The document discusses cash flow analysis and statements. It explains that cash flow statements show inflows and outflows from operating, financing, and investing activities. It provides examples of analyzing cash flows from these different activities to assess a company's financial health and sustainability. Key things to examine include cash flow from operations, investments, ability to pay debts, and reliance on internal vs external financing.

1. CASH FLOWS ANALYSIS

3. THE CASH FLOWS AND THE FIRM’S BUSINESS CYCLE

4. It is the cash flow generated by the firm from its day to day operations and not from financing or investment operations Normal business activity of the company Operating Cash Flow= EBITDA – change in working capital CASH FLOWS FROM OPERATING ACTIVITIES EBITDA Change in WC Cash flow from operations

5. EXAMPLE: CASH FLOWS FROM OPERATING ACTIVITIES

9. EXAMPLE

12. EXAMPLE

16. The Quality of Income Ratio is calculated as: Cash Flow from Operations Net Income This ratio should be > 1 for a healthy firm QUALITY OF INCOME RATIO

17. PROBLEM SOLVING 1-Prepare a cash flow statement starting from year 2 2- Calculate the quality of income ratio of the firm 3- Analyze the growth in cash flows for the firm A start up showed the floowing cash flows during the last 5 years of its business activity: 1 2 3 4 5 Net PP&E 100 110 120 130 140 Working capital 200 225 250 280 315 EBITDA NA 40 44 48 52 Depreciation NA 10 11 12 13 Interest expense NA 15 17 19 22 Tax expense NA 7.5 8 8 8.5 Dividends Source: Vernimmen 5 5 5 5 6