Finance for NonFinancial Managers Fifth Edition

1
Finance for Non-Financial ManagersFifth Edition

• Slides prepared by
• Pierre G. Bergeron
• University of Ottawa

2
The Cash Flow Statement

• Chapter Objectives

1. Explain the importance of managing cash
flow. 2. Analyze cash flow by comparing two
consecutive balance sheets. 3. Explain the
basic structure of the cash flow statement 4.
Describe the structure of the cash flow statement
for not-for-profit organizations.
Chapter Reference Chapter 3 The Cash Flow
Statement
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1. Importance of Managing Cash Flow
Retained earnings

• Internal
• inflow

Amortization
Working capital
Operating activities
Outflow
Financing activities
Debt
Leasing
External inflow
Equity
Contributions
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2. Cash Flow Analysis
Outflow
Inflow
2006
Balance Sheet
Mortgage House Term deposits Automobile Visa
account RRSP Savings account Total
150,000 217,000 5,000 20,000
2,000 28,000 3,000
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Cash Flow Analysis (Balance Sheets of John Badboy)
2006
2005
Inflow
Outflow
Assets Cash in bank Term deposits
Furniture Car House Trailer Total assets
----- ----- 2,000
14,000 10,000 10,000
1,000 2,000 -----
----- ----- -----
1,000 ------ 14,000 30,000
178,000 10,000 233,000
2,000 2,000 12,000 16,000
168,000 ------ 200,000
Liabilities MasterCard The Bay Sears
Brother-in-law Bank loan Trust company Total
liabilities Equity Total liabilities equity
2,000 1,500 2,000
1,000 1,500 20,000 5,000
36,000
----- ----- -----
----- ----- -----
----- 36,000
3,000 2,000 3,000 3,000
4,000 120,000 135,000 98,000 233,000
1,000 500 1,000 2,000
2,500 100,000 107,000 93,000 200,000
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Comparative Balance Sheets (Futurama Ltd.)
2006
2005
Inflow
Outflow
Assets Current assets Cash Prepaid expenses
Accounts receivable Inventory Total current
assets Capital assets (at cost) Accumulated
amortization Capital assets (net) Total
assets Liabilities Current liabilities
Accounts payable Notes payable Accrued
expenses Current income taxes payable Total
current liabilities Long-term debts Common
shares Retained earnings Owners equity Total
liabilities equity
----- ----- ----- -----
----- 40,000 20,000
15,000 2,000 10,000
200,000 15,000 50,000 352,000
22,000 60,000 300,000 218,000
600,000 1,340,000 140,000 1,200,000 1,800,000
195,000 150,000 20,000 80,000
445,000 800,000 300,000 255,000
555,000 1,800,000
18,000 55,000 280,000 185,000
538,000 1,050,000 100,000
950,000 1,488,000 175,000 135,000
18,000 70,000 398,000 600,000
285,000 205,000 490,000 1,488,000
4,000 5,000 20,000 33,000
290,000 ------
----- ----- ----- -----
----- ----- -----
352,000
47,500 399,500
97,500 399,500
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Futurama Ltd.
Income Statement For the year ended December 31,
2006
Sales revenue 2,500,000 Cost of sales
1,900,000 Gross margin 600,000 Operating
expenses Salaries 300,000 Rent
50,000 Amortization 40,000 Other
expenses 15,000 Total operating
expenses 405,000 Income before taxes
195,000 Income taxes 97,500 Net
income 97,500
Statement of Retained Earnings For the year ended
December 31, 2006
Retained earnings December 31, 2005
205,000 Net earnings for the year
97,500 Less Dividends 47,500
50,000 Retained earnings December 31, 2006
255,000
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Rules to Identify Inflow and Outflow of Cash
Inflow of cash
Outflow of cash
Asset accounts
Liability accounts
Equity accounts
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3. Cash Flow Statement
Futurama Ltd. Cash Flow Statement For the Year
Ended December 31, 2006
1.
Operating Activities Net income for the
year 97,500 Amortization 40,000
Net change in non-cash working capital
accounts (11,000) Total
IS
IS or BS
BS
126,500
SRE
BS
BS
167,500
- 290,000
BS
BS
- 4,000
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4. Cash Flow Statement for NFP
Not-For-Profit Organization Cash Flow
Statement For the Year Ended December 31, 2006
1.
Operating Activities Excess of revenues over
expenses Amortization of capital assets Net
change in working capital accounts
2.
Financing and Investing Activities Purchase of
investments Purchase of capital assets
Mortgage Contributions of cash endowments
3.
Net (decrease) Increase in Cash and Term
Deposits Cash and term deposits, beginning of
year Cash and term deposits, end of year