Measuring Performance Cash Flow

Cash Flow Information Summarized by inflows and outflows into three key activities 2

Presenting Cash Flow Information Two GAAP formats – Direct method – Indirect method Difference is how the cash flow from operations section is constructed Cash flow from investing activities and cash flow from financing activities are the same under both methods 3

The Walt Disney Company Where did Disney obtain and spend its cash?

5 Years Ending (in $millions) Oct. 3, 2009 Sep. 27, 2008 Net Income $3,307 $4,427 Cash flows from operating activities Depreciation 1,631 1,582 Adjustments to net income 657 (14) Changes in accounts receivables 468 (594) Changes in liabilities (325) 488 Changes in inventories (117) (329) Changes in other operating activities (557) (114) Net cash provided by operating activities 5,064 5,446 Cash flows from investing activities Capital expenditures (1,753) (1,578) Investments Other cash for investing activities (574) (668) Net cash used for investing activities (2,096) (2,162) Cash flows from financing activities Dividends paid (648) (664) Sale/purchase of stock (52) (3,817) Net borrowings (1,852) 528 Other cash from financing activities - - Net cash used for financing activities (2,552)(3,953) Net increase In cash and cash equivalents416 (669) Cash and cash equivalents at beg. of year 3,001 3,670 Cash and cash equivalents at end of year$ 3,417 $3,001 Disney used excess cash from operations To acquire long- term assets To buy back stock and pay dividends

Direct and Indirect Method Comparison 6 Operating activities Cash receipts Cash sales $270,000 Total cash receipts Cash disbursements Cash payments for inventory71,000 Cash payments for interest6,300 Cash payment for wages 82,000 Cash payments for selling & adm. 41,000 Cash payments for taxes 15,000 Total cash disbursements 215,300 Cash flow from operations $54,700 Direct Method Operating activities Net income $39,700 Depreciation expense 12,000 Amortization expense 30,000 Accounts receivable (35,000) Inventory (14,000) Accounts payable 13,000 Taxes payable 9,000 $54,700 Cash flow from operations Indirect Method Only the operating activities sections differ

Cash Flow and a Company’s Life Cycle 7 Operating activities  Most important section  Reflects the lifeblood of a company  Principal source of financing for long-term survival