10/17/24
International
Finance
Eric Griette
Not to be reproduced without permission
Statement of Cash Flows
1. Statement of Cash Flows
2. Calculating Operating Cash Flows
(indirect method & direct method)
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Income Statement
Balance Sheet
Statement of Cash Flows
Income Statement Balance Sheet Statement
of Cash
Assets Liabilities. flow
Bank
100 000
Equity
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Accrual Accounting
Cash Accounting
Accrued revenue: revenue is recognized before cash is
received.
Accrued expense: expense is recognized before cash is
paid out.
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Accrual Accounting
• The performance of a company, during an accounting
period, is measured by recognizing operations regardless of
when cash transactions occur.
Accrual Accounting
• The performance of a company, during an accounting
period, is measured by recognizing operations regardless of
when cash transactions occur.
• Revenues are recorded when goods or services are sold,
regardless of when cash transactions occur.
• Operations are recognized by matching revenues to
expenses when transaction occurs
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Effectiveness:
-in generating cash
-in meeting cash obligations
-in generating cash flows in the future
On December 1, 2009 RETAIL STORE sells a $1,500 computer.
Customer Nancy pays $500 in cash and signs an installment
agreement for the remaining $1,000 to be paid in 2010,
the following year.
On the income statement of RETAIL STORE, how much revenue
should be recognized?
a. in 2009?
b. in 2010?
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In this accounting period, CYCLES GALORE purchased 10
bicycles for $100 each at wholesale and sold six bicycles for $300
each to customers.
On the income statement of CYCLES GALORE, how much will
be reported for…
a. Sales revenue?
b. Cost of goods sold?
c. Gross profit?
d. The cost of the four unsold bicycles will remain
part of (inventory / COGS / retained earnings) reported on the (BS
/ IS / RE / CF).
What amount will be reported?
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Accrual Cash
Aug 1 Paid August office rent of $3,000.
Purchased and paid $35,000 for
Aug 5
merchandise inventory.
Sold merchandise for $50,000 to
customers at retail that cost $22,000
Aug
wholesale. Received cash from
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customers. Suppliers have not been
paid.
Received and paid a $1,500
Aug
advertising bill for August,
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September, and October.
Aug Paid September office rent of
30 $3,000.
Aug Change in cash balance
31
Aug August net income
31
Accounting Period : August
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Assets Liabilities & Equity
Cash Accounts payable (AP)
Short term Debt
Short-term investments Current portion of LT Debt
Accounts receivable (AR) Other Liabilities
Inventory Total current liabilities
Prepaid expenses Long-term debt
Total current assets Bonds
Contingencies
Total non current liabilities
Total Liabilities
Fixed Assets
Property & equipment Stockholders' equity
Goodwill Common stock
Long-term investments Retained earnings
Other assets Reserves
Total non current assets Total Equity
Total Assets Total Liabilities & Equity
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January 1st : Creation of the company : 100 000 shares of 1€ each 1
paid cash
Income Statement Balance Sheet Cash Mvts
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January 1st : Creation of the company : 100 000 shares of 1€ each 1
paid cash
Income Statement Balance Sheet Cash Mvts
Current
Assets
Bank
100 000
Equity
Capital
100 000 + 100 000
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Statement of cash flows
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
________________________________
= Change in the cash account
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OPERATING ACTIVITIES
CASH INFLOWS CASH OUTFLOWS
Cash from customers Cash paid to suppliers
Interest received* Cash paid to employees
Interest paid*
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INVESTING ACTIVITIES
CASH INFLOWS CASH OUTFLOWS
Sells property, plant, equipment Purchase property, plant,
Sells securities equipment
Purchase securities
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FINANCING ACTIVITIES
CASH INFLOWS CASH OUTFLOWS
Borrow cash from creditors Repay amounts borrowed
(debt principal)
Issue debt securities (bonds)
Issue shares (capital stock) Pay cash dividends
Interest received* Interest paid *
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Statement of cash flows
Cash flow from operating activities
+Cash flow from investing activities
+Cash flow from financing activities
= Net Change in the cash account (end of accounting
period N)
+ Beginning cash and cash equivalents (beginning of a.
period N-1)
= Ending cash (end of accounting period N)
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Sales
- COGS
Gross Profit
- Selling & Administration Costs
- Advertising & Promotions
- R&D
EBITDA
- Depreciation/Amortization
- Other Operating Income / Expenses
Operating income before non recurring Income/Expense (EBIT)
- Non-recuring Income and Expenses
Operating income / Loss
- Cost of net Debt…
- Other financial income or expenses
- Forex Gains and Losses
EBT
- Taxes
Net Earnings
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Net Operating Cash Flow /Free cash flow
Indirect method
Net Profit
+ Depreciation / Amortization costs
- Gains on sold Assets
= Operating Cash Flow
- increases in current assets (Receivables, Inventories...)
+ increases in current liabilities (Payables ...)
= Net Operating Cash Flow
- CAPEX
= Free Cash Flow
22
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Net Operating Cash Flow /Free cash flow
Indirect method
Net Profit
+ Amortization costs
= Operating Cash Flow
- increases in current assets (Receivables, Inventories...)
in
W oba ges
+ increases in current liabilities (Payables ...)
Gl han
l
pi g
Ca rkin
l
C
ta
= Net Operating Cashflow
o
- CAPEX
= Free Cash Flow
23
24
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Operating Cycle / Cash
Cycle
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Working Capital Requirement
Working Requirement (WCR)
= (Accounts receivable (A/R)+ Inventories) – A. Payable (A/P))
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Net Operating Cash Flow /Free cash flow
Indirect method
Net Profit
+ Depreciation / Amortization costs
- Gains on sold Assets
= Operating Cash Flow
- increases in current assets (Receivables, Inventories...)
+ increases in current liabilities (Payables ...)
= Net Operating Cash Flow
- CAPEX
= Free Cash Flow
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Cash Flow Margin
Cash flow from operating activities
* 100
Net sales
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Free Cash Flow Margin
Free Cash flow
* 100
Net sales
29
Operating Cash Flow, millions of Euro, 2015-2018 Free Cash Flow, millions of Euro, 2015-2018
5 974 2 000 1 912
6 000
5 000 4 368 1 500
3 923
4 000 3 450
971
1 000
3 000 744
2 000
500
1 000 137
0 0
2015 2016 2017 2018 2015 2016 2017 2018
Lufthansa
ØFree cash flow is positive
30
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Debt Ratio / Operating Cash Flows
Total Debt (LT + ST )
Operating Cash Flows
31
32
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33
Lufthansa 2018
34
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35
36
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