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Capital Investment Basics
Now that you have a handle on budget and cash flow, it’s time to move ahead with new projects. But first you must answer these questions: (1) Is there enough capital? (2) What projects will get priority? The best time—indeed, the only proper time—to make capital investment decisions is well before the actual funds are needed. Far too often, capital spending plans are made on a crisis basis, with the “squeaky wheel getting the most grease.” A slick presentation for someone’s pet project is no true basis for committing part of the firm’s financial resources, no matter how well intentioned that project may be. As a manager with decision-making authority, you need a long-term approach—a system that will enable you to analyze each proposal and then compare it with other possible projects. How to Prepare a Capital Investment Proposal Sooner or later, all serious capital spending proposals are submitted for inclusion in a capital budget. There they are classified, analyzed and evaluated before management makes a final decision on which proposals are most suited to the firm’s needs and objectives. Keep in mind, however, that a successful capital investment program must take your company’s long-range goals and objectives into account. Ideally, you and your staff should provide input in generating and developing capital spending proposals. You should always think in terms of contributing to overall business strategies when choosing among various spending proposals. This link with strategic planning can be accomplished in a variety of ways, depending on your company’s size and the complexity of its operations. Following is a brief rundown of the steps to take in preparing a capital spending proposal. They mirror many of the steps your firm uses in preparing a company-wide capital budget. ● Establish objectives: To set your department on the right growth plan, you must first decide where you want it to go. You must set long-term objectives and take into account top manage-ment’s expectations for the future. ● Develop strategies: Once broad objectives have been established, your department can start to consider various strategies that would help your company achieve its long-term objectives. ● Present proposals: Make each proposal as detailed as possible and include estimated costs and preliminary projections of possible savings. All these steps are essential because your plans will be competing with those of other units in the company. Upper management will evaluate and compare each unit’s spending plans. Those not fitting into strategic goals, or that do not have a good balance between financial stability and growth potential, will end up on the chopping block. Classifying Capital Spending Projects Most firms tend to treat all capital spending projects alike, an approach that can sometimes lead to serious errors in judgment. There are at least four broad categories of capital projects, each requiring a different planning approach and corporate strategy. 1. Mandated expenditures: These are expenditures required by law, such as OSHA safety regula-tions or EPA requirements. In addition, you can include spending projects to protect against product liability lawsuits or possible product recall. 2. Maintenance expenditures: Projects in this category include all those necessary to maintain production levels. Existing facilities or equipment often require repairs or replacement. Because your company’s output will be affected if the expenditures are not made, you should give capital spending for maintenance a high priority. 3. Cost-saving expenditures: This category includes all projects designed to make current operations more efficient or productive. Cost-saving proposals usually involve a choice between the existing method and proposed expenditure, so they should always be supplemented by cash-flow projections. 4. Growth expenditures: This is at once the most important and the most elusive category of capital spending. It includes all expenditures designed to stimulate your company’s growth, whether by introducing new products, entering new markets, purchasing equipment, adding facilities or making acquisitions. Although capital expenditures made for growth can exert a profound long-term influence on a firm, it is usually possible to defer them without undue penalties. For this reason, you should put growth investments at the low end of your capital budget priority scale. Seek funding for mandated and maintenance projects first because they are necessary to keep the firm functioning. Next come cost-saving projects, primarily because they can have an instant impact on the bottom line. Only after spending plans for the first three categories are final should you turn your attention to growth projects.
By Daniel Joseph 4 years ago in Education
What are Backlink Types of Backlinks
Backlinks are a good way to ameliorate hunt machine rankings and increase business to a website. Backlinks are hyperlinks pointing back to your website from other websites. They're extensively considered as one of the most important ranking factors for SEO. The further quality backlinks you have, the better your point will rank in Google hunt results runners and other hunt machine results runners.
By Rapid Seo Services4 years ago in Education
Capital Investment Risks Analysis
If you were given a choice between two projects with the same return, you almost certainly would choose the project with less risk. The higher-risk project could be justified only by a higher return. This is why you must make some provision for assessing the risk in a proposed capital project. Without knowing the risk, you are not in a position to judge whether the project is suitable. At the outset, you should recognize that risk analysis is a difficult job. No method of risk analysis is entirely satisfactory, and each requires a good deal of expertise and judgment on the part of management. Moreover, many risks are difficult to reduce to numbers. For this reason, you should regard the risk analysis methods discussed below as tools. They are not substitutes for sound business judgment. They do, however, force you to view the various projects in the same light, which highlights risk and permits you to compare all of them. In this type of analysis, you attempt to isolate those factors that would have the most impact on cash flow if they were altered. You can identify any number of key variables, such as a sales downturn, the time it takes to put the project into place, increased costs, an economic slowdown and marketing difficulties. After each key variable has been identified, it is changed slightly and NPV is recalculated on the basis of the different cash-flow assumptions. Then the effect of the change is noted and ranked. Illustration: The ABC Company is considering the introduction of a new product that has a net present value of $40,000 over five years. It determines that the most critical variables in its NPV calculations are anticipated sales, pre-production costs and distribution costs. The company then assumes a 10 percent change in each of these variables and recalculates NPV in all three cases. Assuming the following NPV figures, its weighted-risk analysis might look something like this: Change in Variable Change in NPV Sales –10% –30% Distribution costs +10% –25% Pre-production costs +10% –15% In this case, a sales slowdown produces the greatest risk and trims the company’s NPV by 30 percent, or $12,000 on a 10 percent sales dip. Also, it had better keep a watchful eye on distribution costs if the company does go ahead with the project. A 10 percent rise there will cut the NPV by $10,000. Pre-production costs are important but exert less impact than the first two variables. ➤ Observation: Weighted-risk analysis can be very informative, particularly if you are astute enough to isolate the key variables. However, this method also has some limitations. First, there is no provision for measuring the probability of changes in the key factors. Also, changes in a combination of less influential factors could result in a substantial change in cash flows. Adjusting for Probabilities Turn back once again to the ABC Company’s illustration (pages 62–64). We have already demon¬strated that the project would be profitable at both 9 percent and 10 percent discount rates, but would produce only a marginal profit at 11 percent. Your company’s finance department has likely developed estimates of the probability for each cost of capital, based on the outlook for your industry and economic projections. Obtain these estimates from the department. A company estimates the probability of each discount rate for each year that the project will be in force. Then, NPV for each year is adjusted for the probability. Example: Refer to the table below. In Year 1, ABC estimates only a 10 percent chance of a 9 percent discount rate. Therefore, the 9 percent NPV of $13,755 becomes $1,375 ($13,755 x .10). Similarly, the 80 percent probability of a 10 percent discount rate translates into $13,635 x .80, or $10,908. Add to that the $1,351 from the 11 percent column ($13,515 x .10), and the adjusted NPV for Year 1 becomes $13,634. After adjusting for all five years, NPV is a positive $1,759 for the project—an indication that the ABC Company should proceed. Year Discount Rate of 9% Discount Rate of 10% Discount Rate of 11% Adjusted Present Value 1 10% 80% 10% $13,634 2 20 70 10 12,417 3 30 60 10 11,329 4 20 60 20 11,955 5 20 60 20 12,424 Total Cash Flow $61,759 Capital Cost 60,000 Adjusted NPV $ 1,759 The attempt to measure the probability of different scenarios adds a new dimension to risk analysis and can be quite helpful. But remember that it is difficult to assign probability levels four or five years into the future. Alternate Scenarios Measure Risk With this method, you develop three separate NPV or IRR studies for each project. You assume that (1) everything will go exactly as planned, (2) nothing will go right, and (3) things will go more or less as expected, with some bugs. Then you compare the varying degree of risk in each project. For instance, you find two projects with the same midpoint NPV, but one with much more risk if nothing goes right. In that case, you would probably choose the project with the lower risk. It is relatively easy to compare different projects with this method. However, it is also unre¬alistic in that there are few projects launched where everything goes right, and just as few where everything goes wrong. Moreover, there is no adjustment for the various probabilities.
By Daniel Joseph 4 years ago in Education
The Cash-Flow Statement
Another way to keep your cash flow under control is to monitor it correctly. But be sure to use the right cash-flow yardsticks. Because it can be difficult to derive cash-flow information from the usual financial statements, many managers gauge their cash flow either by adding depreciation back into net income or by using working capital from operations as a substitute. Both measures, however, are often at odds with actual cash-flow performance and can give off confusing, or even misleading, signals. ● Net income plus depreciation: Even though many financial pros do use this formula (cash flow = net income + depreciation) to define cash flow, it’s not entirely accurate. The formula represents more a measurement of profitability, or what some business researchers call gross cash flow, than net cash flow. For example, it’s a paradox of business that companies with little or no growth usually have fewer cash problems than high-profit, rapid-growth firms. ● Working capital from operations: Again, some use the working capital formula (current assets – current liabilities = working capital) to measure cash flow. Even though working capital is expressed in dollars, it can’t be spent like cash. Working capital is a concept that doesn’t pay day-to-day bills; only cash does. Flow-of-Funds Statement A cash-basis presentation in your flow-of-funds statement avoids the potential problems of relying too heavily on working capital trends while, at the same time, quickly gives you a clear picture of your company’s overall liquidity. The flow-of-funds or cash-flow statement can be structured a number of ways—none of them complicated—to reflect changes in your cash position. To be useful, your flow-of-funds statement should tell you whether your operations are generating enough cash to support expenditures. Specifically, you will want to know how much cash was generated from operations, how much cash was used, and whether your net cash positions improved or deteriorated during the year. In condensed form, your statement might look like this: ABC Corporation: Flow of Funds (000s) Net cash provided by operations $37,000 Uses of cash: Dividends (20,000) Interest (net of tax) (5,000) Financing activities 7,000 Increase (decrease) in net cash $19,000 Net cash balance— beginning of year $15,000 Net cash balance—end of year $34,000 In this case, the net cash generated by ABC Corporation’s overall operations was more than sufficient to take care of interest charges and a hefty dividend payment. Moreover, financing provided a further increment to cash resources. All in all, cash and cash equivalents more than doubled during the year—an admirable performance. ➤ Observation: The definition of net cash provided by operations is the key to the statement. Normally, this figure encompasses cash raised from sales, less out-of-pocket costs of goods sold and other out-of-pocket expenses. Cash sales means just that. Notes and accounts receivable do not qualify and must be deducted from sales. However, if notes or accounts receivable decline, extra cash is coming into the company and sales should be adjusted upward. Cash cost of goods sold consists of the actual dollars spent for manufacturing during the period. An increase in inventory means that extra cash was spent, so the cost of goods sold should be adjusted upward. A downturn in inventories lowers your cost of goods sold. Conversely, a decrease in accounts or notes payable indicates additional cash payments and raises the cost of goods sold, while an increase lowers the item. Keep in mind that you must also adjust other expenses to reflect cash transactions. If accrued liabilities declined, cash was used to pay them off, so add that amount to cash expenses. An in¬crease in accrued liabilities should be deducted from cash expenses. If prepaid expenses rise, add the amount to cash expenses; if they decline, reduce cash expenses commensurately. Making Your Cash Count Be aware of the opportunities that can enhance the cash you have on hand to meet short-term expenses. For example: Participation in electronic funds transfer (EFT) programs generally leads to a reduction in payment costs, compared with the use of checks. Moreover, by arranging for discounts in return for fast payment, you can reduce receivable carrying costs. Also consider keeping your money in money market accounts. By combining your present checking account with a money market deposit account, you can put your liquid assets to work and save yourself most activity fees in the bargain. Look for other ways or programs that banks have to improve cash management. Managing a Financial Emergency Even if you make all the right moves in managing your cash flow, including reliable forecasts, accurate analysis reports and up-to-date liquidity studies, you may still wind up in the midst of a financial emergency. The reason is simple: Many such emergencies are caused by events outside management’s control, such as an international financial crisis or a severe recession. All financial emergencies have one common characteristic: If not dealt with quickly, the resulting dilemmas create more problems and become a drag on every facet of operation and planning. For this reason, a financial contingency plan should be part and parcel of every cash-management program. The objective of your financial contingency plan should be to quicken your response time to unforeseen financial strains. No two financial contingency plans will be the same simply because no two companies are alike. Nevertheless, every plan should contain basic elements: ● Develop an early warning system: Earlier, we observed that early warning is the key to effective cash management. Nowhere is this more true than in dealing with a cash crisis. The first step is to determine which key variables have the greatest impact on the financial viability of your firm. These variables will differ from firm to firm. For some, inventories will be the culprit. Still others might find loan interest to be the chief burden. Also, keep close watch on the assumptions that have been built into your cash-flow forecasts. Oftentimes, the fact that one or more of the assumptions have proved invalid is the earliest warning sign of impending difficulty. For instance, if your forecast assumes that interest rates will drift lower and they go up instead, your company could be headed for trouble, particularly if you will need to do some financing. Further, you should take a close look at your company’s history to find the cause and cure of past financial crises. History may not repeat itself; but even if it doesn’t, your knowledge of how past difficulties have been overcome should yield positive results when dealing with the next crisis. ● Set your priorities: Once you have identified an emerging financial crisis, you will need to know the following: (1) what can be done; (2) how long will it take; and (3) how much cash you can raise. The best way to obtain this information is to establish a list of priorities, organized around the four types of management decisions discussed in the beginning of this section. To that, you could add potential financing sources, so your priority list probably would wind up looking something like the sample on page 54. Priority List Type of Action Estimated Cash Response Time Timing Changes Speed Collections Delay Supplier Payments Delay Capital Expenditure Other Policy Changes Reduce Inventory Reduce Dividend Cut Capital Expenditure Reduce Expenses: Administration Production Sales Volume Changes Cut Part‑Time Cut Overtime Cut Shift Layoffs Irreversible Policy Changes Liquidate Assets Financing: Short‑Term Long‑Term Equity ➤ Observation: Each type of action has its own strengths and drawbacks. For instance, tim¬ing changes are easy to implement but can go only so far and will merely delay the inevitable in a protracted crisis. Volume changes can change cash-flow patterns in a hurry but are effective only when the emergency is related to declining sales. Policy actions offer the most fertile field for cutting expenses, but they take time and can also delay a recovery. All things considered, the best approach usually involves a combination of decisions, each supplementing the other. ● Establish an emergency reserve: Once you understand what kind of actions can be taken in an emergency and how long they might take, you can set up a sort of insurance policy in the form of an emergency reserve. The size of the reserve is up to you. It should depend, however, on the length of time it will take to mobilize your other cash resources, and the estimated size of a cash drain during an emergency. For example, if you estimate that it would take four business days for an initial emergency response to yield cash and your maximum cash drain could be as high as $5,000 per day in an emergency, you would need a reserve of $20,000 for full protection. To be effective, the reserve must always be available at a moment’s notice. Therefore, most traditional investments, such as Treasury bills, are out, even though they may be perfectly safe. Usually, such reserves are held in money market funds or in an interest-bearing account. However, an unused line of credit would suffice if the funds were committed by the bank. Summary: The cash management system set forth in this section can make a considerable contribution to your firm. Thoughtfully used, it will identify cash-flow imbalances before they become major problems and point the way toward their solutions. Consequently, when your cash flow is on an even keel, you can devote much more time to another important matter: building your company’s revenues in a scope and sequence that contribute directly and effectively to an overall profitable operation.
By Daniel Joseph 4 years ago in Education
Preparing a Short-Term Cash-Flow Forecast
Short-term cash-flow forecasts are designed to predict your company’s cash flow for periods up to a year. In its final form, your forecast will look much like your receipts-and-disbursements analysis. As with that earlier exercise, the amount of detail you include in the forecasts is up to you and will largely depend on your industry and your own information requirements. Under most conditions, however, a relatively short list of headings, covering primarily those items that are subject to management control, will do. The best way to prepare short-term cash forecasts is on a rolling monthly basis—that is, the first forecast of the year covers January to December; the next, February to the following Janu¬ary; the next, March through the following February and so on. In that way, you will receive the earliest possible warning of a cash emergency. Role of Cash-Flow Assumptions The first step in preparing your forecast is to take a close look at your cash-flow performance for the recent past. A review of the past several months can be most helpful in providing information on items such as inventory levels and accounts receivable. Next, you must make several broad assumptions about your business for the next year. Is it likely to be a good year, a mediocre year or a bad one? Will costs rise at a faster rate than sales, or vice versa? Many times your assumptions will be wrong, and your forecast will suffer as a result. However, if you set your assumptions down and monitor them continually, you will know when they have fallen short of the mark. As a result, you will be prepared to change your forecast as events unfold. Once you have made the necessary preparations, you can begin the actual forecasting procedure. As an illustration, refer back to the receipts-and-disbursements analysis for ABC Publishing. The line items on a short-term cash-flow forecast for this company would, in all likelihood, be unchanged from the receipts-and-disbursements analysis. The projection period would, however, extend for an entire year on a monthly basis, rather than over the three months shown in the analysis. Here, on a line-by-line basis, is how you make your short-term cash-flow projections: ● Collections. This is by far the most difficult item in the forecast and unquestionably one of the most critical. Keep in mind that your projections for the earliest one or two months of the forecast are likely to be the most accurate; you have your recent sales results and current accounts-receivable information already on hand. After the first month or two, your cash budget and past collection experience will be your primary forecasting tools. Whatever the case, if you bring your forecast up to date on a monthly basis, you will always have time to refine your early estimates. ● Cash sales. Your sales forecast and past experience are your primary guides with this category. Although cash sales are not much easier to predict than collections, they are usually not as large and, therefore, not as critical to the forecast. ● Miscellaneous receipts. Recurring items, such as rents, interest and dividends, are simple matters of fact. Nonrecurring items, such as bank loans, are almost always known to manage¬ment in advance. ● Suppliers. Next to collections, this item will probably require the most investigation. You will use primarily your sales forecast and inventory policy to determine supplier payments, but will also factor in production scheduling, purchasing and your accounts-payable policy. Your forecasts for the first few months will be more reliable than those for the future. ● Wages and salaries. This item is usually predictable. The costs of overtime and part-time workers offer the most surprises. ● Overhead. Most of the items are payable on a regular basis, so there should be little difficulty in making a forecast for this category, provided that you remember to take price increases into consideration. ● Financial obligations. These include interest, dividends, taxes and debt repayment. Again, recurring items are known to management, and nonrecurring items are matters of management decision. ● Special items. This category is reserved for one-time decisions, such as the sale of an asset. All such matters involve a management decision and are therefore predictable. Using a Long-Term Cash-Flow Forecast There is a fundamental difference between long-term and short-term forecasts. Short-term fore¬casts are tactical and concerned with management control of an existing situation. Long-term forecasts are strategic and designed to assist in development of long-term financing plans that will meet management goals. As a result, forecasting your cash-flow needs for the long term is closely related to strategic planning. Just as it would be foolish to forecast future cash needs in the absence of specific goals, it would be fruitless to plan a course of action without providing enough cash to get there. In general, your long-term cash forecast should mirror your company’s planning horizon. Always keep in mind that the farther out the plan extends, the less reliable the forecast is likely to be. In our opinion, it is not possible to produce a detailed financial plan for a period longer than three years. Financial markets are too changeable to allow serious planning beyond that.
By Daniel Joseph 4 years ago in Education
How Important Are IQ Tests
Let's face it: we've all tried out an online IQ test or two, then retook them a few times until we got a score we were happy to share on Facebook. I mean, I for one have an IQ of 150 because I can usually score that high by the 8th or 9th attempt after googling half the answers. But is performing well on IQ tests really a strong indicator of high intelligence?
By Yogesh Sawant4 years ago in Education
The Income Statement
The income statement (also called the earnings report or profit-and-loss statement) reflects the results of operation over a period of time, in contrast to the balance sheet’s snapshot view of the company’s financial condition at a given instant. Again, every business must prepare an annual income statement for tax, legal and other purposes; nevertheless, semiannual, quarterly or even monthly statements can be extremely useful. The items included in the simplified income statement on page 6 will often be needed to create the financial ratios used in your analysis and covered in the next section. Briefly, here is a description of the items contained in a company’s income statement: Sample Income Statement Gross sales or revenues $ 605,000 Returns, discounts and allowances 30,000 Net sales or revenues 575,000 Cost of sales or goods sold 470,000 Gross margin or operating profit $ 105,000 Selling and administrative costs 60,000 Depreciation 5,000 Net operating profit $ 40,000 Interest income or nonoperating income 10,000 Interest expense or nonoperating expense 3,000 Net profit before taxes $ 47,000 Provision for federal income taxes 10,000 Net profit after taxes $ 37,000 Gross sales or revenues: The actual total dollars billed for goods sold or services provided, before returns, discounts and allowances granted. Sales income and accounts receivable determine this first line item. Net sales or revenues: Gross sales minus returns, discounts and allowances. Cost of goods sold: The amounts paid for the purchased materials, components and finished products; direct payroll, operating overhead; and other costs of acquiring or producing the prod¬ucts or services and making them available for sale. This line item often appears as less cost of goods sold. Gross profit: The difference between net sales or revenues and the cost of the products or services sold. This represents the amount of money left to sell the product and perform the day-to-day operations of the business. Selling and administrative costs: Selling costs include salespersons’ salaries and commissions, travel and entertainment expenses, sales promotion and advertising costs. Administrative costs include office salaries and expenses, executive salaries and other current support expenses that can’t be allocated to production or sales departments. Depreciation: The costs of plant assets (or fixed assets: property, plant and equipment) are written off as expenses over their anticipated useful life. Not all fixed assets are depreciated, however. For instance, the value of land tends to appreciate in value because it does not typically wear out. There are various depreciation techniques an accountant can use. The simplest and most commonly used method in U.S. businesses is called the straight-line method of depreciation, which allows you to depreciate the same amount of expense each year of the estimated useful life of the asset. For example, an asset with a value of $10,000 and a useful life of 10 years will have an annual $1,000 depreciation expense each year. Net operating profit: Gross profit, less selling costs and administrative overhead. This line item represents the profit generated by the normal operations of the business. Nonoperating income: Interest and dividends received on investments, gains on the disposi¬tion of capital assets, etc. Nonoperating expenses: Interest paid on long-term debts, losses on sales of capital assets, etc. Net profit before taxes: Net operating profit, plus any nonoperating income and minus any nonoperating expenses. Provision for federal income taxes: The estimated amount to be paid on operating earnings for the period, not the amount of taxes paid during the period. Net profit (or income) after taxes: The final “bottom line” profit cleared by the business from all sources during the period covered by the statement. Using this vital figure, stockholders can evaluate management, investors can decide on whether to purchase the company’s stock, and creditors can measure the riskiness of a loan. The Statement of Cash Flows The statement of cash flows, which shows the movement of cash through a business, presents the cash receipts and cash payments of a company over a period of time. It complements the income statement by providing information on a company’s liquidity and financial flexibility. It also ex¬plains the change of cash and cash equivalents during a period. (Cash equivalents are short-term, highly liquid investments that are readily convertible to cash amounts, such as short-term Treasury bills, commercial paper and money market funds.) In similar fashion to the balance sheet and the income statement, the statement of cash flows must be prepared annually by every business but may also be done semiannually or quarterly. Note: Effective for annual financial statements for fiscal years ending after July 15, 1988, the statement of cash flows supersedes the statement of changes in financial position, which the Fi¬nancial Accounting and Standards Board (FASB) formerly required. Not-for-profits, however, are not required to make the switch-over. By using the statement of cash flows in conjunction with information provided by the balance sheet and the income statement, company owners, creditors and others who use financial state¬ments can assess a company’s ability to generate future net cash inflows, meet debt obligations and pay dividends. The statement should also help in assessing a company’s need for future external financing, as well as the effects of both cash and noncash investing and financing activities on a company’s financial position. The statement of cash flows is classified by operating, investing and financing activities. (See sample statement on page 8.) Briefly, these are the items contained in a company’s statement of cash flows: Operating Activities: Cash received from: ● Sale of goods or services. ● Collections or sales of receivables that arise from the sales of goods and ser-vices. ● Interest on loans and bonds. ● Dividends on equity securities. ● Insurance and lawsuit settlements. ● Refunds from suppliers. Cash paid to: ● Acquisition of materials for inventory or manufacturing products, or for goods for resale, including payments on trade accounts and notes payable to suppliers. ● Creditors for interest. ● Employees for compensation. ● Governmental agencies for taxes, duties, fees, fines or penalties. ● Customers for refunds. ● Lawsuit settlements. ● Charities for contributions. Investing Activities: Cash received from: ● Sales of property, plant, equipment and other productive assets. ● Sales of a business unit such as a branch, division or subsidiary. ● Collections of principal on debt instru¬ments of other companies. ● Sale of loans. Cash paid to: ● Acquire property, plant, equipment and other productive assets. ● Acquire another business. ● Make loans to and/or purchase loans from another company. ● Acquire debt or equity investments in other companies. Financing Activities: Cash received from: ● Issuing equity instruments, such as stock in the company. ● Issuing bonds, mortgages, notes and other forms of short-term or long-term borrowing. Cash paid to: ● Owners of the company in the form of dividends or other distributions. ● Repayment of amounts borrowed on short-term and long-term debt. Cash flows from operating activities Cash received from customers $110,000 Cash paid to suppliers and employees ( 90,000) Interest received 8,000 Interest paid ( 6,000) Income taxes paid ( 9,000) Net cash provided by operating activities $13,000 Cash flows from investing activities Proceeds from sale of plant $70,000 Purchase of equipment ( 10,000) Net cash provided by investing activities $60,000 Cash flows from financing activities Principal payments on notes ($40,000) Dividends paid ( 15,000) Net cash used in financing activities ($55,000) Net increase in cash and equivalents 18,000 Cash and equivalents at beginning of year 12,000 Cash and equivalents at end of year $30,000 Reconciliation of net profit to net cash provided by operating activities: Net profit after taxes $37,000 Depreciation 2,000 Gain on sale of plant (11,000) Increase in trade accounts receivable ( 7,000) Increase in inventory (10,000) Decrease in accounts and notes payable 5,000 Increase in interest and taxes payable ( 3,000) Net cash provided by operating activities $13,000 The most straightforward way to present operating activities in a statement of cash flows is the direct method, which reports major classes of operating cash receipts and payments. Under this method, a separate schedule is presented with the statement of cash flows that reconciles net profit and net cash flow from operating activities. In effect, this reconciliation is a conversion of net profit from the accrual to the cash basis of accounting. ➤ Observation: You’ll find the balance sheet, the income statement and the statement of cash flows in a company’s annual report. In most annual reports these financial statements are pre¬sented on a comparative basis: that is, the current year along with one or more prior years. Use the figures in these statements to analyze your own company as well as your competition, to forecast the financial outcome for your entire business or department project, and to make a variety of other essential business decisions. In short, these reports are three of the businessperson’s most important tools.
By Daniel Joseph 4 years ago in Education
10 Tips to Help You Learn Faster.
How can you learn faster? Most people think that you have to dedicate countless hours each day to study in order to retain as much information as possible, but that’s not the case at all. Whether you’re preparing for an exam or learning how to master a new skill or trade, there are plenty of techniques you can use to study smarter, not harder, and make learning easier and more efficient than ever before. These ten tips on how to learn faster will help you get started immediately!
By Arun R Raju4 years ago in Education
