In this course you will learn how to use key finance principles to understand and measure business success and to identify and promote true value creation. You will learn how to use accounting information to form key financial ratios to measure a company’s financial health and to manage a company's short-term and long-term liquidity needs. You will also learn how to use valuation techniques to make sound business investment and acquisition decisions. Finally, you will learn how to incorporate risk and uncertainty into investment decisions and how to evaluate the performance of existing investments. Upon successful completion of this course you will be able to: • Understand how companies make investment decisions that create value for shareholders • Use accounting statements to measure the financial health of a company • Forecast and manage a company’s short- and long-term liquidity needs • Measure the contribution of a new project or acquisition to shareholder value • Incorporate risk into investment decisions using the appropriate discount rates • Evaluate the performance of a company or divisions of a company This course was previously entitled Financial Evaluation and Strategy: Corporate Finance. The course received an average rating of 4.7 out of 5 based on 177 reviews over the period of September 2015 through August 2016. A detailed breakdown of ratings and reviews received for the prior version of the course, which is identical in content to the current course, is provided in the course orientation page. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.
Cash Flow Statement Ratios
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来自 University of Illinois at Urbana-Champaign 的课程
Corporate Finance I: Measuring and Promoting Value Creation
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从本节课中
Module 1: The Objective of the Corporation and Analysis of Financial Ratios
In Module 1, we will discuss the objectives of the corporation. We will introduce the concept of shareholder value and discuss the pros and cons of maximizing stock prices. We will then learn how to calculate financial ratios that measure concepts such as liquidity, leverage, and profitability. We will work with accounting statements and financial data from real world companies and learn how to use this data to measure the financial health of companies and make comparisons with competitors.
与讲师见面
Heitor AlmeidaProfessor of Finance, Stanley C. and Joan J. Golder Chair in Corporate Finance
Department of Finance, College of Business
[MUSIC]
Let's talk now about the statement of cash flows.
I think this is actually probably the most important statement for us to look at.
It's my favorite.
That's where we can get the most information about what's going on with
companies.
It does tend to be ignored sometimes, okay?
So I really want to emphasize that we can get a lot of information from the cash
flow statement, okay?
Let's look at a cash flow statement here to try to figure out,
what does a cash flow statement measure?
So you have DirectTV, again, for
the latest 12 months and for the two previous years.
So here the first item in the cash flow statement is gonna be net income.
Okay, so you're gonna start from the bottom of the income statement.
And then you are going to start adding and subtracting items.
And there is a very important rule that you should remember.
Don't forget this.
The sign of a number in the cash flow statement is very meaningful, okay.
So for example, let me go here to emphasize this.
So here you have a change in accounts receivable.
That's just use that example, okay?
This is -189, okay?
What this means is that accounts receivable
provided a cash flow of -189 million in that period.
Okay, so 189 million of cash came out of DirecTV in that
year because of accounts receivable.
And you can use the same rule for everything.
So for example, if you look at debt issued, that has a positive sign,
right, which means that that came into the company, so
cash came into the company in that year.
So the signs mean a lot.
So here you have, there are three parts in the cash flow statement,
as you can see here.
There is the operating cash flow part,
which is the top of the cash flow statement.
So you get to a measure of operating cash flow.
That tells you how much cash flow
the company has generated from operations, okay?
And then we have investing cash flow, okay?
So investing cash flow which will generally be negative.
You can see here that it's -3.3 billion for DirecTV.
Okay, so that means what?
Remember just the sign, right,
it means that DirecTV invested 3.3 million in that year, okay?
And then at the bottom, you're going to have the financing cash flow.
Cash is going to go in and
out of the company as well because of financial decisions like dividends, okay?
You can see here that DirecTV is not paying any dividends, okay?
But they are issuing debt, repaying debt, issuing stock, repurchasing stock.
So at the end, you are going to get a total cash from financing
in this case it's -1.7 billion, okay?
So again, what does that mean?
It means that DirecTV paid $1.7 billion of cash to investors in that year.
And then at the end, you're going to have the net change in cash,
which is the the sum of everything.
So that's the total amount of cash that the company generated in that year, after
taking into account operating, investment, and financing activities, okay?
So just by this discussion you see there
is a lot of information in the cash flow statement, right,
a lot of useful information about what's going on with the company, okay.
For you to understand that better, okay, I actually want you to work with an example.
A simplified example, before we go back to the cash flow statements for DirectTV and
Cablevision, let's think about what's going on with these companies.
We have four companies here, A, B, C, and D.
Okay, and I gave you the main items that you see in a cash flow statement,
operating, investment, and financing cash flows.
Okay, and the question that I want you to think about, using what we just learned
about the cash flow statement is, which of these companies is likely to be a startup,
a new company that is growing that is being started up now?
Okay, which of these, A, B, C, or D is likely to be a startup?
I mean if you look at that data, right, it should be clear that
the company that is most likely to be a startup is company C.
Right, why?
Because company C is generating negative cash from operations.
It's investing and raising money from investors.
Okay, let me go back here to the table just to make sure that you
understand that.
Okay, so here Company C, right,
has negative cash from operations, -400, okay?
It's investing, right, -200, let's say million.
The unit doesn't matter much, let's say million.
And it is raising cash from investors, right?
So that is a typical situation of a startup company.
You're borrowing money, you're not profitable yet, but you're investing in
the business because you probably expect to become profitable in the future.
Okay, so that's how we can use the cash flow
statement to really drill down and think about what's happening to companies.
So the other companies, we can talk about them as well.
Company B is a mature company that is downsizing.
Right, how do you know it's downsizing?
Because the cash from investment is positive.
So instead of investing in the business,
Company B is generating cash by selling off investments, okay.
Company A is a profitable company, right.
How do we know?
Because it's generating cash from operations, but
it is also raising additional financing.
And finally, if you look at Company C, it has a negative change in cash, okay?
So in that year, company D did not generate any cash, it lost some cash.
What will happen to the company?
Is that bad?
Let's go back here, think about that.
Not necessarily, right?
So cash went down for that year.
What will happen is that there will be a reduction in
the amount of cash that the company has in their balance sheet, okay?
So this company has to be able, you know it
should be able to use its cash that is in the balance sheet to finance this, okay?
And if it's not, then the company has to plan some additional financing.
This is something we're going to be talking about in module two
when we talk about financial planning.
That's going to be a very important idea.
That's going to be how we're going to figure out whether a company needs new
external financing or not, okay?
So the profitability ratios that we can compute using the cash flow
statement are similar to the income statement ratios we talked about, but
they are based on cash profits.
The most important ratio is really is the only one that we're going to emphasize
here, is what we call the cash profitability ratio, okay?
It's just the operating cash flow divided by total assets, right?
So it's very similar to ROA, but
instead of OPAT, you're using operating cash flow, okay?
So here is a calculation for you for Cablevision,
again, using the latest 12 month period.
Okay, you have cash from operations here, which is 1.3 billion.
This ratio is very simple.
You just have to divide cash from operations by total assets.
For Cablevision this would be 0.20, okay.
And you can do the same thing for DirectTV.
You should get a ratio of 0.26, right.
So both of these companies seem to be generating
a cash flow from operations, right.
They are cash profitable, right.
And in addition, if you look at the cash flow statements for Cablevision and
DirecTV, what you'll see is that both of these companies have negative cash flow
from investments, right, and have negative cash flow from financing.
So let's apply what we just learned about the cash flow statement.
What does that mean, right?
It means that both of these companies are investing in the business, but
they are not raising new financing from investors.
They are returning cash to investors, okay?
So if you go back here and look at the cash flow statement for Cablevision, okay.
You will see that Cablevision, for example, is issuing new debt,
1.3, but is also repaying a lot of debt, okay?
In addition, they are repurchasing stock, okay?
So, on average in the latest 12 months
there was no new financing entering the company.
The net amount of cash from financing is negative,
meaning that Cablevision actually paid off a cash to investors,
okay, which is a common situation for US companies these days.
We're gonna talk more about that when we discuss our assignment.
