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6 Cards in this Set
- Front
- Back
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Cash Definition |
cash + cash equivalents -short term, highly liquid investments -net of demand laons, outstanding balances under a line of credit |
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Cash flow challenges and how to solve them |
significant increase in sales volume -if making lots of sales, need to increase inventory,storage capacity, etc. -problem if you don't have enough cash flow -new businesses can grow themselves out of business solve: can slow rate of growth lengthy cash to cash cycles -cycle of cash between buying inventory and the money collected from customers -buy inventory, inventory sold on account, cash collected -the longer the time length of the cycle, the more restricted their cash flow, which is magnified in high sales times, when lots of people are paying on a account solve: increase cash buyings, shorten credit period, buy from suppliers on account undercapitalization (inadequate financing) -dont have enough financing solve: issue shares, borrow cash |
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3 basic questions for analyzing cash flow statements |
is cash from operating activities sufficient to sustain the company over the long term? do any of the items suggest that the business may be having problems? -large increase in accounts receivable -large increase in inventories -large increase in accounts payable -large disposals in property/plant = contracting of the sources of cash, which are related to items that will ocntinue, and which are sporadic -use historical trend in cash flow |
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cash flow patterns |
operating activity = selling goods investing = buying property/plant/quipment. financing = issuing shares and loans +++ succesful but relocating or reposisitoning, using share from both editors and shareholders ++- successful but downsizing. returning capital to shareholders or repaying debt +- + succesful. growing company. expanding by taking out loans/issuing shares. + - - successful. operations cash provides enough cash to financing growth and repay debts. -++ struggling. selling off inventory and taking out loans in order to support itself - + - = struggling. selling off assets in order to pay its loans and support itself. - - + struggling but trying to expand. taking out loans in order to financing this. - - - struggling. using existing cash balances to cover losses, purchase property and pay off debts |
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what portion of liabilities can be paid off by cash flow from operating activities? |
cash flow from operating activities / total liabilities can be less than 1, because can sell assets. |
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Net Cash Flow |
net free cash flow: cash generated from operating activities that would be available to common shareholders Net free cash flow: cash flow from operating activities - net capital expenditures - dividends on preferred shares net capital expenditures = cash spent on assets - cash made from selling assets dividends on preferred shares: this is the only item from the financing activities sectionnet free cash flow does not yet consider the repayment of bank loans (debt) |
