The Cash Flow Statement

1
The Cash Flow Statement

• Crow River Investment Club
• June 10, 2003

2
References

• The Motley Fool Investment Workbook
• A Cash Flow Statement (Lowes)
• www.investorwords.com

3
Agenda

• Purpose
• Terms
• Analysis

4
Purpose

• Indicator of financial health of company
• Considered by some experts to be a better measure
  than earnings
• Shows the directional flow of money
• Where it comes from
• Where it goes

5
Basic Overview

• Net income
• Add Depreciation
• Subtract non-cash assets
• Add current liabilities that havent been paid
• Result -gt an understanding of cash flow

6
Basic Terms

• Net income
• From the income statement
• Depreciation
• Loss of value of previous purchase
• Accounts receivable
• What is still owed to the company
• Remember -gt an increase may mean the company
  isnt effectively collecting for its product
• Inventory
• What the company still owns
• Increasing inventory means the company is
  producing faster than its selling
• Cash Provided by Operations
• Should be positive and rising
• If negative, indicates company cannot fund growth
  from internal means

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Basic Analysis

• Free Cash Flow
• (Cash Provided by Operations) (Dividends Paid)
  (PPE)
• Measure the means a company has to increase
  shareholder value
• Stock re-purchase
• Debt reduction
• Acquisition

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CF Example - LOW

• Cash Flows from Operating Activities
• FY02 FY01
• Net Earnings 1471 1023
• Adjustments to Reconcile Net Earnings to Net Cash
• Provided by Operating Activities
• Depreciation and Amortization 645 534
• Deferred Income Taxes 208 42
• Loss on Disposition/Writedown of Assets 18 39
• Tax Effect of Stock Options Exercised 29 35
• Changes in Operating Assets and Liabilities
• Accounts Receivable Net (6) (5)
• Merchandise Inventory (357) (326)
• Other Operating Assets (41) (37)
• Accounts Payable 228 1
• Employee Retirement Plans 40 114
• Other Operating Liabilities 461 193
• Net Cash Provided by Operating Activities 2696 1
  613

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Additional Notes

• Cash Flows from Investing Activities
• Shows how company spends cash
• Cash Flows from Financing Activities
• Shows impact of debt reduction or issue
• Shows cost of dividend payments
• Cash and Cash Equivalents
• Reflects same line on balance sheet

10
Free Cash Flow

• Free Cash Flow
• (Cash Provided by Operations) (Dividends Paid)
  (PPE)
• 2696 66 2362
• 268 Million in FY02

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