Unlocking Financial Statements - Day 4

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Jimmy Gentry presents "Unlocking Financial Statements," a business journalism Webinar hosted by the Donald W. Reynolds National Center for Business Journalism at Arizona State University's Cronkite School of Journalism.

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Unlocking Financial Statements - Day 4

  1. 1. <ul><ul><ul><ul><ul><li>Online Seminar </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Day 4 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>July 22, 2010 </li></ul></ul></ul></ul></ul>Unlocking Financial Statements
  2. 2. <ul><li>Statement of Cash Flows </li></ul>Understanding Financial Statements
  3. 3. Accrual Method <ul><li>Records revenues as soon as the “sale” occurs </li></ul><ul><li>Records expenses as soon as the bill is received </li></ul><ul><li>IE, transactions enter the financial records when they occur, not when cash changes hands </li></ul><ul><li>Accrual method, therefore, shows “scores,” not real spendable dollars </li></ul>Understanding Financial Statements
  4. 4. Statement of Cash Flows <ul><li>Record of cash provided by cash sources and of cash consumed by cash uses . </li></ul>Understanding Financial Statements
  5. 5. Cash Flows (cont.) <ul><li>Information about use of cash </li></ul><ul><li>Information about investing and financing </li></ul><ul><li>Ability to continue as a going concern </li></ul><ul><li>Ability to generate future positive cash flows </li></ul><ul><li>Ability to meet obligations and pay dividends </li></ul>Understanding Financial Statements
  6. 6. Cash Flows <ul><li>From operations </li></ul><ul><li>From investing </li></ul><ul><li>From financing </li></ul>Understanding Financial Statements
  7. 7. Flexibility <ul><li>Companies have some flexibility in categories for entries. </li></ul><ul><li>Total change in cash, however, will not change. </li></ul><ul><li>Overwhelming majority of all accounting standards deal with balance sheet and income statement, not cash flows statement. </li></ul>Understanding Financial Statements
  8. 8. Cash and Cash Equivalents <ul><li>The category Cash and Cash Equivalents shows how much “cash” the company had at the start or end of a period. </li></ul><ul><li>Note the changes in this category. </li></ul>Understanding Financial Statements
  9. 9. Free Cash <ul><li>Powerful tool for making a company successful </li></ul><ul><li>Powerful indicator for investors </li></ul><ul><li>Cash that is left over after productive capacity is maintained or expanded </li></ul><ul><li>Permits expansion, paying down debt, buying back shares, etc. </li></ul>Understanding Financial Statements
  10. 10. Free Cash <ul><li>Several ways to calculate it </li></ul><ul><li>Companies create their own models </li></ul><ul><li>Gross way to do it: </li></ul><ul><ul><li>Cash from operating activities </li></ul></ul><ul><ul><li>Minus capital expenditures </li></ul></ul><ul><ul><li>Equals free cash flow </li></ul></ul>Understanding Financial Statements
  11. 11. American Standard Model <ul><li>Cash from operating activities </li></ul><ul><li>Minus capital expenditures </li></ul><ul><li>Plus proceeds from disposal of property </li></ul><ul><li>Plus proceeds from sale and leasebacks </li></ul><ul><li>Equals free cash flow </li></ul>Understanding Financial Statements
  12. 12. VF Model <ul><li>Cash from operating </li></ul><ul><li>Minus cash used in investing </li></ul>Understanding Financial Statements
  13. 13. Finding Company’s Formula <ul><li>Often requires you to do some digging in the 10-K </li></ul>Understanding Financial Statements

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