\"Cash Flows\" Please respond to the following: For this week\'s eActivity, rese
ID: 2560112 • Letter: #
Question
"Cash Flows" Please respond to the following:For this week's eActivity, research one (1) publicly traded company in which you are interested using the Internet and/or Strayer databases. Review its most recent statement of cash flows and income statement on the company Website. Be prepared to discuss.
Outline a strategy for companies to spend excess cash and maximize the value of that spend. Provide a rationale for your response. Compare and contrast the selected company’s statement of cash flows to its income statement. Suggest at least two (2) items from each statement that investors should analyze when deciding whether or not to purchase the company’s stock. Justify your response. "Cash Flows" Please respond to the following:
For this week's eActivity, research one (1) publicly traded company in which you are interested using the Internet and/or Strayer databases. Review its most recent statement of cash flows and income statement on the company Website. Be prepared to discuss.
Outline a strategy for companies to spend excess cash and maximize the value of that spend. Provide a rationale for your response. Compare and contrast the selected company’s statement of cash flows to its income statement. Suggest at least two (2) items from each statement that investors should analyze when deciding whether or not to purchase the company’s stock. Justify your response. "Cash Flows" Please respond to the following:
For this week's eActivity, research one (1) publicly traded company in which you are interested using the Internet and/or Strayer databases. Review its most recent statement of cash flows and income statement on the company Website. Be prepared to discuss.
Outline a strategy for companies to spend excess cash and maximize the value of that spend. Provide a rationale for your response. Compare and contrast the selected company’s statement of cash flows to its income statement. Suggest at least two (2) items from each statement that investors should analyze when deciding whether or not to purchase the company’s stock. Justify your response.
Explanation / Answer
FASB Concepts Statement 1 states, "Since investors and creditors' cash flows are related to enterprise, financial reporting should provide information to help investors, creditors, and others assessthe amounts, timing and uncertainty of net cash inflows to the related enterprise." Thus cash flow statements are designed to let creditors and lenders and other interested parties to know realistically an enterprise's cash flows and thus plan their own cash flows accordingly. The income statement falls short of this view as the cash flow statements differentiate between cash items and non-cash items of an income statement and build on that to build the cash flow statement.
With this the enterprise is also armed at all times to meet their cash requirements at any point in time.
The cash flow statement can be built from the net income figure of the income statement and then add to it the net cash flows from operating, investing and financing activities of the enterprise. The net cash balance is arrived by adding to the beginning cash balance at a point in time with the figures computed for net cash flows from the operations, investing and financing activities of the company at that point in time.
Below is appended the income and cash flow statement of ITC Ltd. of India which clearly shows how the income statement and other components from there can be used to build the cash flow statement:
Source : Dion Global Solutions Limited
On analysis of these statements one can see that the current year has a significant increase in its inventory that could possibly have been better managed and that would have positively impacted the income statement and as well as the net cash balance of the company.
One definitely good aspect that can be seen from the income statements is that the company has a healthy trend of disbursing dividends to its shareholders and that reflects well on its cash flow management too.
Cash Flow of ITC ------------------- in Rs. Cr. ------------------- Mar '17 Mar '16 Mar '15 Mar '14 Mar '13 12 mths 12 mths 12 mths 12 mths 12 mths Net Profit Before Tax 15502.96 14958.39 13997.52 12659.11 10684.18 Net Cash From Operating Activities 0 0 9308.87 6962.3 6709.89 Net Cash (used in)/from 0 0 -4822.57 -2823.29 -3580.78 Investing Activities Net Cash (used in)/from Financing Activities 0 0 -4573.61 -4173.85 -3232.55 Net (decrease)/increase In Cash and Cash Equivalents 84.07 39.5 -87.31 -34.84 -103.44 Opening Cash & Cash Equivalents 72.19 36.29 123.6 155.9 259.34 Closing Cash & Cash Equivalents 156.26 75.79 36.29 121.06 155.9 Profit & Loss account of ITC ------------------- in Rs. Cr. ------------------- Mar 17 16-Mar 15-Mar 14-Mar 13-Mar 12 mths 12 mths 12 mths 12 mths 12 mths INCOME Revenue From Operations [Gross] 55,001.69 51,582.45 49,964.82 46,712.62 41,809.82 Less: Excise/Sevice Tax/Other Levies 15,359.78 15,107.18 13,881.61 13,830.06 12,204.24 Revenue From Operations [Net] 39,641.91 36,475.27 36,083.21 32,882.56 29,605.58 Other Operating Revenues 446.77 362.12 424.19 356.04 295.69 Total Operating Revenues 40,088.68 36,837.39 36,507.40 33,238.60 29,901.27 Other Income 1,985.91 1,803.74 1,543.13 1,107.14 938.7 Total Revenue 42,074.59 38,641.13 38,050.53 34,345.74 30,839.97 EXPENSES Cost Of Materials Consumed 11,765.56 11,054.75 10,987.83 10,263.28 8,936.21 Purchase Of Stock-In Trade 3,566.57 2,590.08 3,898.66 3,021.47 3,375.92 Changes In Inventories Of FG,WIP And Stock-In Trade 644.17 58.17 -214.53 -128.41 -246.35 Employee Benefit Expenses 2,444.31 1,883.51 1,780.04 1,608.37 1,387.01 Finance Costs 22.95 49.13 57.42 2.95 86.47 Depreciation And Amortisation Expenses 1,038.04 1,034.45 961.74 899.92 795.56 Other Expenses 7,090.03 7,012.65 6,581.85 6,019.05 5,820.97 Total Expenses 26,571.63 23,682.74 24,053.01 21,686.63 20,155.79 17-Mar 16-Mar 15-Mar 14-Mar 13-Mar 12 mths 12 mths 12 mths 12 mths 12 mths Profit/Loss Before Exceptional, ExtraOrdinary Items And Tax 15,502.96 14,958.39 13,997.52 12,659.11 10,684.18 Profit/Loss Before Tax 15,502.96 14,958.39 13,997.52 12,659.11 10,684.18 Tax Expenses-Continued Operations Current Tax 5,285.65 4,948.76 4,043.28 3,936.64 2,989.06 Deferred Tax 16.41 166.47 353.15 25.84 289.8 Tax For Earlier Years 0 -1.55 -6.64 -88.58 -13.07 Total Tax Expenses 5,302.06 5,113.68 4,389.79 3,873.90 3,265.79 Profit/Loss After Tax And Before ExtraOrdinary Items 10,200.90 9,844.71 9,607.73 8,785.21 7,418.39 Profit/Loss From Continuing Operations 10,200.90 9,844.71 9,607.73 8,785.21 7,418.39 Profit/Loss For The Period 10,200.90 9,844.71 9,607.73 8,785.21 7,418.39 17-Mar 16-Mar 15-Mar 14-Mar 13-Mar 12 mths 12 mths 12 mths 12 mths 12 mths OTHER ADDITIONAL INFORMATION EARNINGS PER SHARE Basic EPS (Rs.) 8.43 12.26 12 11.09 9.45 Diluted EPS (Rs.) 8.38 12.2 12 10.96 9.33 VALUE OF IMPORTED AND INDIGENIOUS RAW MATERIALS Imported Raw Materials 0 1,345.56 1,523.07 1,249.66 1,071.64 Indigenous Raw Materials 0 9,709.19 9,464.76 9,013.62 7,864.57 STORES, SPARES AND LOOSE TOOLS Imported Stores And Spares 0 69.93 66.13 85.77 65.89 Indigenous Stores And Spares 0 178.52 165.2 151.52 153.42 DIVIDEND AND DIVIDEND PERCENTAGE Equity Share Dividend 6,840.12 6,840.12 5,009.70 4,771.91 4,148.46 Tax On Dividend 1,333.52 1,392.48 1,019.86 810.99 705.03 Equity Dividend Rate (%) 475 850 625 600 525Source : Dion Global Solutions Limited
On analysis of these statements one can see that the current year has a significant increase in its inventory that could possibly have been better managed and that would have positively impacted the income statement and as well as the net cash balance of the company.
One definitely good aspect that can be seen from the income statements is that the company has a healthy trend of disbursing dividends to its shareholders and that reflects well on its cash flow management too.
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