【正文】 the exception of cash, tax items, and financing assets and liabilities (., interest and dividends payable)) ?Ask two questions: –was the item noncash? –was the item included in profit before interest and tax? ?If the answer to both is yes, adjust profit before interest and tax –., depreciation add back to profit before interest and tax –., loss on sale of asset add back to profit before interest and tax ?If answer to either question is no, make no adjustments bc BOS Copyright169。 Company, Inc. 23 CU7010598KRA Cash Flow Step 1 Profit Before Interest and Tax Answer Profit before interest and tax*: $1, 1996 Operating cash flow begins with profit before interest and tax. *Shown as profit from operations on The New England Razor Company’s ine statement bc BOS Copyright169。 Company, Inc. 22 CU7010598KRA Cash Flow Step 1 Profit Before Interest and Tax Where to find: Process: Comments: ?Ine statement ?It can be labeled in many different ways, including profit before interest and tax, profit from operations, operating profit, and earnings before interest and tax ?If ine statement is provided, pick number from ine statement ?If ine statement is not provided, calculate profit before interest and tax: Profit before taxes Interest ine and other ine (earned) + Interest expense and other expenses (incurred) Any onetime gains included in profit before taxes + Any onetime losses included in profit before taxes = Profit before interest and tax (PBIT) ?The goal is to get profit before interest payments, tax payments, and extraordinary items bc BOS Copyright169。 Company, Inc. 21 CU7010598KRA Cash Flow Operating Cash Flow *Cash is defined as cash plus marketable securities minus shortterm notes **I/S = ine statement, SCF = statement of cash flows, B/S = balance sheet + +/ +/ +/ = 1. Profit before interest and tax (PBIT) 2. Depreciation 3. Other noncash expenses/ine 4. Decrease/increase in working capital (excluding cash) 5. Taxes paid 6. Tax impact of interest ine/expense Operating cash flow = 7. Capital expenditures Investing cash flow +/ +/ +/ +/ +/ = 8. Interest ine/expense 9. Tax impact of interest expense/ine 10. Increase/decrease in longterm debt 11. Increase in outstanding stocks/shares 12. Dividends 13. Changes in other accounts Financing cash flow 14. Reconcile with change in cash* from Balance Sheet Net cash flow Source** I/S SCF, B/S and Notes Notes B/S I/S, B/S I/S I/S I/S B/S B/S B/S, I/S B/S SCF, B/S and Notes SCF, B/S and Notes bc BOS Copyright169。 Company, Inc. 20 CU7010598KRA Cash Flow ?Property, Plant and Equipment ?Less accumulated depreciation ?Net Property, Plant, and Equipment 1996 (in $MM) $7, $2, $5, 1995 (in $MM) $6, $2, $4, Note 1: Property, Plant and Equipment Note 2: Dividends The pany declared dividends of $ in 1996 Note 3: Sale of assets A loss of $22MM was incurred on equipment sold during the year The equipment had an original cost of $ and was sold for $ Exercise Background (p. 3) Notes to the financial statements are a critical source of information. bc BOS Copyright169。 Equipment Liabilities and Stockholders’ Equity Current Liabilities ?Loans payable ?Current portion of LongTerm debt ?Accounts payable and accrued expenses ?Ine taxes payable Total Current Liabilities LongTerm Debt Deferred Ine Taxes* Other LongTerm Liabilities Dividends Payable Stockholders’ Equity ?Common stock ?Additional Paidin Capital ?Retained Earnings ?Treasury stock Total Stockholder’s Equity $ $ $2, $1, $ $ $4, $5, $9, $ $ $1, $ $2, $1, $ $ $ $ $ $4, ($1,) $4, 1995 $ $ $2, $1, $ $ $4, $4, $8, $ $ $1, $ $2, $1, $ $ $ $ $ $3, ($1,) $3, $9, $8, Balance Sheet December 31, 1996 and 1995 (in $MM) 1996 Exercise Background (p. 2) bc BOS Copyright169。 1998 Bain amp。 Company, Inc. 18 CU7010598KRA Cash Flow Exercise Background (p. 1) *This exercise is based on The Gillette Company’s financial statements in 1996. Since several modifications have been made to the financial statements, the information provided hereafter should not be used to analyze Gillette’s financial performance. ?Net Sales ?Cost of Sales ?Gross Profit ?SGamp。 Company, Inc. 17 CU7010598KRA Cash Flow Agenda ?The importance of cash flow ?Types of cash flow ?Applications ?Cash flow steps ?Exercise ?Key takeaways bc BOS Copyright169。 Company, Inc. 16 CU7010598KRA Cash Flow Cash Flow Cookbook *Cash is defined as cash plus marketable securities minus shortterm notes **I/S = ine statement, SCF = statement of cash flows, B/S = balance sheet + +/ +/ +/ = 1. Profit before interest and tax (PBIT) 2. Depreciation 3. Other noncash expenses/ine 4. Decrease/increase in working capital (excluding cash) 5. Taxes paid 6. Tax impact of interest ine/expense Operating cash flow Bain case teams use the following cash flow cookbook: = 7. Capital expenditures Investing cash flow +/ +/ +/ +/ +/ = 8. Interest ine/expense 9. Tax impact of interest expense/ine 10. Increase/decrease in longterm debt 11. Increase in outstanding stocks/shares 12. Dividends 13. Changes in other accounts Financing cash flow 14. Reconcile with change in cash* from Balance Sheet Net cash flow Source** I/S SCF, B/S and Notes Notes B/S I/S, B/S I/S SCF, B/S and Notes I/S I/S B/S B/S SCF, B/S, and Notes B/S, I/S B/S bc BOS Copyright169。 Company, Inc. 15 CU7010598KRA Cash Flow Agenda ?The importance o