Partitioning Cash Flows - NACM
[Pages:48]Cash Flow Construction: Modified UCA Cash Flow Format
Dr. Charles W. Mulford Invesco Chair and Professor of Accounting
Scheller College of Business Georgia Institute of Technology
Atlanta, GA 30332-0520 (404) 894-4395
C. Mulford: Cash Flow Construction, page: 1
Partitioning Cash Flows
Cash flow activity can be partitioned in many ways. Consider, the following example.
Star Therapeutics, Inc.
The income statement. . .
Year-ended March 31, Amounts in (000's)
2018
Net Sales Cost of sales
Gross profit
$ 20,359 8,480
11,879
Costs and expenses: Selling, general and administrative expense Research and development Total costs and expenses Operating income
4,791 113
4,904 6,975
Interest income Earnings before income taxes
Income taxes Net earnings
97 7,072 2,762 $ 4,310
2017
$ 14,518 6,916 7,602
3,777 70
3,847 3,755
50 3,805 1,199 $ 2,606
C. Mulford: Cash Flow Construction, page: 2
Star Therapeutics, Inc. (cont'd)
The balance sheet. . .
Current Assets: Cash Marketable securities Accounts receivable, net Inventories Income taxes refundable Prepaid expenses Deferred income taxes
Assets
2018
$ 1,809 1,029 2,872 4,011 145 356
Total current assets
10,222
Property and equipment, net Other assets, net
500 56
$ 10,778
Liabilities and Shareholders' Equity
Current liabilities: Accounts payable Accrued expenses Income taxes payable
$ 399 424 180
Total current liabilities
1,003
Shareholders' equity: Common stock Retained earnings (deficit) Treasury stock
Total shareholders' equity
6,791 3,052
(68) 9,775
$ 10,778
2017
$ 1,219 416
2,126 1,845
84 125 154
5,969
346 56
$ 6,371
$
514
283
-
797
6,832 (1,258)
5,574
$ 6,371
C. Mulford: Cash Flow Construction, page: 3
The One-Minute Cash Flow Statement. . .
Star Therapeutics, Inc. Cash Flow Statement Year Ended March 31, 2018
Beginning Cash
$ 1,219
Net Cash Flow
590
Ending Cash
$ 1,809
The one-minute cash flow is nothing more than a reporting of the net change in cash.
? Lacks detail
? Why the change in cash?
C. Mulford: Cash Flow Construction, page: 4
The Ten-Minute Cash Flow (balance sheet changes):
Star Therapeutics, Inc. Cash Flow Statement Year Ended March 31, 2018 Sources of cash:
Decreases in assets: Dec. in income taxes refundable
$ 84
Increases in liabilities and shareholders' equity:
Inc. in accrued expenses
141
Inc. in income taxes payable
180
Inc. in retained earnings
4,310
Total sources of cash
Uses of cash:
Increases in assets: Inc. in marketable securities Inc. in accounts receivable, net Inc. in inventories Inc. in prepaid expenses Inc. in deferred income taxes Inc. in property and equipment, net
$ (613) (746)
(2,166) (20) (202) (154)
$ 4,715
Decreases in liabilities and shareholders' equity:
Dec. in accounts payable
(115)
Dec. in paid in capital, net
(109)
Total uses of cash
(4,125)
Change in cash
$ 590
C. Mulford: Cash Flow Construction, page: 5
Balance sheet changes ? Provides detail ? Still, questions arise.
? Are cash flows sustainable? ? What portion of cash flow is from operations versus
other sources?
C. Mulford: Cash Flow Construction, page: 6
The "???"-Minute Cash Flow (indirect method):
Star Therapeutics, Inc. Cash Flow Statement Year Ended March 31, 2018
Cash Provided by Operations:
Net income Depreciation expense Inc. in accounts receivable, net Inc. in inventories Dec. in income taxes refundable Inc. in prepaid expenses Inc. in deferred income taxes Dec. in accounts payable Inc. in accrued expenses Inc. in income taxes payable
$ 114 (746)
(2,166) 84 (20)
(202) (115) 141 180
Cash Provided by Operations
Investing Expenditures:
Inc. in marketable securities Inc. in property and equipment, net
(adjusted for depreciation expense)
(613) (268)
$ 4,310
(2,730) 1,580
Cash (Used) by Investments
(881)
Financing Expenditures:
Dec. in paid-in-capital, net
(109)
Change in cash
$ 590
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