【正文】 Author: Collins Qian Contributor: Chris Nelson bc Cash Flow March 1998 Copyright169。 1998 Bain amp。 Company, Inc. bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 2 CU7010598KRA Cash Flow Agenda ?The importance of cash flow ?Types of cash flow ?Applications ?Cash flow steps ?Exercise ?Key takeaways bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 3 CU7010598KRA Cash Flow Agenda ?The importance of cash flow ?Types of cash flow ?Applications ?Cash flow steps ?Exercise ?Key takeaways bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 4 CU7010598KRA Cash Flow What is Cash Flow? Cash flow describes the movement of cash into (sources) and out of (uses) a pany. Sources of cash Company Uses of cash $ $ $ $ $ $ $ $ bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 5 CU7010598KRA Cash Flow Why Do We Care About Cash? ?The market value of a pany is equal to the present value of its expected future cash flows ?Various stakeholders demand cash –investors demand CASH returns –suppliers and employees require CASH pensation –debtholders demand CASH payments ?Accounting methods can be used to “manage” earnings。 CASH is harder to manipulate Cash is King! Cash flow is the measure of a pany’s strategic value. bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 6 CU7010598KRA Cash Flow Earnings vs. Cash Flow* ?Some accounting decisions impact earnings, but not cash –In 1988, General Motors made at least four decisions that impacted earnings but not cash Earnings do not equal cash flow. *Earnings are also called after tax profits or ine ?Successful high growth panies tend to have high earnings, but low cash flow。 successful low growth panies tend to have low earnings, but high cash flow Accounting Decision ?Extended useful plant life from 35 to 45 year schedule ?Changed the way it accounted for its pension plan ?Adjusted its inventory valuation policy ?Changed the residual value assumption for cars it leased Earnings Impact $790MM $480MM $217MM $270MM Cash Impact None None None None Total: $1,757MM None bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 7 CU7010598KRA Cash Flow Agenda ?The importance of cash flow ?Types of cash flow ?Applications ?Cash flow steps ?Exercise ?Key takeaways bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 8 CU7010598KRA Cash Flow Types of Cash Flow Net cash flow is equal to the sum of the cash flows from operating, investing, and financing activities. Operating cash flow Investing cash flow Financing cash flow ?Ability of a pany’s recurring operations to generate cash ?Ability of a pany’s investment decisions to generate cash ?How a pany funds its operations ?Operating profits ?Decrease in working capital ?Sale of fixed assets ?Longterm issuance of shares Examples of sources: ?Operating losses ?Increase in working capital ?Purchase of fixed assets ?Repayment of loans ?Payment of dividends Examples of uses: bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 9 CU7010598KRA Cash Flow Operating Cash Flow *Investing activities not related to ongoing operations (such as the purchase or sale of divisions or panies, or investments in unrelated businesses) are not included in investing cash flow. They are included in financing cash flow. ?Operating cash flow excludes all cash flows related to a firm’s capital structure –cash generation ability is independent of how a firm is financed ?It excludes onetime events –these are not related to a firm’s recurring operations ?Operating cash flow is used to measure the strategic value of a business –for pany valuations, operating and investing cash flows are used, not financing cash flow ?Bain is usually more interested in operating and investing* cash flow than in financing cash flow Operating cash flow measures the ability of a business’s recurring operations to generate cash. bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 10 CU7010598KRA Cash Flow Investing Cash Flow ?Investments in ongoing operations property, plant and equipment are included in investing cash flow –cash is used to replace assets as they wear out –if a business is to grow, additional assets must be acquired –in some cases, the cash used to acquire these assets is generated from the sale of existing noncurrent assets –such cash inflows, however, seldom cover the entire cost of asset acquisitions. Often times cash flow from operations is used to finance acquisitions, or, failing a positive operating cash flow, external financing is used ?Pure financing activities are not included in investing cash flow. They are included in financing cash flow –purchase or sale of divisions or panies –investments in unrelated businesses ?Investing cash flows relating to ongoing operations are used as a measure of the strategic value of a business. Those that are purely financing/investment mechanisms are used to evaluate the financial strategy of the business Investing cash flow measures the use of a business’s cash for the acquisition of noncurrent assets. bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 11 CU7010598KRA Cash Flow Financing Cash Flow ?Major types of financing cash flow include: –debtrelated transactions ? changes in longterm debt ? interest ine and expense –equityrelated transactions ? changes in mon and preferred stock ? dividends ? shortterm investments –longterm asset and liability transactions ? purchase or sale of a division or pany ? changes in longterm liabilities Financing cash flow captures all the nonoperating cash changes experienced during the year, and it provides information on how a pany is funding its operat