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This enables the company to better match its inflows and outflows. However, this also means that much of what constitutes earnings is not a direct, immediate cash flow. There are a number of items that will appear on an income statement that are either flows that have already occurred, or are flows that have not yet occurred. However, because the transaction was based in that quarter or year, it appears on the income statement. Earnings, therefore, are intended to reflect the firm's economic activity for the period, not its cash flows.
Cash flow forecasts outline what the firm will have left over after it collects all of its money for the period and pays out all of its expenses (Forsythe, 2006). Because this measures the firm's economic activity, it can be used as an alternative to earnings in evaluating a firm's performance for the period. A cash flow forecast, by…
Business Week. (2005). Why GM's plan won't work. Business Week. Retrieved May 23, 2010 from http://www.businessweek.com/magazine/content/05_19/b3932001_mz001.htm
Chen, M. (2007). ABC of cash flow projections. International Construction Cost Engineering Council. Retrieved May 23, 2010 from http://www.icoste.org/AACE2007%20Papers/Nashville_pm02.pdf
DeFong, M. & Hung, M. (2007). Investor protection and analsyts' cash flow forecasts around the world. Review of Accounting Studies. Vol. 12 (2-3) 377-419.
Forsythe, G. (2006). Cash flow vs. earnings: Which is more meaningful? Charles Schwab. Retrieved May 23, 2010 from http://www.schwab.com/public/schwab/research_strategies/market_insight/investing_strategies/stocks/cash_flow_vs_earnings_which_is_more_meaningful.html
Each section of the cash flow statement tells a different part of the firm's story. For example, it may be understood by management that significant amounts of their profits went into new buildings and equipment. What the cash flow statement does is isolates that information. Management and shareholders alike can extrapolate that data from the balance sheet, noting changes in fixed assets, but the presentation of the cash flow statement provides a clean, easy-to-understand summary of those transactions.
The same situation occurs with regards to financing activities. These can have a dramatic impact on the firm's cash position. The firm's bank account may look much healthier after a year in which stock was issued, but the cash flow statement allows management and investors to understand the role that stock issue played in the improved bank balance.
This is critical to understanding whether the firm is improving its cash position through…
863 billion, then decreased it in 2007 by $603 million. Last year, with the stronger flows from operations and decreased stock retirement, they increased their cash position by $4.288 billion.
As with Microsoft, Sony has seen a strong increase in cash flows from operations over the past three years. They have increased 89.4% from ¥399 billion to ¥757 billion. This improvement is only partly attributable to top line improvement, as Sony's starting line hardly improved at all in 2007. Instead, that year saw a significant shift in the change in working capital. With regards to investing activities, Sony has not increased its capital expenditures over this time period. Also unlike Microsoft, Sony has seen significant capital outflows in all three years from its investments. They have enjoyed inflows from other activities, but not enough to offset the increasing losses. Sony has consistently been able to increase its cash flows from…
Over the past three years, Microsoft has steadily improved its cash flows from operating activities. The starting line has improved dramatically over this period, from $12.599 billion to $17.681 billion. Consequently, cash flow from operating activities has also improved, from $14.404 billion in2006 to $21.612 billion in 2008.
The company's cash flow from investing activities, however, has declined. They have increased their capital expenditures over the past three years from $1.578 billion to $3.182 billion. Microsoft has seen a decline over the past few years in cash flows from investments, from $10.23 billion to $6.648 billion. "Other outflows" saw a huge spike in 2008 from $1.15 billion to $8.053 billion, which resulted in the significant outflows last year from investing activities. Microsoft has consistently retired stock over the past several years. In the stronger markets of 2006 and 2007 it was able to retire $17.1 billion and $20.793 billion respectively. They scaled this program back in 2008, however, in the face of weaker markets. They only retired $9.039 billion in stock last year. The result of all this is that over the past three years, there has been significant fluctuation in Microsoft's cash position. They increased cash flow in 2006 by $1.863 billion, then decreased it in 2007 by $603 million. Last year, with the stronger flows from operations and decreased stock retirement, they increased their cash position by $4.288 billion.
As with Microsoft, Sony has seen a strong increase in cash flows from operations over the past three years. They have increased 89.4% from ¥399 billion to ¥757 billion. This improvement is only partly attributable to top line improvement, as Sony's starting line hardly improved at all in 2007. Instead, that year saw a significant shift in the change in working capital. With regards to investing activities, Sony has not increased its capital expenditures over this time period. Also unlike Microsoft, Sony has seen significant capital outflows in all three years from its investments. They have enjoyed inflows from other activities, but not enough to offset the increasing losses. Sony has consistently been able to increase its cash flows from financing activities. 2008, however, saw a strong spike in cash flows from financing activities, from ¥172 billion to ¥510 billion. Overall, the strength of Sony's improvement in cash flows from operations, in particular with respect to its starting line, has resulted in a steady increase in cash flows over the past three years. In 2006, Sony saw ¥76 billion in outflows. In 2007, this turned around, to ¥96 billion in inflows. Last year, inflows had improved to ¥286 billion.
The different authors use a number of quantitative approaches to understanding firm performance. Paunovic (2013) discusses the pricing and valuation of swaps. The author seeks to "demystify the structure of these financial derivatives (swaps) by presenting their valuation methods and by showing how they are used in practice." Thus, the author is presenting textbook explanations of swaps to her audience. Swaps are priced at par at the present time. The counterparties are swapping fixed rate obligations for floating rate, and make differential payments. Neither party would enter into the agreement at an unfavorable rate, but over time the changes in interest rates will mean that one party or the other will pay more. The floating rate is often based on LIBO, or other common floating rate. Since banks are almost always intermediaries in swaps, they might seek to take a spread on the rate. Thus, a company setting…
Enekwe, I., Okwo, M. & Ordu, M. (2013). Financial ratio analysis as a determinant of profitability in Nigerian pharmaceutical industry. International Journal of Business and Management. Vol. 8 (8) 107-117.
Engsted, T. & Pedersen, T. (2010). The dividend-price ratio does predict dividend growth: International evidence. Journal of Empirical Finance Vol. 17 (2010) 585-605.
Giacotto, C., Golec, J. & Vernon, J. (2011). New estimates for the cost of capital for pharmaceutical firms. Journal of Corporate Finance. Vol. 17 (2011) 526-540.
Paunovic, J. (2013). The pricing and valuation of swaps. Singidunum Journal. Vol. 10 (1) 39-45.
Cash Flow Analysis
Discuss Cash Flow And Its Analysis
Financial leverage refers to the use of a company's assets and liabilities targeting to earn profits upon balancing the risks associated. Financial leverage follows the argument in physics of lever where little force is used to lift heavy objects. Financial leverage uses debts and stock (Preferred stock) to increase earning. Leverage is a significant measure that financial institutions use to increase benefits though it comes with risks.
Benefits and risks of financial leverage
Use of financial leverage increases the earning and thus, higher profits for a financial institution. In cases where a company successfully uses leverage their credit rating increases since it a demonstration of how well they can tackle risks related to debt. Other benefits include efficiencies in scale of operations and higher cash flows.
Use of financial leverage puts an institution in risk of insufficient operation income.…
A second challenge organizations face with cash flow management is being realistic with the amount of time it will take for them to receive revenues. This negatively affects cash flow projections that Sprague illustrates as being very important to a company's success. Companies are become slower and slower to pay their vendors, with 45 to 60 days becoming more the norm than the traditional 30 days, according to Feldman, as cited by Spargue. The third and final challenge to cash flow management is the lag in time between when payment to suppliers and employees comes due and the time in which revenues are received from customers.
Sprague (2008) gives a fairly comprehensive overview of cash flow, with this article. The author begins with the history of cash flow reporting and the cash flow statement. Sprague describes how cash flow reporting has transformed from being an option that had begun…
Sprague, C. (2008). Cash flow. Research Starters. Retrieved May 26, 2009, from EBSCO Research Starters.
Walgreens' cash flow using its 2011 annual report. Currently ranked as the largest drugstore chain in the U.S., Walgreens had its beginnings in 1901 when Charles . Walgreen bought the Chicago drugstore where he worked as a pharmacist. Over the next two decades, Walgreen bought 20 additional stores, adding such features as soda fountains with luncheon service, as well as his own line of drug products. The company added its first photofinishing studio in 1919 and introduced the malted milkshake at its fountain counters in 1922. By 1925, Walgreens had 65 stores with total annual revenue of $1.2 million. Walgreens' sales passed the $1 billion mark in 1975, and the company continued its growth and innovation to its current position of leadership in the retail pharmacy industry (Funding Universe, n.d.). With record profits of $2.7 billion in fiscal year 2011, Walgreens filled 819 million prescriptions, a figure that equates to…
Funding Universe. (n.d.). Walgreen Co. Retrieved March 28, 2012 from: http://www.fundinguniverse.com/company-histories/Walgreen-Co-Company-History.html
Moody's Investors Service. 2009. Moody's rating symbols & definitions. Retrieved March 28, 2012 from: http://www.moodys.com/sites/products/AboutMoodysRatingsAttachments/MoodysRatingsSymbolsand%20Definitions.pdf
Moody's Investors Service. 2011. Moody's changes Walgreen's outlook to negative. Retrieved March 28, 2012 from: http://www.moodys.com/research/Moodys-changes-Walgreens-outlook-to-negative -- PR_226181
Standard & Poor. 2011. Long-term ratings, ratings outlooks, and short-term ratings. Retrieved March 28, 2012 from: http://www.standardandpoors.com/aboutcreditratings/
accounting income and cash flow? Which do we need to use when making decisions by using NPV? Explain in short.
Accounting income takes in consideration total profits; which is usually some form of total revenues minus total expenses. Cash flow is a totally different concept because it doesn't necessarily account for total income, rather it just accounts for cash out flows and in flows. For example, it may not account for various administrative costs or wages that are paid to employees and it may not account for the total income of the organization but just for one specific project.
A positive NPV is a good start -- now we need to take a closer look
Forecasting risk: How sensitive is our NPV to changes in the cash flow estimates; the more sensitive, the greater the forecasting risk (explain which conditions we accept the risk for both investors and company point…
Based on a large sample of firms from different countries after adopting IASB cash flow accounting, firms evidenced "less earnings management, more timely loss recognition and more value relevance of accounting data" than firms without IASB standards (Morais & Curto 2008). The drive towards greater homogenization of international standards has lead the United States FASB (Financial Accounting Standards Board) to consider the IASB's call for a shift to cash flow methods for all organizations. The justification for this is that accruals are more subject to dishonest practices "since every accrual requires certain assumptions and estimates… when a firm completes a sale on credit, it must estimate the likelihood that the cash will be received, when the receipt will take place, and if full payment is uncertain, how much should be reflected on the income statement. None of these issues arise when the sale is for cash" and a firm cannot…
"Cash vs. accrual accounting." INC. April 24, 2000. September 4, 2009 at http://www.inc.com/articles/2000/04/19194.html
Morais, Ana Isabel & Jose Dias Curto. "Accounting quality." Revista Contabilidade & Financas.
19.48: (September/December 2008). September 4, 2009 at http://www.scielo.br/scielo.php?pid=S1519-70772008000300009&script=sci_arttext
"Will global accounting rules help or hinder accuracy?" Knowledge @ Emory.
The cash flow statement is a critical tool for financial planners and analysts interested in assessing the health and wellness of a company from a financial and operational perspective. The statement of cash flows provides information about the cash payments received by a company during a defined period; the amount that should be received from cash receipts is also reported (Kieso, Weygandt, & Warfield, 2007). This is critical information a company needs to determine how well their products and services are doing. The cash flow information assesses whether products and services are bringing in revenues for the company. Cash flow does not includes revenues coming in as interest or credit however, for the month the receipt is issued say for the charge incurred, or when the loan is given. There is a system of checks and balances. The system in place is highly organized to capture a big picture…
Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2007). Intermediate accounting (12th ed.). Hoboken, NJ: John Wiley & Sons.
Glantz, M. & Mun, J. (2011). Cash Flow Analysis. Credit Engineering for Bankers 2nd Ed. Pp. 99-128.
Wilkins, MS. & Loudder, M.L. (2000 Spring). Articulation in cash flow statements: A resource for financial accounting courses. Journal of Accounting Education. 18(2): 115-126.
, 2009). Similar adjustments are made for items, such as expenses, taxes etc. (Stickney et al., 2009).
The second section shows the cash inflows and outflows from investing. The figures shown are the changes that have occurred on the previous year. For example, if the firm makes a capital investment, the cost of that investment will be an outflow. If there is revenue created by an investment, such as the sale of the asset, this will be a cash inflow (Stickney et al., 2009).
The third section is the financing. The main components are the changes in debt; increased debt creates a cash inflow, whereas paying off debt creates an outflow. Any capital that comes into the firm or leaves the firm is included in this section. If dividends are paid, they will be a cash outflow in the financing section. The cash flow statement will end with a net…
Kimmel, Paul D; Weygandt, Jerry J.; Kieso, Donald E, (2010), Financial Accounting, Wiley
Stickney, Clyde P; Weil, Roman L; Schipper, Katherine; Francis, Jennifer, (2009), Financial Accounting: An Introduction to Concepts, Methods and Uses, South-Western College Publishers
Free Cash Flow
In order to make a capital budgeting decision, the company must identify the incremental free cash flows associated with the project, particular for long-term projects that require the cash flows to be treated to account for the time value of money (NetMBA, 2010). A free cash flow is defined as "the cash that a company is able to generate after…" the initial expenditure (Investopedia, 2012). The first step is to eliminate the obvious non-incremental flows such as pre-existing overhead, sunk costs and non-cash flows like depreciation.
ithin these issues, the process is not always simple. For example, many managers find overhead determinations to be difficult. The underlying principle is that the overhead the manager needs to take into account is the overhead that is incremental to the project, for example if new support staff are added. Diversion is an area that is tricky, however. Resources diverted from…
After considering the material provided by both the FSO Technologies
and Bank of America tutorials, it becomes increasingly clear that the key
to long term financial viability is projection and planning. In the case
of the childcare center, the tutorial advised that once one has clearly
mapped out a cash budget which compares expected cash inflows and outflows,
one can begin to make meaningful incremental and longterm changes in
spending and pricing. As the childcare center director, I would be in a
unique position of insight to administrate a consideration of all the
utilities, employees, facilities, marketing and petty expenses which
constitute our overall budget. This would also allow me to detect places
where expenses can be reduced or where more is needed.
By combining this with a projection of future cash needs, I would be
in a position to assess the true nature of our overall cash flow situation.…
FSO Technologies. (2008). Recordkeeping and Cash Flow: Effective
Techniques. GoFSO. Online at http://www.gofso.com/Premium/BS/fg/fg -
Virtual Advisor. (2008). Managing Your Cash Flow. Bank of America.
Online at http://www.va -
Walgreens Liquidity and Cash Flow
The Management's Discussion and Analysis, together with the Consolidated Statement of Cash Flows and Notes, provide insight into the company's sources and uses of cash.
Over the two-year period for the years ending August 31, 2009 thru 2011, the company has seen large cash outflows which affected its cash position and its liquidity. Net cash provided by operations declined from $4.1 billion in 2009 to $3.6 billion in 2011. Cash provided by operations was the principal source of funds for the Duane ead acquisition, for expansion, remodeling programs, shareholder dividends and stock repurchases (Walgreens, 2011).
Walgreens management attributes the decrease in net cash provided by operations to higher working capital. In part the cash flow decrease in working capital was offset by higher earnings, which increased by $708 million over the two-year period (Walgreens, 2011).
Walgreens' cash and cash equivalents have trended down from $2.1…
Chang, S. (2011). Moody's cuts Walgreen's outlook to negative. Market Watch, Wall Street Journal. Retrieved from http://articles.marketwatch.com/2011-09-16/news/30909570_1_rating-outlook-walgreen-and-express-scripts-moody-s-investor-service
Moody's Investors Service. (2012 January 5). Moody's places Walgreen's ratings on review for possible downgrade. Retrieved from http://www.moodys.com/research/Moodys-places-Walgreens-ratings-on-review-for-possible-downgrade -- PR_234601
Walgreens 2011 Annual Report. (2011). Retrieved from http://files.shareholder.com/downloads/WAG/1738348465x0x513852/74B4B167-0B5C-46D3-A0A4-6435CEC99183/WALGREENS_2011_AR.pdf
Equity, Cash Flow, And Notes Analysis for the General Electric Company
Regarding the specific components of the Statement of Changes in Owner's Equity and Statements of Cash Flows, from line items to balances
General Electric still stands tall in the public's estimation and in its international reputation as a pioneer of Six Sigma management policies regarding internal quality control. (Six Sigma, 2004) According to its annual report, GE Share owners' equity increased $8.9 billion, $4.3 billion and $7.9 billion in 2002, 2001 and 2000. Thus, the performance of the General Electric company in sheer dollar terms continues to improve, not simply as a statistical blip between the current financial year and the financial year of the past, but steadily, and over time. The increases were largely attributable to net earnings of $14.1 billion, $13.7 billion and $12.7 billion. These increases were only partially offset by dividends declared of $7.3 billion,…
GE Consolidated Statement of Changes in Shareholder's Equity. (2004)
GE Management's Discussion and Analysis. (2004)
Each ***** will whelp an average of 5 pups per year and that the sale of these pups will average $4,000 each. Breeding stock imported from Europe typically averages $10,000 U.S. per dog after import expenses and other costs.
These assumptions based on the experience and past knowledge of the staff as well as industry averages. It is felt that they represent realistic estimates. It is difficult to predict certain aspects of the financial data, such as the number of small dogs that will need grooming vs. some of the large dogs that will come in. Conservative estimates give room for error. This was the method chosen for the estimation of proforma statements.
Initial capital will come from $50,000 total form the partners. A small business loan of $495,000.00 will be used to finance the remainder of capital start up costs, plus one year's operating expenses. The term of the…
36-Month Sales Forecast
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals Product Name Boarding Units 375-375 375-375 375-375 375-375 375-375 375-375 4,500 Selling Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 112500 Product Name Breeding Units 0-0 0-0 0-0 0-8 8-0 0-0-16 Selling Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4,000.00 $4,000.00 0 $0.00 $0.00 64000 Product Name Grooming Units 300-300 300-300 300-300 300-300 300-300 300-300 3,600 Selling Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 90000 $266,500
2009 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals Product Name Boarding Units 750-750 750-750 750-750 750-750 750-750 750-750 9,000 Selling Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 225000 Product Name Breeding Units 0-0 0-0 0-0 0-8 8-0 0-0-16 Selling Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4,000.00 $4,000.00 $0.00 $0.00 $0.00 64000 Product Name Grooming Units 375-375 375-375 375-375 375-375 375-375 375-375 4,500 Selling Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 112500 $402,000 2010 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Totals Product Name Boarding Units 750-750 750-750 750-750 750-750 750-750 750-750 9,000 Selling Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 225000 Product Name Breeding Units 0-0 0-0 0-0 0-8 8-0 0-0-16 Selling Price $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4,000.00 $4,000.00 $0.00 $0.00 $0.00 64000 Product Name Grooming Units 450-450 450-450 450-450 450-450 450-450 450-450 5,400 Selling Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 135000 $424,000
How does net cash flow differ from net income and why is that difference relevant to financial decision making?
Net cash flow takes in consideration the changes in short-term assets of an organization. Whenever a cash receipt is made then net cash flow is raised or when a bill or expense is paid then the net cash flow decreases. It is basically a measure of how much cash, or cash equivalents, that the organization has at any given time. Net cash flow can also be forecasted so that the organization can have an idea of how much cash it will hold, or need to hold, in the future.
Net cash flow, although it is indirectly related, is not necessarily directly related to any measure of profitability. For example, if a company receives a check for a hundred thousand dollars then it would increase net cash flow; even if…
The role of the firm in the economy is to maximize shareholder wealth (Friedman 1970), owing to the agency role that managers play, where they safeguard the wealth of the investors. Given this reality, managers are obligate to seek out ways to increase the profits of their companies. There are as many ways to earn profits as there are companies, but this paper is going to focus on a particular approach, which is cash management. For a business, cash is the ultimate goal, as the fungible store of wealth that the shareholders seek. Yet for the business, cash is also a source of inefficiency. Unused cash on the balance sheet earns nothing, and cash sitting in short-term investments is unlikely to have a positive real return either. Apple shareholders recently demanded that the company return some of its excess cash to the shareholders as dividends, because of how inefficient…
Barth, M., Cram, D. & Nelson, K. (2001). Accruals and the prediction of future cash flows. The Accounting Review. Vol. 76(1) 27-58.
Friedman, M. (1970) The social responsibility of business is to increase its profits. New York Times Magazine. Retrieved November 19, 2014 from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
Hanlon, M. (2005). The persistence and pricing of earnings, accruals, and cash flows when firms have large book-tax differences. The Accounting Review. Vol. 80(1) 137-166.
Investopedia. (2014). Accounting information system. Investopedia. Retrieved November 19, 2014 from http://www.investopedia.com/terms/a/accounting-information-system-ais.asp
The I is also known as yield method, and I of a project is the rate of discount at which the present value of cash flow is equal to the present value of cash inflow. While I base the value on rate of return, the A ignores the time value of money and it is not accounting based of return. Under A, depreciation is calculated in different methods such as accelerate or straight line, and the technique ignores the salvage value of the initial investment.
5. "Explain the relative significance of the unadjusted payback period in this decision situation."
Payback period assists in determining payback period in the life cycle of the project. Typically, it would be more than 8 years before NPV would become negative. However, the payback may not be useful in determining acceptance of a project because it ignores cash flow and does not consider time value…
Sullivan, a; Steven M.S. (2003). "Economics: Principles in action." Upper Saddle River, New Jersey 07458: Pearson Prentice Hall.
Investors prefer cash flow over earning but the article points out that there are many shortfall is in using standard cash flow measures. There are various definitions of cash flow, some quite incoherent. GAAP does not help either since the whole subject of cash flow itself is so vast, varies from country to country, and possesses complexities and unpredictability that even GAAP with its laws and definitions has just left us with more confusion, inconsistency, and miscategorization.
In response to this complexity of cash flows, many investors resort to EBITDA (earnings before interest, taxes, depreciation, and amortization) and cash earnings (typically defined as net income plus depreciation and amortization). These existed before the GAAP measures, but they have their own major shortcomings.
The question then is: what is the best measure of free cash flow? And the way to answer this is to ask how free cash flow metric will…
Juliet Estridge, Morgan Stanley (2007) Measuring Free Cash Flows for Equity Valuation Journal of Applied Corporate Finance • Volume 19 Number 2
Pitfalls and Possible Solutions
Dell's Waning Cash Flow, Signs of Concern" attempts to elucidate the reasons behind the purported deal of Dell -- a computer company -- to go private after existing for years as a company with publicly traded stock. As such, the author explores a number of scenarios that may have influenced Dell founder Michael S. Dell's decision to go private. He discusses both the benefits and the negatives associated with a private company, and attempts to offer the reader insight into the financial prowess -- or lack thereof -- of this particular organization.
The premise that the article is based on is that Dell and Silver Lake (an investment firm) are considering a $24 billion deal to go private due to inefficient marketplace performance and declining interest in stock investors. However, one of the chief tenets that Eavis contends that is spurring this deal is the fact that Dell allegedly has…
Bary, A. (2013). "Is Dell pulling a fast one?" Barron's. Retrieved from http://online.barrons.com/article/SB50001424052748704372504578285954199244458.html
Eavis, P. (2013). "In Dell's waning cash flows, signs of concern." Deal Book. Retrieved from http://dealbook.nytimes.com/2013/02/22/in-dells-waning-cash-flows-signs-of-concern/
M.G. (2013). "Heading for the exit." The Economist. Retrieved from http://www.economist.com/blogs/schumpeter/2013/02/dells-buy-out
Cash flow and balance sheet tests
The cash flow test very simply put is the ability of a company to pay off their debts as they are liable to pay them; i.e. As soon as they are indebted they already have generated the money to pay it off immediately. A company will prove to be insolvent if and when the futuristic calculations prove it to be incapable of paying their debts. In case, a company is able to pay off their debts or bills for the first two months and after those, it is still considered insolvent. Hence, the cash flow insolvency test will be a futuristic calculation of debts and cash inflows based on the current trends of both e.g. If a company is earning $100,000 and has debts of $50,000 going out every month, the debts will increase to $60,000 in a month's time making the…
Arner, D.W., Booth, C.D., Lejot, P. And Hsu, B.F.C. (2006). Property Rights, Collateral, Creditor Rights, and Insolvency in East Asia. Ismail Dalla ed., World Bank.
Financial and legal experts concur that one of the strongest anti- takeover defense approaches is a shareholder rights strategy (or, in more informal terms, a poison pill)[footnoteRef:1],[footnoteRef:2]. Though the particulars differ based on strategic implementations, the elementary defense tool offers extant shareholders (with the exception of hostile bidders) the right to purchase stocks authorizing them to obtain new shares at considerably low rates, in case a hostile bidder gets his hands on more than a specific amount of the outstanding shares of the organization[footnoteRef:3]. Consequently, poison pills accord the directorial board the capability of significantly diluting hostile bidders’ ownership stake, according board members effective veto power to suppress hostile acquisition attempts. In this paper, the subject of how accountants handle poison pills will be addressed, including a summary of the poison pill, courts’ response to it, latest attempts at poison pills, and its impacts on organizational value as well…
Bruner, Robert F. The poison pill anti-takeover defense: The price of strategic deterrence. Research Foundation of the Institute of Chartered Financial Analysts, 1991.
Cain, Matthew D., Stephen B. McKeon, and Steven Davidoff Solomon. \\"Do takeover laws matter? Evidence from five decades of hostile takeovers.\\" Journal of Financial Economics124, no. 3 (2017): 464-485.
Catan, Emiliano M., and Marcel Kahan. \\"The law and finance of antitakeover statutes.\\" Stan. L. Rev. 68 (2016): 629.
Cremers, KJ Martijn, Lubomir P. Litov, and Simone M. Sepe. \\"Staggered boards and long-term firm value, revisited.\\" Journal of Financial Economics 126, no. 2 (2017): 422-444.
Cremers, Martijn, and Allen Ferrell. \\"Thirty years of shareholder rights and firm value.\\" The Journal of Finance 69, no. 3 (2014): 1167-1196.
Deakin, Simon, and Giles Slinger. \\"Hostile takeovers, corporate law, and the theory of the firm.\\" JL & Soc\\'y 24 (1997): 124.
Denes, Matthew R., Jonathan M. Karpoff, and Victoria B. McWilliams. \\"Thirty years of shareholder activism: A survey of empirical research.\\" Journal of Corporate Finance 44 (2017): 405-424.
rule-of-thumb in evaluating the cash flows of an organization is: The cash flows from operations should be positive, and increasing each year and ideally should be sufficient to cover any negative cash flows from investing activities.
How would you evaluate China Trade in terms of cash flows, in light of this rule-of-thumb measure?
The cash flow statements have Direct and Indirect methods of cash flow.
The Direct method reports the cash receipts and cash disbursements and deducts the latter from the former stating difference.
The Indirect method uses net-income as a starting point making adjustment for non-cash based and cash-based transactions.
Both methods here on their balance sheet show a $3,000 loss in operation activities. The rule of thumb heuristic is that cash flow from operation should be positive, increasing each year and ideally there should be sufficient cash flows s to cover any negative cash flows from investing activities.…
investment in a rental/real estate property. There is a one-time purchase of $10,000 in land that can subsequently be rented for a yearly $3,500 rent for a period of several years. At the end of the rental period, the investor aims to sell the land for a certain price. The longer the period of the rental is, in number of years, the more the land will degrade and, as a consequence, will be valued at a lower sum at the end of the entire period of time.
As a consequence, the several scenarios that will be taken into consideration will look at a comparison between longer years of rental vs. lower price for the final sale of the land or a shorter period for the rental period, but a higher price for the final sale at the end of the rental period.
This paper will look at three different scenarios…
1. Halpern, Paul et. Al, (1998). Managerial Finance. Dryden 2. Project Economics and Decision Analysis, Volume I: Deterministic Models, M.A.Main
3. Hazen, G.B., (2003). A new perspective on multiple internal rates of return. The Engineering Economist 48(2),
Discounted Cash Flow at Bristol Myers Squibb
In order to achieve a discounted cash flow analysis for equity in Bristol Myers Squibb, the change in equity values from year to year must first be predicted. This was accomplished through a brief analysis of equity levels at the company during a five-year period of observation (2007 to 2011), during which the company had an average (mean) equity growth amount from year-to-year of $1,326.26 (in millions) with a standard deviation of 1005.861. This was used to project equity levels for the next five years, with the expected equity level increased by the mean observed change in equity each year, and with an annual inflation rate of three percent assumed and used to discount the current value of future equity levels. This allows for a sum total of expected equity values over the next five years to be computed, and gives…
Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project?
After studying the Caledonia case I came to the conclusion that the reason that Caledonia should focus on free cash flows is because the cash flows are where the firm receives and is able to reinvest. Also the firm is only interested in the free cash flows on an after-tax basis because they are the only ones available to the shareholder.
) What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?
Even though depreciation is not part of the company's cash flow, it has a major effect on the different levels of cash flow over the life of the project as well as the effect on taxes. Sincems.e, depreciation…
Financial Management: Principles and Applications, Eleventh Edition, by Sheridan Titman, John D. Martin, and Arthur J. Keown. Published by Prentice Hall.
Cash Flow Management
Cash Management Practices in Arizona Parks and Recreation
The key to keeping any business, public or private, alive is to ensure that the available funds are properly allocated and that the amount spent monthly is less than or equal to the amount available. hen it comes to state-run entities, one essential factor that each agency must take into account is their limited budget and the necessary holdings for any and all risks associated with that vein of the state (Office of Financial Management, 2010). One such agency that of late has constantly struggled with meeting its cash management goals is the Arizona Parks and Recreation. The primary focus of this analysis will review the park's specializations, risk allocations, and staffing practices.
The Arizona parks and recreation is responsible for the care of all state parks and community centers. Additionally, the division is responsible for events held within…
Huffman, David and Moore, Margaret (2004). Responses of Fendler ceanothus to overstory thinning, prescribed fire, and drought in an Arizona ponderosa pine forest. Forest Ecology and Management, 198(1-3): 105-115.
Arizona Department of Parks and Recreation Association. Accessed at http://www.azpra.org/
Washing State Office of Financial Management: Risk Management Basics (2010). Accessed at http://www.ofm.wa.gov/rmd/publications/rmbmanual.pdf
Cash asis vs. Accrual asis
The cash basis of accounting is more likely to be used by service businesses than by retail or manufacturing businesses. Service businesses usually do not need equipment and can sell a service they perform with nothing more than their own hands and minds. Think of people who are lawyers, writers, public relations and advertising personnel, and accountants.. (Edmonds, McNair, Milam, and Olds, Fundamental Financial Accounting Concepts, 4th edition, McGraw-Hill Irwin, 2002) In the cash basis of accounting, the business records are "cash in" (deposits to the bank account) called cash receipts, and "cash out" (checks) called cash disbursements. Cash receipts - Cash disbursement = Cash flow. Each month's cash flow is added to the preceding month's cash balance yielding the current month's cash balance. Unless a business is a small service company, it cannot tell if it is earning a profit if it uses cash…
David Minars, Davis A. Minars Accounting: Themes, Keys, Formulas, Glossary of Accounting Terms for Your Introductory College Course Barrons Educational Series; February 1992.
Edmonds, McNair, Milam, and Olds, Fundamental Financial Accounting Concepts, 4th edition, McGraw-Hill Irwin, 2002
Insurance settlement proceeds are treated as operating cash flows under ASC 230. Thus the receipt of the $20 million would be operating. The investment of the $20 million into the company's pension fund would also be an operating cash flow. hile normally investing money into the market is considered an investment flow, that is only when the beneficiary in the corporation. In this instance, the beneficiaries are the company's employees and the defined-benefit plan is a form of employee compensation. All employee compensation is considered an operating cash flow under ASC 230.
The flow should not be classified as an investing cash flow for two reasons. The first is that all insurance disbursements are classed as operating flows. The second is that employee benefits are also operating flows. If the funds were used to rebuild the facility, then that spending may be classed as an investing flow. However,…
No author (2010). U.S. GAAP accounting standards: 230: Statement of cash flows. Accounting Info.com. Retrieved December 6, 2010 from http://accountinginfo.com/financial-accounting-standards/asc-200/230-cash-flows.htm
Cash budget and target cash balance
The target cash balance is defined as the ideal cash amount a company intends to hold in its reserve at a given time. This figure seeks to strike a balance between the balance sheet costs of extremely little and too much cash. While a company with surplus cash at hand may misuse on investment opportunities, a company with poor cash will often be forced to make undesirable transactions to create more operating capital (Besley & Brigham, 2011). Individual investors are advised to set their target balance too. They may estimate at least the percentage of their holdings in cash to avoid such pitfalls.
Cash budget refers to the operating budgets and capital expenditures. It begins with the initial cash balances then cash inflows are added to the available cash. Cash outflows will then be subtracted to obtain the cash balance. If the cash balance…
Besley, S., & Brigham, E.F. (2011). Principles of finance. Mason, Ohio: South-Western.
Brigham, E.F., & Daves, P.R. (2012). Intermediate financial management. Mason, Ohio: South-Western.
Brigham, E.F., & Houston, J.F. (2012). Fundamentals of financial management. Mason, Ohio: South-Western Cengage Learning.
Ehrhardt, M.C., & Brigham, E.F. (2009). Corporate finance: A focused approach. Mason, OH: South-Western/Cengage Learning.
Re: Accounting Policies
The company is facing a challenge where it does not have the cash needed to pay employee salaries. Although the company shows a profit, it has negative cash flow at present. Understanding how cash accounting and accrual accounting works will highlight how this situation has come to be. Cash accounting is accounting via cash flows which is a simple methodology, typically used by small business. It is relatively easy to implement, but has a disadvantage of distorting the actual profitability of the company when the timing of cash flows are not aligned with the timing of events, something that is the case with BizCon (Accounting Tools, 2017).
The 180 financing, for example, appears as revenue on the income statement (accrual) but the cash has not yet been received. The insurance that was purchased in advance is a cash flow, but the insurance is not reported in…
Looking at the instrument company that is being examined, it is clear that they have very little working capital to utilize. Where, they have a total amount in working capital of £ 15,000. As the company paid out £1,700,000 in obligations and received a total of £1,825,000. This is important, because it shows that the business is undercapitalized, based upon their low working capital figures. As a result, the company needs to remain more liquid, to be properly capitalized for future investments
Table 17.3 Solution to a working capital problem in my organization
Low Working Capital
The working capital position of the company was affected by the total amounts of cash they invested in new inventory.
Conclusion to the analysis (results of the investigation)
The business needs to be able to control their cash position, to effectively manage their working capital.
The solution, listed as a…
The Cash Flow Statement, n.d. Understanding Marketing and Financial Information, pp. 239 -- 256.
Financial Statements, n.d. Understanding Marketing and Financial Information, pg. 133.
Laddering, 2010, Free Dictionary. Available from: [25 September 2010].
Harvard Format. http://libguides.library.uwa.edu.au/data/files2/49275/Harvard%20LibGuide%20-%20All%20Examples%20PDF.pdf
A regular cash dividend is paid out of the company's cash supply. The dividend can be at a fixed rate, or can be loosely tied to the company's net income. This is the most common form of dividend, and is paid under most circumstances. hereas a regular cash dividend is a recurring dividend, an extra cash dividend is a non-recurring dividend (Investopedia, 2012). This is a one-time dividend that is paid by the company. There is no expectation of a future extra dividend, in contrast to a regular dividend. A special dividend is the same thing as an extra dividend. The only slight difference is that something termed a special dividend is not necessarily going to be paid out of cash. The company may pay with shares or some other asset. Most commonly, however, this type of dividend will be paid out of cash.
A liquidating dividend is fundamentally…
Investopedia. (2012). Extra dividend. Investopedia. Retrieved April 15, 2012 from http://www.investopedia.com/terms/e/extradividend.asp
Investopedia. (2012). Definition of liquidating dividend. Investopedia. Retrieved April 15, 2012 from http://www.investopedia.com/terms/l/liquidatingdividend.asp#axzz1sAcwUjMe
Hadzima, J. (2005). Dilution: A primer on stock vocabulary. MIT. Retrieved April 15, 2012 from http://web.mit.edu/e-club/hadzima/dilution-a-primer-of-stock-vocabulary.html
Goldman, D. (2012). Apple announces dividend and stock buyback. CNN. Retrieved April 15, 2012 from http://money.cnn.com/2012/03/19/technology/apple-dividend/index.htm
This make it easier to finance firm operations by selling stock, but on the other hand the firm can be forced to pay shareholders when it needs the cash to finance its debt, invest in new projects, or simply to pay for its daily activities without going further into debt.
The final method is that of a hybrid method. Dividends are paid on a stable basis. But over the long-term, the debt-to-equity ratio is reviewed, and if the firm is regularly coming short on paying its debts and other expenses, payments to shareholders may be curtailed (How and why do companies pay dividends, 2010, Investopedia). This is the preferred method, given the added flexibility it offers the firm. Hybrid methods have the ability to ensure the firm's long-term financial health, as payments can be curtailed in times of sustained economic hardship -- but hybrid payments still offer stable returns for…
Baker, Kent H., Tarun K. Mukherjeel, Gary E. Powell (2005, Summer). Distributing excess cash:
the role of specially designated dividends. Financial Services Review.
Retrieved October 11, 2010 at http://findarticles.com/p/articles/mi_qa3743/is_200507/ai_n14685355/?tag=content;col1
How and why do companies pay dividends? (2010). Investopedia. Retrieved October 11, 2010 at http://www.investopedia.com/articles/03/011703.asp
will go up in the fourth quarter, they could end up ordering for more pieces of the same so as to satisfy the anticipated demand. Assuming that the company purchases 400,000 units of Product Q. At a total of $2,000,000, it would have only $100,000 left in its coffers. Assuming that the consignment arrives on time but the expected increase in demand for Product Q. does not come to pass, the company could be left holding stock worth $2,000,000. Although, the business is still profitable (assuming it continues to sell the normal 100, 000 units), it could find itself broke to an extent where it may not be able to finance capital projects. This is more so the case given that the normal revenues it gets could be tied up in other commitments. In other words, although the business could be making a profit, it could still be cashless.
Brigham, E.F. & Ehrhardt, M.C. (2011). Financial Management: Theory and Practice (13th ed.). Mason, OH: Cengage Learning.
Jones, J.P., Heitger, D.N., Mowen, M.M. & Hansen, D.R. (2011). Cornerstones of Financial and Managerial Accounting (2nd ed.). Mason, OH: Cengage Learning.
Needles, B.E. & Powers, M. (2007). Financial Accounting (9th ed.). Boston, MA: Cengage Learning.
Weil, R., Schipper, K. & Francis, J. (2009). Financial Accounting: An Introduction to Concepts, Methods, and Uses (13th ed.). Mason, OH: Cengage Learning.
personal cash management policies and practices. The paper starts with by stating the methodology through which the content was collected for the relevant literature in the paper. The paper then presents a clear definition of what cash management is and presents an overview of some of the most utilized personal cash management practices. The literature review also presents numerous internal cash management policies and practices that can prove to be feasible and profitable on the personal level. The paper concludes with an overview of all the facts discussed.
In order to collect relevant data for the results, concise and yet comprehensive information related to the topic have been compiled from articles published online individual researchers, practitioners, as well as, international research institutions. The aim of the study is to critically review the strengths and weaknesses of both conception and implementation of research pertinent to our topic -- Cash…
Agarwal N.K. (2001). Analysis of Financial Management. National Publishing House, New Delhi.
Bari R.R. (2000). Cash Planning and Management, Triveni Publication, Delhi.
Bierman H.K. And Macdams, A.K. (2001). Managerial decision for cash and marketable securities, New York: Cornell University.
Chiumintto P.M. (2001). A Practical basis for Working Capital Management, in Doris William ed. Hand Book of Business Finance. New York: Prentice Hall.
Amazon's cash cycle so much shorter than that of competitor Barnes & Noble? How does this comparison affect financial management decisions of other retailers?
There are several reasons which explain why the Amazon Company has a shorter cash cycle than its competitor Barnes & Noble. First and foremost, Amazon is a much bigger company than Barnes & Noble both in terms of income and in the number of products that it sells. hile Barnes & Noble sells some things besides book and ebooks, this is their primary product. Amazon sells everything including books, although this is a very small portion of their income. Another reason for this is that Amazon is doing better financially than Barnes & Noble. The ebook trend has bitten into Barnes & Noble's income, which they tried to combat by creating their own ereader, the Nook but this was far less successful than the Amazon ereader,…
Ross, S., Westerfield, R. & Jordan, B. (2012). Fundamentals of Corporate Finance. 10th ed.
Cross-Country Capital Flows and Currency
overseas investment .
GLOBAL INSTITUTES IN INTERNATIONAL FINANCE .
INTERNATIONAL FINANCE CORPORATION .
ORLD BANK .
ORLD TRADE ORGANIZATION
INTERNATIONAL MONTARY FUND .
INTERNATIONAL FINANCE IN CHINA .
THE EXCHANGE RATE FIASCO
FINANCIAL CRISIS IMPACTS ON SINO-AMERICAN RELATIONSHIP
RECESSION'S AFFECT ON CHINA .
ASIAN MONETARY FUND .
CHINA'S TRADE POLICIES AND THEIR CONTRIBUTION TO THE FINANCIAL CRISIS
Monetary policy is the study of circulation of money, the granting of credit, the making of investments and the provision of banking facilities and international finance is studying it on an international level.[footnoteRef:2] Usually the affect can be seen in exchange rate and foreign investment and international trade. This includes the analysis of global financial markets, cross-country capital flows and currency, international projects, and overseas investments. [2: Merriam-ebster Online Dictionary: http://www.merriam-webster.com/]
US Monetary Policies have a far reaching effect on the other…
Alta villa, Carlo, and Matteo Ciccarelli. "The Effects of Monetary Policy on Unemployment Dynamics under Model Uncertainty: Evidence from the United States and the Euro Area." Journal of Money, Credit & Banking 41.7 (2009): 1265+. Questia. Web. 18 Mar. 2011.
Auerbach, Robert D. Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan's Bank. Austin, TX: University of Texas Press, 2008. Questia. Web. 18 Mar. 2011.
Barron, Jacob. "Jobs, Exports and the Yuan: Pressure Builds on China for Currency Reform." Business Credit May 2010: 30+. Questia. Web. 18 Mar. 2011.
Bi, Jianhai. "An Asian Monetary Fund? Jianhai Bi Outlines Asian Efforts to Protect Their Economies during the Global Financial Crisis and Predicts Long and Difficult Negotiations." New Zealand International Review 34.6 (2009): 8+. Questia. Web. 18 Mar. 2011.
Cash is the main basis of financial management in a new company. In most instances, the period between payment of suppliers and employees as well as a collection of debt from the customers is often a challenge. The solution to all these financial challenges is sound financial flow management. Managing of cash flow means delaying expenditures of cash and at the same time ensuring anyone owing the business pays up rapidly.
Managing Cash in a new business
Measuring of cash flow is necessary as accurate financial flow projection helps the business owner to be aware of an upcoming business challenge before it happens. On the other hand, cash flows should not be used to gauge the business environment in the future. There are a number of elements that need to be considered to counter the challenges. The factors are evaluating the payment histories of the customers, business thoroughness…
Stone, R. (September 01, 2001). Managing wealth: A new approach. Journal of Financial Services Marketing, 6, 1, 84-97.
Land, C., & Taylor, S. (January 01, 2010). Surf's Up: Work, Life, Balance and Brand in a New Age Capitalist Organization. Sociology, 44, 3, 395-413.
technical information on the statement of cash flow, including what the main sections of a cash flow statement are, how to create each of them and what are the main elements that need to be gathered for a successful cash flow statement. The general format of a cash flow statement was discussed in the beginning so as to give an overview of what the CFS should usually contain.
One of the main issues that the document helped clarify was how the activities of a company can be included in one of the three categories mentioned (operating, investing or financing). In each case, the final figure on each of these CFS categories is important to reveal how the company is performing in terms of each specific operation.
Finally, the document referred to the several different methods that can be used to create a cash flow statement, including the advantages and disadvantages…
Electronic Cash and Smart Cards
Forms of electronic cash came about in the 1990s with the rise of the Internet and a new way to do business. Smart cards were among the new forms. When purchasing products over the Internet, consumers have concerns about the privacy of their information with electronic payments. Some studies were conducted to evaluate the pros and cons of smart cards, how the security is designed in the payment systems, and if the use of smart cards can change the addictive behavior of gamblers.
What it is
It is claimed the Mondex smart card can be used the same as cash and have the advantage of not having to carry cash at the same time. It was conceived as a technological solution to the handling of money and undermining the traditional role of the circuit of money. (Knights, 2007) The aim was to replace the…
Knights, D. e. (2007). Organization. Retrieved from Sage Publications: http://org.sagepub.com
Nower, L. a. (2010, Jan 19). Gambling Motivations, Money-Limiting Strategies, and Precommitment Preference of Problem vs. Non-Problem Gamblers. New Brunswick, NJ, USA. Retrieved from Springer Science+Business Media, LLC.
Wang, H. e. (2004). Concurrent Engineering. Retrieved from Sage Publications: http://cer.sagepub.com/
The FCF-based valuation model is based on the following formula:
EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net orking Capital - Capital Expenditure
is the free cash flow each year, C0 is the original cash outlay, and r is the discount rate. The free cash flows in this type of calculation are only those cash flows that are incremental to the investment decision. Thus, they do not include such non-cash items as depreciation or amortization expense, and they do not include either sunk costs or non-incremental flows like overhead allocations. The r is the discount rate, and the firm can select its discount rate from a number of different options. The most common, and arguably logical, is the firm's weighted average cost of capital. This reflects the firm's cost of equity, its cost of debt and its capital structure, with allowances for preferred shares…
Berkman H., Bradbury, M. & Ferguson, J. (2002). The accuracy of price-earnings and discounted cash flow methods of IPO equity valuation. Journal of International Financial Management and Accounting. Vol. 11 (2) 71-83.
Del Vecchio, J. (2000). Dividend discount model. Motley Fool. Retrieved April 27, 2012 from http://www.fool.com/research/2000/features000406.htm
Demirakos, E., Strong, N. & Walker, M. (2004). What valuation models do analysts use? Accounting Horizons. Vol. 18 (4) 221-240.
Francis, J., Olsson, P. & Oswald, D. (2000). Comparing the accuracy and the explainability of dividend, free cash flow and abnormal earnings equity value estimates. Journal of Accounting Research. Vol. 38 (1) 45-70.
Tenet Healthcare Corporation
Tenet Healthcare Corp
This paper examines the financial statements of Tenet Healthcare Corporation, reviewing their important components and discussing their interrelationship.
Tenet's annual report for the year ending December 31, 2011 provides information on the firm's financial health. The balance sheets provide information about what the company owns and what it owes. The income statements provide information about how much money Tenet earned and spent, and the cash flow statements show information about the exchange of money between Tenet and other parties.
Tenet's Balance Sheet
Tenet's balance sheet provides detailed information about its assets, liabilities and shareholders' equity. Tenet's assets are what it uses to operate its business, while its liabilities and shareholders' equity are two sources that support those assets. Tenet's liabilities are amounts of money that it owes to others. Shareholders' equity is the amount of money invested in the company combined with retained earnings;…
Tenet Healthcare Corporation. (2012). Form 10-K for year ended December 31, 2011. Available at: http://www.tenethealth.com/Investors/Documents/Q4%202011%20Earnings/CY11%2010-K%20FINAL.pdf
But even with no cost savings whatsoever, this project has a positive NPV.
e can see, therefore, that the greatest area of sensitivity is with the terminal value. The terminal value at present is worth $143 million of the NPV. If we break down the variables that go into the terminal value, however, we notice that the cost savings are critical. If SGA expense is not reduced, then the terminal value is reduced to $67 million and the total NPV for the entire project ends up being $98 million. This figure is less sensitive to the change in cost of goods sold.
e should also consider testing combined sensitivity of our shakiest projections. Sales may not live up to expectations and cost savings might not occur. If we assume no net income and no additional cost savings, the project will have an NPV. If we assume that our expectations for…
No author. (2009). Free Cash Flow. Investopedia. Retrieved May 13, 2009 from http://www.investopedia.com/terms/f/freecashflow.asp
Ely, Bert. (2008). Savings and Loan Crisis. Concise Encyclopedia of Economics. Retrieved May 13, 2009 from http://www.econlib.org/library/Enc/SavingsandLoanCrisis.html
Damodaran, Aswath. (no date). Closure in Valuation: Estimating Terminal Value. Stern School of Business. Retrieved May 13, 2009 from http://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/dcfstabl.pdf
Breierova, Lucia & Choudhari, Mark. (1996). An Introduction to Sensitivity Analysis. MIT. Retrieved May 13, 2009 from http://sysdyn.clexchange.org/sdep/Roadmaps/RM8/D-4526-2.pdf
Lowe's Companies, Inc.
Lowe's Companies Inc.
Lowe's Companies, Inc.
Lowe's Companies, Inc.
This report discusses the home improvement retailer, Lowe's Companies, Inc. The report profiles Lowe's, providing information about its background, operations, size, and relative industry position, as well as lists key competitors. The report also includes a profile of the home improvement retail industry and discusses the current economic outlook and sales forecasts through 2015.
The report also analyzes Lowe's consolidated cash flow statements and discusses the company's sources and uses of cash. Lowe's cash inflows and outflows include the issuance of common stock, repurchase of common stock, repayment and issuance of long-term debt, and investments in property and store information technology.
In addition to reviewing Lowe's cash flow, financial analysis reviews Lowe's performance by comparing Lowe's key ratios to industry ratios. In general, ratio analysis shows Lowe's needs to improve its efficiency and generate more sales. Even though…
Home Improvement Research Institute (HIRI). "The March 2012 home improvement products market sales forecast grew 3.8% in 2011 with an increase in 2012 to 5.0%." Accessed April 27, 2012. http://www.hiri.org/?page=Media .
Lowe's. 2012. "Corporate information." Accessed April 27, 2012. http://www.lowes.com/AboutLowes/AnnualReports/annual_report_11/includes/pdfs/Lowes_2011_Annual_Report.pdf
Lowe's. 2012. "2011 Form 10-K." Accessed April 27, 2012. http://www.lowes.com/AboutLowes/AnnualReports/annual_report_11/includes/pdfs/Lowes_Form10K.pdf
Yahoo! Finance. 2012. "Home improvement stores." Accessed April 27, 2012. http://biz.yahoo.com/ic/736.html
The company that I have selected is FedEx. The homepage of FedEx is located at:
There are other sources of information about the company as well. Its financials and stock information are available at MSN Moneycentral, at the following address: http://investing.money.msn.com/investments/stock-income-statement/?symbol=FDX
There are also numerous media sources for information about the company as well. These include Forbes and other business media. For example the following page notes that FedEx is one of the world's most valuable brands: http://www.forbes.com/companies/FedEx/
eturn on Assets
Net Profit Margin
Asset Utilization ate
On these three measures, FedEx outperforms UPS on two of the measures. The company returns a better return on assets, and its net profit margin is higher. However, UPS has a better asset utilization rate. This is in part because UPS has a smaller proportion of fixed assets on its balance sheet, compared with FedEx, and UPS also…
MSN Moneycentral (2013). FedEx Retrieved December 8, 2013 from http://investing.money.msn.com/investments/stock-balance-sheet/?symbol=U.S.%3AFDX&stmtView=Ann
FedEx. Retrieved December http://www.FedEx.com/us/
Forbes. (2013). FedEx. Retrieved December 8, 2013 from http://www.forbes.com/companies/FedEx/
functions of financial markets and discusses why a dollar tomorrow cannot be worth less than a dollar the day after tomorrow. Furthermore, the paper explains the cash flows associated with a bond to the investor. And discusses the term "price-earnings (P/E) ratio." In addition, the paper discusses the certainty equivalent approach to estimating the NPA of A project and discusses the problems associated with capital investment process. Lastly, the paper contrasts and compares capital budgeting and strategic planning assesses the agency problems associated with capital budgeting.
Explain the functions of financial markets
The existence of the financial market is just to help and maintain the relations between the users of the capital and the providers of the capital. They also provide an opportunity for both the parties to do transactions with mutual benefits. It is there so that the investor and the investment can do the business smoothly and at…
Bernardo, A., H. Cai, and J. Luo, (2002). Capital Budgeting and Compensation with Asymmetric Information and Moral Hazard. Journal of Financial Economics, 61, 311 -- 344.
Dessein, W., (2002). Authority and Communication in Organizations. Review of Economic Studies, 69, 811 -- 838.
Graham, J., and C. Harvey, (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60, 187 -- 243.
Harris, M., and A. Raviv, (2002). Allocation of Decision-Making Authority. working paper, Graduate School of Business, University of Chicago.
Question 1.a) Bond ratings encompass a wide range of elements related to the credit risk of the firm. Moody's notes that bond ratings include elements of default probability, loss severity, "financial strength" and "transition risk" (Cantor & Fons, 1999). The authors note that within the same sector, bonds of the same rating tend to be comparable both with respect to overall credit quality and specific credit quality characteristics. Over different segments of the bond market, this is not necessarily the case. Bond ratings tend to take in factors like the balance sheet strength of the firm, as well as the expected loss in the event of a default. Thus, the type of assets that the firm holds is an important characteristic. The transition risk reflects the likelihood that the firm will experience outright default without transitioning down through the different risk categories. Firms that are almost assuredly going to…
Cantor, R. & Fons, J. (1999). Rating methodology: The evolving meaning of Moody's bond ratings. Moody's. Retrieved April 27, 2012 from http://www.moodys.com/sites/products/AboutMoodysRatingsAttachments/2000400000300541.pdf?frameOfRef=corporate
Investopedia. (2012). Net present value. Investopedia. Retrieved April 27, 2012 from http://www.investopedia.com/terms/n/npv.asp#axzz1tFv4YkMI
Brown-Forman Southern Comfort
Brown-Forman, Southern Comfort Acquisition
The case considers the opportunity for Brown-Forman Distillers of America to acquire the Southern Comfort Corporation (SoCo). The primary concern is of financial matters, but also represents other issues of firm strategy and core competencies.
The asking price of 94.9 million (USD) is evaluated upon a structuring of a mix of cash and debt financing. The initial price includes a real estate holding, unaffiliated with the SoCo product, and is to be sold back to the family shareholders at a price of 5.9 million (USD). It follows that the net price for SoCo is 89 million (USD), with 70 million (USD) borrowed at a rate of 8.75% (Pg. 5). The current debt to equity ratio of 0.247 of Brown Forman is significantly below the average of competitors maintaining a ratio of 0.51. Acquiring SoCo with 70 million (USD) of debt financing implies…
Practicing Skill uilding: Lead and Manage Using the alanced Scorecard
Kaplan "Lead and Manage Using the Scorecard"
The work of Kaplan entitled 'Lead and Manage Using the Scorecard" states that communication "is clearly a leadership role." An article published by Forbes online states that it is not possible "to become a great leaders without being a great communicator." (Myatt, p.1) Myatt states "the previous sentence didn't refer to being a great talker -- big difference. The key to becoming a skillful communicator is rarely to be found in what has been taught in the world of academia. From our earliest days in the classroom, we are trained to focus on enunciation, vocabulary, presence, delivery, grammar, syntax, and the like. In other words, we are taught to focus on ourselves. While I don't mean to belittle these things as they're important to learn, it's the more subtle elements of communication rarely…
Barrett, DJ (nd) Leadership Communication: A Communication Approach for Senior-Level Managers. Retrieved from: http://scholarship.rice.edu/bitstream/handle/1911/27037/Leadership%20Communication%20-%20A%20Communication%20Approach%20for%20Senior-Level%20Managers%20-%20Barrett.pdf?sequence=2
Hackman, M (2006) Communicating for Leadership Success. Retrieved from: http://www.executiveforum.com/PDFs/Hackman_Synopsis.pdf
The Changing Face of Reward (2012) HayGroup. Retrieved from: http://www.haygroup.com/downloads/ww/misc/cfr_global_report.pdf
Haguewood, J. And Knott, F. (2012) Performance Metrics Matter. Retrieved from: http://www.nado.org/wp-content/uploads/2012/10/haguewood-and-knott.pdf
Capital Gains Tax in Australia
Capital gains tax refers to a type of tax levied on capital gains incurred by organizations or individuals. The capital gains refer to the profits that an organization or individual selling a capital asset obtains through selling an asset at a price higher than the original price. In many countries, the amount of capital gains tax takes into consideration the type of investment and the holding period of the asset. Australian capital gains tax takes a proportion of all achieved capital gains. Capital gains are not separate tax but part of the income tax on individuals and corporations upon disposing of capital assets. Australian capital gains tax exempts personal properties such as home, car, and furniture. Australian residents in any part of the world are subject to capital gains tax.
Issue 1. Moodly's Conversion of her main residence.
Moodly being a childcare worker, wishes to…
OECD Tax policy studies. 2006. Taxation of Capital Gains of Individuals: Policy
Considerations and Approaches. No.14. Paris: OECD Publishing.
Pricewaterhouse Coopers. 2006. Mergers and acquisition: A global Tax Guide. New Jersey:
John Wiley and Sons Inc.
Situation Analysis of Strengths and Weaknesses
Since acquiring Horniman Horticulture in 2002, revenues have grown 39.8% through 2005 (Pg. 140). With projected revenue growth of another 25%, over 2005, to 1.3 million, Horniman Horticulture is successfully capitalizing on their market. The recent product line expansion into mature plants offers the opportunity for greater profit margins and a diversified customer base.
However, while the overall efficiency of operations demonstrates results exceeding benchmarked competitors, the deteriorating cash situation exposes the firm to ever-greater risks from any disruption of daily operations or business cycle fluctuations. The cash balance erosion, as well as the significant increase in accounts receivable, illustrates a firm that is undergoing rapid growth without a strategy to manage and stabilize their burgeoning business.
The product line expansion offers a diversity of customer base, which can insulate the firm from loss of any particular client, and the increased profit…
This model is much more conservative, and thus tends to try to avoid government interaction within the system. Here, the research suggests that it "stresses the connectedness of the monetary flows" (Hannes, 2012, p 4).As such, it keeps its leakages from separating and floating out of the system, as well as providing for more inside injections that do not rely so much on outside systems, as in the case with an open model system. The model is most concerned with savings and investment in order to keep leakages from spilling out of the model system, as in the case with the open system. In this system, borrowers take credit and invest it back into the system, therefore adding elements of credit into the system as an injection. In this regard, savings is seen as an injection, not a leakage like in the open systems model. Thus, "the closed model stresses…
Buck, John. (2008). The circular flow diagram. Economic Perspectives. Web. http://econperspectives.blogspot.com/2008/04/circular-flow-diagram.html
Hannes, K. (2012). Circular flow models. Economics. Web. http://hannesk.com/econ/Chapter5CircularFlow.pdf
Morgan, D. (2012). Open and closed systems in macroeconomics. Education Articles. Web. http://articles.submityourarticle.com/open-and-closed-systems-in-macroeconomics-305112
Business Plan Proposal:
The Ducks Poker Room
Business Plan Proposal: The Ducks Poker Room
Executive Summary/Company Description
The Ducks Poker Room will be a new for-profit gaming club primarily hosting players of versions of the card game known as "Poker." The Ducks Poker Room will also offer alternate games, including but not limited to promotions for prize pools involving tickets to college basketball and football games. Finally, The Ducks Poker Room will host patrons who are not playing poker.
Business Plan Objectives
Provide exceptional facilities, equipment, service, staff and merchandise that create a highly positive impression on our core customers;
Consistent entertainment atmosphere and product quality;
Capitalize on excellent location opportunity;
d. Launch the venue with a highly publicized grand opening event in the spring of Year 1;
e. Maintain tight control of costs, operations, and cash flow through diligent management and automated computer control;
f. Maintain food costs below…
financial statements by business entities. The purpose of this is so that one can understand about the business cash, how the business acquired or generated it, how it was used and in what ways and tomorrow's business plans, financial position of a business, performances and its position. The paper will go ahead to analyze if there is any significance of cash for the survival of a business and the impacts of the various financial sets. The arguments that will prevail will be based on the importance of the different financial statements to a business survival.
Cash is a crucial constituent of a business and I do agree that a business cannot survive without it. 'As a matter of fact the main aim and goal of a business is to generate cash and profits not only in the short run but also in the long-term.' (Minnery, 2006) Every business has everyday…
Elliot.B, 2005, Financial Accounting and Reporting; Financial Times/Prentice Hall, United Kingdom
Graham B. 1998, The Interpretation of Financial Statements Harper Business, amazon
Minnery.B. 2006, 'Don't question the importance of cash flow' The independent, viewed date 28 May 2006, www.independent.co.uk
MoneyInstructor.com. 2009, The importance of cash flow statement; viewed; Aug 19, 2009 www.moneyinstructor.com/doc/importance....
a) When making capital budgeting decisions, Caledonia should focus on cash flows rather than accounting profits. The argument in favor of cash flows is simple -- cash flows are what drive company value, more so than economic profit. Profit can be distorted by a number of considerations that do not impact on cash flows. For example, depreciation expense is not a cash flow, but a means of accounting for the fact that the up front purchase is not on the income statement. By using cash flows, it is easier to account for the time value of money because the cash flows are represented in the time period in which they occur -- that is not always the case with accounting for economic profit.
b) Depreciation is not included in the calculation of cash flows, because it is not a cash flow. The item that depreciation represents is the…
Foundations of Finance for Ashford University, 7th Edition. Pearson Learning Solutions pp. 333-335
Real Options Analysis
Companies resort to capital budgeting in the process of taking decisions with regard to making long-term investments. The projects involving capital budgeting are chosen by the companies in terms of expected generation of cash flows. Since profitability is the main criterion for long-term investments of the companies the strategic decisions with regard to the long-term investments involves a cost-benefit analysis in terms of cost of investments and expected generation of cash flows over the period of time. Emphasis is being laid on the concepts of Net Present Value and Internal Rate of Return etc. To assess the benefits of long-term investments against the cost of capital invested. The cost of capital of a firm signifies towards the cost of obtaining of capital by the firm that is used for long-term investments. Generally the firms define economic profit as the operating profit excluding the tax and cost of…
Dynamic strategic planning Evaluation of Real options" Retrieved at http://msl1.mit.edu/mib/dsp/curricula.mit.edu/~dsplan/Docs/Sessions/S70/s70.pdf. Accessed on 19 May, 2004
Eckersley, Peter. Regional Economist, Bunbury. "Budgeting and decision-making techniques" Retrieved at http://agspsrv34.agric.wa.gov.au/agency/pubns/farmnote/1993/F06393.htm. Accessed on 19 May, 2004
Net Present Value and Other Investment Criteria" Retrieved at http://www.webster.edu/~charngil/chapter%208.pdf . Accessed on 19 May, 2004
Phelan, Steven E. "The Role of Strategic Thinking in the Analysis of Hard Investment Evaluation Problems" Retrieved at http://www.aom.pace.edu/bps/Papers/ifsam.html. Accessed on 19 May, 2004
According to these analysts, "The implicit assumption underlying the price-to-earnings method is that the fair market value of the closely held business can be approximated from the market value of comparable publicly traded businesses. To implement this method, the valuator must be able to identify a set of presumed-to-be comparable publicly traded companies and obtain sufficient information on each to verify the extent of comparability from an economic, management, and financial perspective. No publicly traded company will be precisely comparable to the closely held business being valued, so informed judgment must be exercised" (p. 81). As a general rule, the smaller in size and the more limited the scope of activities of the business being valued, the less likely there will be a set of publicly traded companies that are comparable, or even a single comparable publicly traded company. Publicly traded companies are for the most part large, measured in…
Allen, M.F. & Cote, J. 2005, "Creditors' Use of Operating Cash Flows: An Experimental
Study." Journal of Managerial Issues 17(2): 198-199.
"Asset/equity ratio." 2009, Investor Glossary. [Online]. Available: http://www.investorglossary.
76), ROE has ranged from 21.6% to 28.3% in recent years, with the 2007 figure being 25.6%. This reflects outperformance of both the industry and the market. The ROA has exhibited similar outperformance of both industry and market. The return on assets for JNJ over the past several years has ranged from 13.1% in 2007 to 17.l% in 2005. The industry five-year average is 8.85% and the market five-year average is 7.50%.
Net Income increased despite decline in revenues
Growth in each business segment
R&D expense growing slower than revenues
2-year upward trend in net income
Upward trend in cash levels
Upward trend in cash flow from operations
Current ratio 46.36% higher than industry
Interest coverage 80.09% higher than industry
Net margin 14.04% higher than industry
Return on Equity 1414.79% higher than industry
Return on Assets 48.02% higher than industry
Decline in revenue this year (1st…