贝恩战略分析方法财务分析cashflow021

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1、 Author: Collins QianContributor: Chris Nelson bcCash FlowMarch 1998Copyright 1998 Bain & Company, Inc. 1CU7030298IMBbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowAgenda The importance of cash flowTypes of cash flowApplicationsCash flow stepsExerciseKey takeaways2CU7010598KRAbcBOS Copyright 199

2、8 Bain & Company, Inc. Cash FlowAgenda The importance of cash flowTypes of cash flowApplicationsCash flow stepsExerciseKey takeaways3CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowWhat is Cash Flow? Cash flow describes the movement of cash into (sources) and out of (uses) a company.S

3、ources of cashCompanyUses of cash$4CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowWhy Do We Care About Cash? The market value of a company is equal to the present value of its expected future cash flowsVarious stakeholders demand cashinvestors demand CASH returnssuppliers and employe

4、es require CASH compensationdebtholders demand CASH paymentsAccounting methods can be used to “manage” earnings; CASH is harder to manipulateCash is King!Cash flow is the measure of a companys strategic value.5CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowEarnings vs. Cash Flow* Som

5、e accounting decisions impact earnings, but not cashIn 1988, General Motors made at least four decisions that impacted earnings but not cashEarnings do not equal cash flow.*Earnings are also called after tax profits or net incomeSuccessful high growth companies tend to have high earnings, but low ca

6、sh flow; successful low growth companies tend to have low earnings, but high cash flowAccounting DecisionExtended useful plant life from 35 to 45 year scheduleChanged the way it accounted for its pension planAdjusted its inventory valuation policyChanged the residual value assumption for cars it lea

7、sedEarnings Impact$790MM$480MM$217MM$270MMCash ImpactNoneNoneNoneNoneTotal:$1,757MMNone6CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowAgenda The importance of cash flowTypes of cash flowApplicationsCash flow stepsExerciseKey takeaways7CU7010598KRAbcBOS Copyright 1998 Bain & Company,

8、 Inc. Cash FlowTypes of Cash Flow Net cash flow is equal to the sum of the cash flows from operating, investing, and financing activities.Operating cash flowInvesting cash flowFinancing cash flowAbility of a companys recurring operations to generate cashAbility of a companys investment decisions to

9、generate cashHow a company funds its operationsOperating profitsDecrease in working capitalSale of fixed assetsLong-term issuance of shares Examples of sources:Operating losses Increase in working capitalPurchase of fixed assetsRepayment of loans Payment of dividends Examples of uses:8CU7010598KRAbc

10、BOS Copyright 1998 Bain & Company, Inc. Cash FlowOperating Cash Flow*Investing activities not related to ongoing operations (such as the purchase or sale of divisions or companies, or investments in unrelated businesses) are not included in investing cash flow. They are included in financing cash fl

11、ow.Operating cash flow excludes all cash flows related to a firms capital structurecash generation ability is independent of how a firm is financedIt excludes one-time eventsthese are not related to a firms recurring operationsOperating cash flow is used to measure the strategic value of a businessf

12、or company valuations, operating and investing cash flows are used, not financing cash flowBain is usually more interested in operating and investing* cash flow than in financing cash flowOperating cash flow measures the ability of a businesss recurring operations to generate cash.9CU7010598KRAbcBOS

13、 Copyright 1998 Bain & Company, Inc. Cash FlowInvesting Cash FlowInvestments in ongoing operations - property, plant and equipment - are included in investing cash flowcash is used to replace assets as they wear outif a business is to grow, additional assets must be acquiredin some cases, the cash u

14、sed to acquire these assets is generated from the sale of existing noncurrent assetssuch cash inflows, however, seldom cover the entire cost of asset acquisitions. Often times cash flow from operations is used to finance acquisitions, or, failing a positive operating cash flow, external financing is

15、 usedPure financing activities are not included in investing cash flow. They are included in financing cash flowpurchase or sale of divisions or companiesinvestments in unrelated businessesInvesting cash flows relating to ongoing operations are used as a measure of the strategic value of a business.

16、 Those that are purely financing/investment mechanisms are used to evaluate the financial strategy of the businessInvesting cash flow measures the use of a businesss cash for the acquisition of non-current assets.10CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowFinancing Cash FlowMaj

17、or types of financing cash flow include: debt-related transactions8changes in long-term debt8interest income and expenseequity-related transactions8changes in common and preferred stock8dividends8short-term investmentslong-term asset and liability transactions8purchase or sale of a division or compa

18、ny8changes in long-term liabilitiesFinancing cash flow captures all the non-operating cash changes experienced during the year, and it provides information on how a company is funding its operations.11CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStatement of Cash FlowsThe SCF is di

19、vided into three sections: operating, investing, and financingEach section shows sources and uses of funds for the accounting periodThe SCF shows the amounts fordepreciation and amortizationcapital expenditurestaxes paiddividends paidIt does not show sources and uses by business unitIt does not prov

20、ide much detail for example, it does not show capital expenditures by project, nor individual equipment purchasesThe SCF is not a substitute for cash flow analysisThe statement of cash flows (SCF) found in annual reports is a good source of data for constructing cash flows, but sometimes it does not

21、 have the detail required for the analysis being done.12CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowAgenda The importance of cash flowTypes of cash flowApplicationsCash flow stepsExerciseKey takeaways13CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowApplications Bai

22、n case teams use cash flow (CF) analysis to value investments/acquisitions, to improve the health of business units, and to help companies manage their portfolios.Valuation (mergers, acquisitions)Business unit analysisPortfolio managementWhat is the cash generation potential of an investment/ acquis

23、ition?What are we willing to pay (in cash) for that investment/acquisition?How healthy is a business unit?What factors have effected the business units ability to generate cash/value over time?How can the business units cash management be improved?What is the overall balance of cash users/cash gener

24、ators in a clients portfolio of businesses?How does this effect the clients overall cash position/outlook?What restructuring can be done to improve this profile?CF = common denominatorCF = measuring stickCF = portfolio tool14CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowAgenda The i

25、mportance of cash flowTypes of cash flowApplicationsCash flow stepsExerciseKey takeaways15CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowCash Flow Cookbook*Cash is defined as cash plus marketable securities minus short-term notes*I/S = income statement, SCF = statement of cash flows,

26、 B/S = balance sheet+/ - +/ - - +/ - =1. Profit before interest and tax (PBIT)2. Depreciation3. Other non-cash expenses/income4. Decrease/increase in working capital (excluding cash)5. Taxes paid6. Tax impact of interest income/expenseOperating cash flowBain case teams use the following cash flow co

27、okbook: - =7. Capital expendituresInvesting cash flow+/ - +/ - +/ - +/ - - +/ - =8. Interest income/expense9. Tax impact of interest expense/income10. Increase/decrease in long-term debt11. Increase in outstanding stocks/shares12. Dividends13. Changes in other accountsFinancing cash flow14. Reconcil

28、e with change in cash* from Balance SheetNet cash flowSource*I/SSCF, B/S and NotesNotesB/SI/S, B/SI/SSCF, B/S and NotesI/SI/SB/SB/SSCF, B/S, and NotesB/S, I/SB/S16CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowAgenda The importance of cash flowTypes of cash flowApplicationsCash flow

29、stepsExerciseKey takeaways17CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowExercise - Background (p. 1)*This exercise is based on The Gillette Companys financial statements in 1996. Since several modifications have been made to the financial statements, the information provided herea

30、fter should not be used to analyze Gillettes financial performance.Net SalesCost of SalesGross ProfitSG&AProfit from OperationsInterest ExpenseIncome before taxesIncome TaxesNet Income1996$9,697.7MM($3,681.7MM)$6,016.0MM($4,379.7MM)$1,636.3MM($111.3MM)$1,525.0MM($576.3MM)$948.7MMIncome Statement: Th

31、e New England Razor Company*Use the following data to calculate the cash flow for The New England Razor Company:18CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash Flow*Deferred taxes can be a liability account, an asset account, or both (as is the case here).AssetsCurrent AssetsCashMarketa

32、ble securitiesReceivablesInventoriesDeferred income taxes*Prepaid expensesTotal Current AssetsProperty, Plant & EquipmentLiabilities and Stockholders EquityCurrent LiabilitiesLoans payableCurrent portion of Long-Term debtAccounts payable and accrued expensesIncome taxes payableTotal Current Liabilit

33、iesLong-Term DebtDeferred Income Taxes*Other Long-Term LiabilitiesDividends PayableStockholders EquityCommon stockAdditional Paid-in CapitalRetained EarningsTreasury stockTotal Stockholders Equity$76.9$7.0$2,724.6$1,358.2$359.3$227.2$4,753.2$5,192.0$9,945.2$656.7$14.5$1,964.9$298.6$2,934.7$1,490.4$2

34、98.9$630.2$100.1$671.4$707.0$4,168.7($1,056.2)$4,490.91995$81.6$1.6$2,290.8$1,267.6$246.8$199.3$4,087.7$4,456.6$8,544.3$634.7$26.5$1,609.8$319.4$2,590.4$1,048.4$303.4$635.1$66.7$667.1$574.8$3,704.2 ($1,045.8)$3,900.3$9,945.2$8,544.3Balance SheetDecember 31, 1996 and 1995 (in $MM)1996Exercise - Backg

35、round (p. 2)19CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash Flow Property, Plant and EquipmentLess accumulated depreciationNet Property, Plant, and Equipment1996 (in $MM)$7,820.4$2,628.4$5,192.01995 (in $MM)$6,885.0$2,428.4$4,456.6Note 1: Property, Plant and EquipmentNote 2: DividendsTh

36、e company declared dividends of $484.2MM in 1996Note 3: Sale of assetsA loss of $22MM was incurred on equipment sold during the yearThe equipment had an original cost of $244.0MM and was sold for $40.9MMExercise - Background (p. 3)Notes to the financial statements are a critical source of informatio

37、n.20CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowOperating Cash Flow*Cash is defined as cash plus marketable securities minus short-term notes*I/S = income statement, SCF = statement of cash flows, B/S = balance sheet+/ - +/ - - +/ - =1. Profit before interest and tax (PBIT)2. Depr

38、eciation3. Other non-cash expenses/income4. Decrease/increase in working capital (excluding cash)5. Taxes paid6. Tax impact of interest income/expenseOperating cash flow - =7. Capital expendituresInvesting cash flow+/ - +/ - +/ - +/ - - +/ - =8. Interest income/expense9. Tax impact of interest expen

39、se/income10. Increase/decrease in long-term debt11. Increase in outstanding stocks/shares12. Dividends13. Changes in other accountsFinancing cash flow14. Reconcile with change in cash* from Balance SheetNet cash flowSource*I/SSCF, B/S and NotesNotesB/SI/S, B/SI/SI/SI/SB/SB/SB/S, I/SB/SSCF, B/S and N

40、otesSCF, B/S and Notes21CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 1 - Profit Before Interest and TaxWhere to find:Process:Comments:Income statementIt can be labeled in many different ways, including profit before interest and tax, profit from operations, operating profit, a

41、nd earnings before interest and taxIf income statement is provided, pick number from income statementIf income statement is not provided, calculate profit before interest and tax:Profit before taxes - Interest income and other income (earned)+ Interest expense and other expenses (incurred) - Any one

42、-time gains included in profit before taxes+ Any one-time losses included in profit before taxes= Profit before interest and tax (PBIT)The goal is to get profit before interest payments, tax payments, and extraordinary items22CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 1 - Pr

43、ofit Before Interest and Tax - AnswerProfit before interest and tax*:$1,636.3MM1996Operating cash flow begins with profit before interest and tax.*Shown as profit from operations on The New England Razor Companys income statement23CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowSteps

44、2 and 3 - Depreciation and Other Non-Cash Income/ExpensesWhere to find:Process:Depreciation - statement of cash flows, or calculate from Balance Sheet and NotesOther Non-Cash Income/Expenses - NotesReview assets and liabilities that are not taken into account in working capital (elements of working

45、capital include current assets and liabilities with the exception of cash, tax items, and financing assets and liabilities (e.g., interest and dividends payable)Ask two questions:was the item non-cash?was the item included in profit before interest and tax?If the answer to both is yes, adjust profit

46、 before interest and taxe.g., depreciation - add back to profit before interest and taxe.g., loss on sale of asset - add back to profit before interest and taxIf answer to either question is no, make no adjustments 24CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 2 - Depreciatio

47、nWhere to find:Process:Statement of cash flows, or calculate from Balance Sheet and NotesIf depreciation is provided in the statement of cash flows, pick number from thereIf not, calculate depreciation: Accumulated depreciation at year end - Accumulated depreciation at year beginning+ Depreciation f

48、rom sale of asset= Depreciation expense for the yearDepreciation from sale of asset: Original cost of asset- Proceeds from sale of asset- Losses incurred= Depreciation from sale of asset25CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Step 2 - Depreciation - Answer (p. 1) Depreciation from sa

49、le of asset= The original cost of asset - proceeds from sale of asset - losses incurred = $244.0MM - $40.9MM - $22.0MM = $181.1MMDepreciation expense for 1996 = Accumulated depreciation at year end - accumulated depreciation at year beginning + depreciation from sale of asset= $2,628.4MM - $2,428.4M

50、M + $181.1MM = $381.1MMCash FlowDepreciation is a non-cash expense. Therefore, it is added to profit before interest and tax in the operating cash flow.26CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 2 - Depreciation - Answer (p. 2)The depreciation expense for the year can be c

51、alculated from the balance sheet and notes. - +=27CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 3 - Other Non-Cash Expenses - AnswerLoss on equipment sold during the year:$22.0MM (from Note 3)1996Other non-cash expenses are added to profit before interest and tax in the operati

52、ng cash flow.28CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 4 - Change in Working Capital (Excluding Cash)Where to find:Process:Balance sheetWorking capital = current assets - current liabilitiesReview each current asset and current liabilityInclude:Exclude:Cash and cash equiv

53、alentsTax itemsinclude in taxes paid calculation (Step 5)Financing assets and liabilities, such as:interest payabledividends payablecurrent portion of long-term debtOperating assets and liabilities29CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowWorking Capital Current Assets and Lia

54、bilitiesIncluded in Change in Working Capital CalculationCurrent assetscashmarketable securitiesinventoryaccounts receivablepre-paid expensesdeferred income taxes Current liabilitiesaccounts payableaccrued expensesloans payableincome taxes payablecurrent portion of long-term debtinterest payabledivi

55、dends payableIncluded in cash, not working capitalIncluded in cash, not working capitalIncluded in operating cash flow, but not in working capitalIncluded in financing cash flowNot all current assets and liabilities are included in working capital.Included in operating cash flow, but not in working

56、capitalIncluded in financing cash flowIncluded in financing cash flow30CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowCurrent Assets Changes in working capital asset items have cash flow impacts.means cash is being used to fund the businessmeans cash is being generated by the busines

57、sIncrease in non-cash working capitalDecrease in non-cash working capitalDecreases in current assets.Increases in current assets.Increase in inventoriescash spent to buy inventoriesIncrease in pre-paid expenses cash used to pre-pay billsReduction in inventoriescash generated by selling inventoriesRe

58、duction in accounts receivablecash received from customers31CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowCurrent LiabilitiesChanges in working capital liability items have cash flow impacts.means cash is being retained by the businessmeans cash is being used to fund the businessDec

59、rease in non-cash working capitalIncrease in non-cash working capitalDecrease in current liabilities.Increases in current liabilities.Increase in accounts payablecash saved by delaying payment to suppliersIncrease in deferred tax liabilitycash saved by delaying payment of taxesDecrease in accounts p

60、ayablecash paid to suppliersDecrease in accrued expensescash used to reduce accrued expenses32CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 4 - Change in Working Capital - AnswerLoans payable:Receivables:Inventories:Prepaid expenses:1995 ($MM)$2,290.8$1,267.6$199.3$1,609.8$634.

61、71996 ($MM)$2,724.6$1,358.2$227.2$1,964.9$656.7Asset or LiabilityAssetAssetAssetLiabilityLiabilityChangeIncreaseIncreaseIncreaseIncreaseIncreaseImpact on Working CapitalIncreaseIncreaseIncreaseDecreaseDecreaseImpact on Working Capital ($MM)$433.8$90.6$27.9($22.0)Change in Working Capital$175.2MM$175

62、.2MMIncreaseAccounts payable & accrued expenses:($355.1)An increase in working capital has a negative impact on operating cash flow. Increase33CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 5 - Taxes PaidWhere to find:Process:Deferred taxes:Provision for income taxes - Income St

63、atementChange in deferred income taxes - Balance SheetCurrent tax expense - Notes or calculate from Income Statement and Balance SheetIncome taxes payable - Balance Sheet+ Income taxes payable (beginning of period) - Income taxes payable (end of period)Deferred taxes arise when pre-tax income report

64、ed on the income statement differs from that shown on the tax returnDeferred taxes are sometimes shown on the balance sheet as an asset and sometimes as a liability= Taxes paid Provision for income taxes+ Increase in deferred income taxes asset account+ Decrease in deferred income taxes liability ac

65、count= Current tax expense Current tax expense34CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 5 - Taxes Paid - Deferred TaxesDeferred taxes can be shown either as an asset or as a liability, or even as both (as in this exercise)When deferred taxes are shown as an asset, an incr

66、ease increases taxes paid and is therefore a use of cash (negative impact on cash flow). When deferred taxes are shown as a liability, an increase decreases taxes paid and is therefore a source of cash (positive impact on cash flow)Deferred taxes are a complication to look out for in the cash flow a

67、nalysis.Deferred income taxes (asset):Deferred income taxes (liability):1995 ($MM)1996 ($MM)Asset or LiabilityChangeCash Flow ImpactResult ($MM)$246.8$303.4$359.3$298.9AssetLiabilityIncreaseDecreaseDecreaseDecrease($112.5)($4.5)Net result($117.0)MM35CU7010598KRAbcBOS Copyright 1998 Bain & Company, I

68、nc. Cash FlowStep 5 - Taxes Paid - Answer (p. 1)Taxes paid is a use of cash, therefore it should be deducted from operating cash flow.Provision for income tax+ Increase in deferred income taxes asset account= Current tax expense Current tax expense + Income taxes payable (beginning of year) - Income

69、 taxes payable (end of year)= $576.3MM$112.5MM$693.3MM$693.3MM$319.4MM($298.6)MM$714.1MMTaxes paid+ Decrease in deferred income taxes liability account$4.5MM36CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 5 - Taxes Paid - Answer (p. 2)Incr. In def. tax asset $117.0Provision for

70、 income tax $576.3Taxes paid can be calculated from the income statement and the balance sheet.+=+-=37CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Step 6 - Tax Impact of Interest Income/ExpenseWhere to find:Process:Comment:Calculate from income statement Interest income/expensex Effective t

71、ax rate= Tax impact of interest income/expenseCash FlowSince interest income/expense is a result of financing decisions, the tax impact of interest income/expense must be removed from the operating cash flow and included in the financing cash flow The effective tax rate = The tax impact of interest

72、income/expense will be offset by Step 9 of the financing cash flowProvision for income taxesIncome before taxes38CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 6 - Tax Impact of Interest Income/Expense - AnswerEffective tax rate = Provision for income taxesIncome before taxes$57

73、6.3MM$1,525.0MM= 37.8%= Interest expenseX Effective tax rate= Tax impact of interest expense$111.3MM X 37.8%$42.1MMThe tax impact of interest expense is subtracted from operating cash flow because interest expense results from financing decisions, not operating ones.39CU7010598KRAbcBOS Copyright 199

74、8 Bain & Company, Inc. Cash FlowOperating Cash Flow CalculationProfit before interest and tax$381.1MM$22.0MM($175.2MM)($714.1MM)($42.1MM)$1,108.0MM$1,636.3MMThe New England Razor Companys cash flow from operations is $1,108.0MM.= Cash Flow from Operations+ Depreciation expense for the year+ Other no

75、n-cash expenses- Increase in working capital- Taxes paid- Tax impact of interest expense 40CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowInvesting Cash Flow*Cash is defined as cash plus marketable securities minus short-term notes*I/S = income statement, SCF = statement of cash flow

76、s, B/S = balance sheet+/ - +/ - - +/ - =1. Profit before interest and tax (PBIT)2. Depreciation3. Other non-cash expenses/income4. Decrease/increase in working capital (excluding cash)5. Taxes paid6. Tax impact of interest income/expenseOperating cash flow - =7. Capital expendituresInvesting cash fl

77、ow+/ - +/ - +/ - +/ - - +/ - =8. Interest income/expense9. Tax impact of interest expense/income10. Increase/decrease in long-term debt11. Increase in outstanding stocks/shares12. Dividends13. Changes in other accountsFinancing cash flow14. Reconcile with change in cash* from Balance SheetNet cash f

78、lowSource*I/SSCF, B/S and NotesNotesB/SI/S, B/SI/SI/SI/SB/SB/SB/S, I/SB/SSCF, B/S and NotesSCF, B/S and Notes41CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 7 - Capital Expenditures Where to find:Statement of cash flows or calculate from balance sheet and notesIf SCF is unavail

79、able, use one of the following two methods to calculate capital expenditures:PPE, at cost, at end of year - PPE, at cost, at start of year+ Original cost of PPE sold during year - Proceeds from sale of PPE= Capital expendituresNet PPE at end of year - Net PPE at start of year+ Depreciation expense+

80、Loss from sale of assets= Capital expendituresProcess:Obtain capital expenditures number from SCFBalance sheet alone is insufficient to determine capital expenditures due to complications caused by asset salesPurchase and sale of assetsif assets are directly related to recurring operations, e.g., PP

81、E, include in capital expendituresif assets are not directly related to recurring operations, include in financing cash flow Comments:Method 1:Method 2:42CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 7 - Capital Expenditures - Answer (p. 1)-+ - =PPE, at cost, at end of yearPPE,

82、 at cost, at start of yearOriginal cost of PPE sold during yearProceeds from sale of PPE Capital expenditures($6,885.0)MM($40.9)MM$1,138.5MM$7,820.4MM(from Note 3)(from Note 1)(from Note 3)(from Note 1)Capital expenditures decrease investing cash flow.-+ =Net PPE at end of yearNet PPE at start of ye

83、arDepreciation expenseLoss from sale of assetsCapital expenditures($4,456.6)MM$381.1MM$22.0MM$1,138.5MM$5,192.0MM(from B/S)(from Step 2)(from Note 3)(from B/S)$244.0MM43CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 7 - Capital Expenditures - Answer (p. 2)Capital expenditures ca

84、n be calculated from the Balance Sheet and Notes.+ - = - 44CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowInvesting Cash Flow CalculationCash flow from investing($1,138.5)MM Capital expenditures($1,138.5)MMThe New England Razor Company has a cash flow from investing of ($1,138.5)MM.4

85、5CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowFinancing Cash Flow*Cash is defined as cash plus marketable securities minus short-term notes*I/S = income statement, SCF = statement of cash flows, B/S = balance sheet+/ - +/ - - +/ - =1. Profit before interest and tax (PBIT)2. Depreci

86、ation3. Other non-cash expenses/income4. Decrease/increase in working capital (excluding cash)5. Taxes paid6. Tax impact of interest income/expenseOperating cash flow - =7. Capital expendituresInvesting cash flow+/ - +/ - +/ - +/ - - +/ - =8. Interest income/expense9. Tax impact of interest expense/

87、income10. Increase/decrease in long-term debt11. Increase in outstanding stocks/shares12. Dividends13. Changes in other accountsFinancing cash flow14. Reconcile with change in cash* from Balance SheetNet cash flowSource*I/SSCF, B/S and NotesNotesB/SI/S, B/SI/SI/SI/SB/SB/SB/S, I/SB/SSCF, B/S and Note

88、sSCF, B/S and Notes46CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 8 - Interest Income/Expense Where to find:Income statementProcess:Find interest income/expense on income statementinterest income is added to financing cash flowinterest expense is subtracted from financing cash

89、 flow47CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Step 8 - Interest Income/Expense - Answer 1996Interest expense$111.3MMCash FlowInterest expense decreases financing cash flow.48CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 9 - Tax Impact of Interest Income/Expense W

90、here to find:Calculate from income statementProcess: Interest income/expensex Effective tax rate = Tax impact of interest income/expensesThe effective tax rate = Provision for income taxesIncome before taxesComments:This item simply offsets the impact of Step 6. The purpose of these two items is to

91、correctly allocate the tax impact of interest to financing cash flow, not operating cash flow.Interest expense reduces taxes, and so the amount of the reduction needs to be added to financing cash flowthe benefit of the interest tax shield is effectively a source of cash due to financing decisions (

92、not operating ones)Interest income has the opposite effect49CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 9 - Tax Impact of Interest Income/Expense - AnswerEffective tax rate = Provision for income taxesIncome before taxes$576.3MM$1,525.0MM= 37.8%= Interest expensex Effective t

93、ax rate= Tax impact of interest$111.3MM X 37.8%$42.1 MMInterest expense reduces taxes and, therefore, the tax impact of interest expense has a positive effect on financing cash flow.50CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 10 - Change in Long-Term DebtWhere to find:Balan

94、ce SheetProcess:The change (from the start to the end of the period) is the sum of the following two items:current portion of long-term debt (a current liability)long-term debt (a long-term liability)An increase in the sum of these items means debt has increased, which is a source of cash and is add

95、ed to financing cash flowA decrease has the opposite impactComments:51CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 10 - Change in Long-Term Debt - AnswerCurrent portion of long-term debt:+/ - Change in long-term debt:1995 ($MM)$26.5$1,048.41996 ($MM)$14.5$1,490.4Asset or Liabi

96、lityLiabilityLiabilityChangeDecreaseIncreaseImpact on Cash FlowDecreaseIncreaseResult ($MM)($12.0)$442.0Change in long-term debt$430.0 MMIncreaseAn increase in long-term debt increases financing cash flow.Increase52CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 11 - Change in Ou

97、tstanding Stocks and Shares Where to find:Balance SheetProcess:Identify changes in the equity accounts which were sources or uses of cash, such as:new share issues (source of cash)share re-purchases (use of cash)Comments:Changes in retained earnings should be ignored. They reflect the profit generat

98、ed by the business during the year, which has already been accounted for by using operating profit as the starting point for our cash flow calculation.53CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 11 - Change in Outstanding Stocks and Shares - AnswerCommon stock:Additional pa

99、id-in capital:1995 ($MM)$667.1$574.81996 ($MM)$671.4$707.0Asset or LiabilityLiabilityLiabilityChangeIncreaseIncreaseImpact on Cash FlowIncreaseIncreaseResult ($MM)$4.3$132.2Change in outstanding stocks and shares$126.1MMIncreaseTreasury stock:($1,045.8)($1,056.2)LiabilityDecreaseDecrease($10.4)The i

100、ncrease in outstanding stocks and shares has a positive impact on financing cash flow.54CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 12 - DividendsWhere to find:Statement of Cash Flows or calculate from Balance Sheet and NotesProcess:Obtain the dividends from the Statement of

101、Cash FlowsSubtract any dividends paid from financing cash flowIf a Statement of Cash Flow is not available, use the following calculation:Dividends payable at start of year (from B/S) - Dividends payable at end of year (from B/S)+ Dividend declared during year (from Notes)= Dividends 55CU7010598KRAb

102、cBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 12 - Dividends - Answer 1996Dividends payable at start of year $66.7MM- Dividends payable at end of year($100.1MM)+ Dividend declared during year$484.2MM= Dividends $450.8MMDividends decrease financing cash flow.56CU7010598KRAbcBOS Copyright 199

103、8 Bain & Company, Inc. Cash FlowStep 13 - Changes in Other AccountsWhere to find:Income Statement, Balance SheetProcess (income statement accounts):Examine each item between operating profit and profit before taxesIf non-cashIf cashIgnoreIf related B/S account exists, include the I/S amount, plus th

104、e change in the B/S accountIf no related B/S account, include in financing cash flow as isGain/loss on sale of divisionDividends(as shown in Step 12)Interest income(as shown in Step 8)Example:Process (balance sheet accounts):Review any B/S accounts not already considered (usually just long-term asse

105、ts and liabilities); add changes in their balance to financing cash flowignore changes in PPE; their cash impact has been addressed through the “capital expenditure” and “depreciation” items in operating cash flowignore changes in deferred taxes; their cash impact has been addressed by the “taxes pa

106、id” item in operating cash flow57CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowStep 13 - Changes in Other Accounts - AnswerOther long-term liabilities:1995 ($MM)$635.11996 ($MM)$630.2ChangeDecreaseImpact on Cash FlowDecreaseResult ($MM)($4.9)A decrease in other long-term liabilities

107、 decreases financing cash flow.58CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowFinancing Cash Flow Calculation - + - - Interest expenseTax impact of interest expenseIncrease in long-term debtIncrease in outstanding stocks and sharesDividendsDecrease in other long-term liabilities Fi

108、nancing cash flow$42.1MM$430.0MM$126.1MM($450.8)MM$31.2($111.3)MM($4.9)MMFinancing is a source of $31.2MM in cash for The New England Razor Company.59CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash Flow Cash Flow Summary 1. Profit Before Interest and Taxes (PBIT)2. + Depreciation3. + Othe

109、r non-cash expenses4. - Increase in working capital5. - Taxes paid6. - Tax impact of interest expense7. - Capital expenditures8. - Interest expense9. + Tax impact of interest expense10. + Increase in long-term debt11. + Increase in outstanding stocks and shares12. - Dividends13. - Decrease in other

110、long-term liabilities 14. Change in cash$1,636.3MM$381.1MM$22.0MM($175.2)MM($714.1)MM($42.1)MM($1,138.5)MM($111.3)MM$42.1MM$430.0MM$126.1MM($450.8)MM($4.9)MM$31.2MM$1,108.0MM$0.7MM Operating cash flow Financing cash flowThe New England Razor Company has a net change in cash of $0.7MM.($1,138.5)MM In

111、vesting cash flow60CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash Flow Step 14 - Cash Reconciliation Balance SheetWhere to find:Process:The cash flow should reconcile with the change in cash and cash equivalents on the balance sheet. Change in cash+ Change in marketable securities= Chang

112、e in cashComment:Cash equivalents are combined with cash togive an accurate picture of cash position61CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash Flow Step 14 - Cash Reconciliation - Answer Cash:Marketable Securities:1996 ($MM)1995 ($MM)Change ($MM)$76.9$7.0$81.6$1.6($4.7)$5.4Change i

113、n cash position$0.7MMThe Balance Sheet for the New England Razor Company shows a net change in cash of $0.7MM.62CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Cash FlowAgenda The importance of cash flowTypes of cash flowApplicationsCash flow stepsExerciseKey takeaways63CU7010598KRAbcBOS Copyr

114、ight 1998 Bain & Company, Inc. Cash FlowKey Takeaways “Cash is King”cash flow is a very useful measure of a companys performanceearnings can be very different from cash flowOperating cash flow + investing cash flow + financing cash flow = net cash flowThe major components of operating cash flow are:

115、profit before income and taxnon-cash expenses/income (mainly depreciation)change in non-cash working capitalThe major component of investing cash flow is:capital expendituresThe major components of financing cash flow are:debt-related transactionsequity-related transactionslong-term asset and liabil

116、ity transactionsFinancial statements often have some unusual features, but 95% of the cash flow can usually be understood by looking at the items listed aboveThe value of cash flow analysis is in understanding the components or drivers of cash flow64CU7010598KRAbcBOS Copyright 1998 Bain & Company, I

117、nc. Takeaway Slides (p. 1) Cash FlowCash is KingCash Flow Cookbook+/ - +/ - - +/ - 1.Profit before interest and tax (PBIT)2.Depreciation3.Other non-cash expenses/income4.Decrease/increase in working capital (excluding cash)5.Taxes paid6.Tax impact of interest income/expense - =7.Capital expenditures

118、Investing cash flow+/ - +/ - +/ - +/ - - +/ - 8.Interest income/expense9.Tax impact of interest expense/income10.Increase/decrease in long-term debt11.Increase in outstanding stocks/shares12.Dividends13.Changes in other accounts Net cash flowSourceI/SSCF, B/S and NotesNotesB/SI/S, B/SI/SI/SI/SB/SB/S

119、B/S, I/SB/S14.Reconcile with change in cash from Balance Sheet6 Balance SheetWhere to find:Process: Change in cash+ Change in marketable securities= Change in cashComment:Cash equivalents are combined with cash to give an accurate picture of cash positionCash PositionApplicationsThe market value of

120、a company is equal to the present value of its expected future cash flowsVarious stakeholders demand cashinvestors demand CASH returnssuppliers and employees require CASH compensationdebtholders demand CASH paymentsAccounting methods can be used to “manage” earnings; CASH is harder to manipulateCash

121、 is King!Valuation (mergers, acquisitions)Business unit analysisPortfolio managementWhat is the cash generation potential of an investment/ acquisition?What are we willing to pay (in cash) for that investment/acquisition?How healthy is a business unit?What factors have effected the business units ab

122、ility to generate cash/value over time?How can the business units cash management be improved?What is the overall balance of cash users/cash generators in a clients portfolio of businesses?How does this effect the clients overall cash position/outlook?What restructuring can be done to improve this p

123、rofile?CF = common denominatorCF = measuring stickCF = portfolio toolSCF, B/S and NotesSCF, B/S and NotesOperating cash flowFinancing cash flow=65CU7010598KRAbcBOS Copyright 1998 Bain & Company, Inc. Takeaway Slides (p. 2) Cash FlowTypes of Cash FlowOperating Cash FlowInvesting Cash FlowFinancing Ca

124、sh FlowOperating cash flowInvesting cash flowFinancing cash flowAbility of a companys recurring operations to generate cashAbility of a companys investment decisions to generate cashHow a company funds its operationsOperating profitsDecrease in working capitalSale of fixed assetsLong-term issuance o

125、f shares Examples of sources:Operating losses Increase in working capitalPurchase of fixed assetsRepayment of loans Payment of dividends Examples of uses:Investments in ongoing operations - property, plant and equipment - are included in investing cash flowcash is used to replace assets as they wear

126、 outif a business is to grow, additional assets must be acquiredin some cases, the cash used to acquire these assets is generated from the sale of existing noncurrent assetssuch cash inflows, however, seldom cover the entire cost of asset acquisitions. Often times, cash flow from operations is used

127、to finance acquisitions, or, failing a positive operating cash flow, external financing is usedPure financing activities are not included in investing cash flow. They are included in financing cash flowpurchase or sale of divisions or companiesinvestments in unrelated businessesInvesting cash flows

128、relating to ongoing operations are used as a measure of the strategic value of a business. Those that are purely financing/investment mechanisms are used to evaluate the financial strategy of the businessOperating cash flow excludes all cash flows related to a firms capital structurecash generation

129、ability is independent of how a firm is financedIt excludes one-time eventsthese are not related to a firms recurring operationsOperating cash flow is used to measure the strategic value of a businessfor company valuations, operating and investing cash flows are used, not financing cash flowBain is

130、usually more interested in operating and investing cash flow than in financing cash flowMajor types of financing cash flow include: debt-related transactions8changes in long-term debt8interest income and expenseequity-related transactions8changes in common and preferred stock8dividends8short-term investmentslong-term asset and liability transactions8purchase or sale of a division or company8changes in long-term liabilities66CU7010598KRA