6 The Sources and Uses of Corporate Cash Decrease in any asset Increase in any liability Net profits after taxes Depreciation and other non-cash charges Sale of stock Increase in any asset Decrease in any liability Net loss Dividends paid Repurchase or retirement of stock SourcesUses
7 Global Petroleum’s Statement of Retained Earnings
9 Accounting Profit vs. Cash Flow What are key measures of cash flow? Accounting Profit based on accrual accounting—focus on past periods Finance emphasizes the importance of timing “You can’t deposit net income, only cash” Timing of cash flow matters. Accrual accounting may obscure timing.
10 Key Measures of Cash Flow Total Cash Generated Cash Flow Before Repaying Lenders Cash Flow Firm Could Distribute to Investors Cash Flow from Operations Operating Cash Flow Free Cash Flow
11 Types Of Financial Ratios Liquidity Ratios Current Ratio Quick Ratio Turnover Ratios Collection/Payment Period Debt-to-Equity Ratio Times Interest Earned Ratio Gross Margin EPS P/E Ratio Market-to-Book Ratio Activity Ratios Debt Ratios Profitability Ratios Market Ratios
17 Financial Ratios For Cross-Sectional and Trend Analysis Cross-Sectional Analysis: Comparing Different Firms’ Financial Ratios at the Same Point in Time Compared to firms in same industry Benchmarking - compares a company’s ratio values to those of competitors that company wishes to emulate Trend Analysis - Performance Evaluation Over Time Developing trends can be seen using multiyear comparison