Below is a summary of part of IBM’s Statement of Cash Flows for the year ended December 31, 2001 (in millions of dollars). The firm faces a 37% statutory tax rate. Net cash provided from operating activities 9,274 Cash flow from investing activities: Payments for plant, rental machines and other property (5,616) Proceeds from disposition of plant, rental machines and other property 1,619 Investment in software (565) Purchases of marketable securities (1,079) Proceeds from marketable securities 1,393 Net cash used in investing activities (4,248) Supplemental data: Cash paid during the year for: Income taxes 2,697 Interest paid 1,447 Interest received 617 From this information, calculate free cash flow for 2001. What was the net amount of cash paid out of the firm in financing activities during 2001? Question 4 Below are some summary numbers for a firm for fiscal years 2004 and 2005 (in millions of dollars). Calculate return on common equity (ROCE), return on net operating assets (RNOA), and net borrowing cost (NBC) for the two years. How much of the change in ROCE over the two years is due to: (I) Change in profit margin (II) Change in asset turnover Change in financial leverage Change in borrowing costs? Question 5 The following are summary income statement and balance sheet numbers for a firm (in millions of dollars). The firm has a required return for operations of 9%. Prepare a table on a page giving the following for 2003- 2005. Use beginning-of-period balance sheet numbers in denominators. Return on common equity (ROCE) Return on net operating assets (RNOA) Core return on net operating assets (Core RNOA) Free cash flow Net payments to common shareholders Net payments to net debt holders Asset turnover Core profit margin Growth rate for net operating assets Class, I hope this helps: :) 1) Free cash flow = C – I =d + F 2) Comprehensive income = DCSE + Net Payout to Shareholders Financial leverage : FLEV = NFO/CFE 3) NFO = FL – FA Operating liability leverage NOA = OA – OL OLLEV = OL / NOA 4) RNOA = PM × ATO 5) Residual operating Income: RNOA = OI/NOA FCF : C – I = OI – DNOA 6) OI – ΔNOA = FCF
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Question 3
Below is a summary of part of IBM’s Statement of Cash Flows for the year ended December 31, 2001 (in millions of dollars). The firm faces a 37% statutory tax rate.
|
Net cash provided from operating activities |
|
9,274 |
|
Cash flow from investing activities: |
|
|
|
Payments for plant, rental machines and other property |
|
(5,616) |
|
Proceeds from disposition of plant, rental machines and other property |
|
1,619 |
|
Investment in software |
|
(565) |
|
Purchases of marketable securities |
|
(1,079) |
|
Proceeds from marketable securities |
|
1,393 |
|
Net cash used in investing activities |
|
(4,248) |
|
Supplemental data: |
|
|
|
Cash paid during the year for: |
|
|
|
Income taxes |
|
2,697 |
|
Interest paid |
|
1,447 |
|
Interest received |
|
617 |
- From this information, calculate
free cash flow for 2001. - What was the net amount of cash paid out of the firm in financing activities during 2001?
Question 4
Below are some summary numbers for a firm for fiscal years 2004 and 2005 (in millions of dollars).
- Calculate
return on common equity (ROCE),return on net operating assets (RNOA), and net borrowing cost (NBC) for the two years. - How much of the change in ROCE over the two years is due to:
(I) Change in profit margin
(II) Change in asset turnover
- Change in financial leverage
- Change in borrowing costs?
Question 5
The following are summary income statement and
- Prepare a table on a page giving the following for 2003- 2005. Use beginning-of-period balance sheet numbers in denominators.
- Return on common equity (ROCE)
- Return on net operating assets (RNOA)
- Core return on net operating assets (Core RNOA)
- Free cash flow
- Net payments to common shareholders
- Net payments to net debt holders
- Asset turnover
- Core profit margin
- Growth rate for net operating assets
Class,
I hope this helps: :)
1) Free cash flow = C – I =d + F
2) Comprehensive income = DCSE + Net Payout to Shareholders
- Financial leverage : FLEV = NFO/CFE
3) NFO = FL – FA
- Operating liability leverage
NOA = OA – OL
OLLEV = OL / NOA
4) RNOA = PM × ATO
5) Residual operating Income: RNOA = OI/NOA
FCF : C – I = OI – DNOA
6) OI – ΔNOA = FCF
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