash IncomeCurrent Portion Long-Term Debt*Cash after Debt AmortizationCapital ExpendituresLong-Term InvestmentsInc (Dec) Other LiabilitiesFinancial Surplus (Requirements) Inc (Dec) Short-Term DebtInc (Dec) Long-Term DebtInc (Dec) Equity*Tota

33、l External FinancingCash after FinancingActual Change in Cash( )Decline in cash*Net of depreciationIncIncrease*Other incomeother expense ± change other currentDecDecreaseassets/liabilities*Tax provision ± change in tax refund receivable, incometaxes payable and deferred taxes payable*Previ

34、ous years current maturities long-term debt*Common, preferred, treasury stock onlyThe Direct Cash Flow Statement: Construction StepsTo construct the direct cash flow statement, follow these steps:¨ Calculate Cash from Sales. Adjust net sales for the change in accounts receivable. If accounts re

35、ceivable increase from one year to the next, this is a use of cash. Subtract the amount of increase from net sales. If receivables decrease, this is a source of cash: add the amount of decrease to sales.¨ Calculate Cash Production Costs. Adjust cost of goods sold for the changes in inventory an

36、d accounts payable.If inventory increases from one year to the next, this is a use of cash. If inventory decreases from one year to the next, this is a source of cash.If accounts payable increase from one year to the next, this is a source of cash.If accounts payable decrease from one year to the ne

37、xt, this is a use of cash.NOTE: If depreciation is included in cost of goods sold, make the adjustment for the requisite amount. If depreciation has already been separated out from cost of goods sold in the income statement presentation, such an adjustment to cost of goods sold is not necessary.

38、8; Calculate Gross Cash Profits. Subtract cash production costs from cash from sales.¨ Calculate Cash Operating Expenses. Take operating expenses from the income statement and, if not already included in Cost of Goods Sold, make the same adjustment for depreciation.Now adjust for changes in pre

39、paid expenses and accrued expenses.If prepaid expenses increase from one year to the next, this is a use of cash. If prepaid expenses decrease from one year to the next, this is a source of cash, and operating expenses should be adjusted accordingly.If accrued expenses increase from one year to the

40、next, this is a source of cash. If, on the other hand, they decrease, this is a use of cash.¨ Calculate Cash from Operations. Subtract cash operating expenses from gross cash profits.¨ Calculate Miscellaneous Cash Income/Expense. Take miscellaneous income, minus any miscellaneous expenses.

41、 Adjust this by any changes in miscellaneous items in the balance sheet. These may include such items as Other Current Assets, Other Assets, Other Current Liabilities, or Other Long-Term Liabilities.Increases in assets and decreases in liabilities are uses of cash, and are therefore subtracted from

42、miscellaneous income. Decreases in assets and increases in liabilities, on the other hand, are sources of cash and are therefore added to miscellaneous income.¨ Calculate and Subtract Income Taxes Paid. Adjust income taxes shown on the income statement, for changes in taxes payable and deferred

43、 taxes on the balance sheet. If taxes payable increase, this is a source of cash and the income statement should be adjusted accordingly. If taxes payable decrease, this is a use of cash.Similarly, if deferred taxes increase, this is a source of cash, and if they decrease, this is a use of cash.

44、8; Calculate Net Cash After Operations. Subtract miscellaneous cash income (if it is a negative number add it back if positive) and taxes paid from Cash from Operations.¨ Calculate and Subtract Financing Costs. Take interest expense and subtract from Net Cash from Operations.Also take dividends

45、 shown on the income statement and adjust for changes in dividends payable on the Balance Sheet a source, and therefore an add-back if it is an increase, or a use, and therefore a subtraction, if it declines.¨ Calculate Net Cash Income. Subtract financing costs from Net Cash from Operations to

46、obtain Net Cash Income.¨ Calculate Scheduled Principal Payments on Long-Term Debt. Take current Maturities of Long-Term Debt from the preceding years balance sheet and subtract from net cash income.¨ Calculate Cash after Debt Amortization. Subtract current maturities of long-term debt from

47、 Net Cash Income.¨ Calculate Fixed-Asset/Capital Expenditures. Take the change in Net Fixed Assets from one year to the next, and add it to the annual depreciation charge (derived from Cost of Goods Sold or Operating Expenses).¨ Calculate the Change in Intangibles and/or Long-Term Investme

48、nts. If the change in this item is an increase, this will be a use of cash. If it is a decrease, it will be a source of cash.¨ Calculate the Financing Requirement/Surplus. Subtract capital expenditures and change in Intangibles and/or Long-Term Investments from Cash after Debt Amortization.¨ Calculate Changes in Financing (Short- and Long-Term Debt and Equity)