10/17/24

International
Finance

Eric Griette

Not to be reproduced without permission

Statement of Cash Flows

1. Statement of Cash Flows

2. Calculating Operating Cash Flows

(indirect method & direct method)

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Income Statement

Balance Sheet

Statement of Cash Flows

Income Statement Balance Sheet Statement

of Cash
Assets Liabilities. flow

Bank
100 000

Equity

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Accrual Accounting

Cash Accounting

Accrued revenue: revenue is recognized before cash is

received.

Accrued expense: expense is recognized before cash is

paid out.

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Accrual Accounting

• The performance of a company, during an accounting

period, is measured by recognizing operations regardless of
when cash transactions occur.

Accrual Accounting

• The performance of a company, during an accounting

period, is measured by recognizing operations regardless of
when cash transactions occur.

• Revenues are recorded when goods or services are sold,

regardless of when cash transactions occur.

• Operations are recognized by matching revenues to

expenses when transaction occurs

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Effectiveness:

-in generating cash

-in meeting cash obligations

-in generating cash flows in the future

On December 1, 2009 RETAIL STORE sells a $1,500 computer.

Customer Nancy pays $500 in cash and signs an installment
agreement for the remaining $1,000 to be paid in 2010,
the following year.
On the income statement of RETAIL STORE, how much revenue
should be recognized?
a. in 2009?
b. in 2010?

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In this accounting period, CYCLES GALORE purchased 10

bicycles for $100 each at wholesale and sold six bicycles for $300
each to customers.
On the income statement of CYCLES GALORE, how much will
be reported for…
a. Sales revenue?
b. Cost of goods sold?
c. Gross profit?
d. The cost of the four unsold bicycles will remain
part of (inventory / COGS / retained earnings) reported on the (BS
/ IS / RE / CF).
What amount will be reported?

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Accrual Cash

Aug 1 Paid August office rent of $3,000.

Purchased and paid $35,000 for
Aug 5
merchandise inventory.
Sold merchandise for $50,000 to
customers at retail that cost $22,000
Aug
wholesale. Received cash from
16
customers. Suppliers have not been
paid.
Received and paid a $1,500
Aug
advertising bill for August,
17
September, and October.
Aug Paid September office rent of
30 $3,000.
Aug Change in cash balance
31
Aug August net income
31
Accounting Period : August
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Assets Liabilities & Equity

Cash Accounts payable (AP)
Short term Debt
Short-term investments Current portion of LT Debt
Accounts receivable (AR) Other Liabilities
Inventory Total current liabilities
Prepaid expenses Long-term debt
Total current assets Bonds
Contingencies
Total non current liabilities
Total Liabilities
Fixed Assets
Property & equipment Stockholders' equity
Goodwill Common stock
Long-term investments Retained earnings
Other assets Reserves
Total non current assets Total Equity
Total Assets Total Liabilities & Equity
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January 1st : Creation of the company : 100 000 shares of 1€ each 1

paid cash

Income Statement Balance Sheet Cash Mvts

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January 1st : Creation of the company : 100 000 shares of 1€ each 1

paid cash

Income Statement Balance Sheet Cash Mvts

Current
Assets
Bank
100 000

Equity
Capital
100 000 + 100 000

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Statement of cash flows

Cash flow from operating activities

Cash flow from investing activities

Cash flow from financing activities

________________________________

= Change in the cash account

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OPERATING ACTIVITIES

CASH INFLOWS CASH OUTFLOWS

Cash from customers Cash paid to suppliers
Interest received* Cash paid to employees
Interest paid*

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INVESTING ACTIVITIES

CASH INFLOWS CASH OUTFLOWS

Sells property, plant, equipment Purchase property, plant,
Sells securities equipment
Purchase securities

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FINANCING ACTIVITIES

CASH INFLOWS CASH OUTFLOWS

Borrow cash from creditors Repay amounts borrowed
(debt principal)
Issue debt securities (bonds)

Issue shares (capital stock) Pay cash dividends

Interest received* Interest paid *

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Statement of cash flows

Cash flow from operating activities

+Cash flow from investing activities

+Cash flow from financing activities

= Net Change in the cash account (end of accounting

period N)

+ Beginning cash and cash equivalents (beginning of a.

period N-1)
= Ending cash (end of accounting period N)

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Sales
- COGS
Gross Profit
- Selling & Administration Costs
- Advertising & Promotions
- R&D
EBITDA
- Depreciation/Amortization
- Other Operating Income / Expenses
Operating income before non recurring Income/Expense (EBIT)
- Non-recuring Income and Expenses
Operating income / Loss
- Cost of net Debt…
- Other financial income or expenses
- Forex Gains and Losses
EBT
- Taxes
Net Earnings

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Net Operating Cash Flow /Free cash flow

Indirect method
Net Profit
+ Depreciation / Amortization costs
- Gains on sold Assets
= Operating Cash Flow

- increases in current assets (Receivables, Inventories...)

+ increases in current liabilities (Payables ...)
= Net Operating Cash Flow

- CAPEX
= Free Cash Flow

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Net Operating Cash Flow /Free cash flow

Indirect method
Net Profit
+ Amortization costs
= Operating Cash Flow

- increases in current assets (Receivables, Inventories...)

in
W oba ges
+ increases in current liabilities (Payables ...)

Gl han
l
pi g
Ca rkin
l
C

ta
= Net Operating Cashflow

o
- CAPEX
= Free Cash Flow

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Operating Cycle / Cash

Cycle

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Working Capital Requirement

Working Requirement (WCR)

= (Accounts receivable (A/R)+ Inventories) – A. Payable (A/P))

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Net Operating Cash Flow /Free cash flow

Indirect method
Net Profit
+ Depreciation / Amortization costs
- Gains on sold Assets
= Operating Cash Flow

- increases in current assets (Receivables, Inventories...)

+ increases in current liabilities (Payables ...)
= Net Operating Cash Flow

- CAPEX
= Free Cash Flow

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Cash Flow Margin

Cash flow from operating activities

* 100
Net sales

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Free Cash Flow Margin

Free Cash flow

* 100
Net sales

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Operating Cash Flow, millions of Euro, 2015-2018 Free Cash Flow, millions of Euro, 2015-2018

5 974 2 000 1 912

6 000

5 000 4 368 1 500

3 923
4 000 3 450
971
1 000
3 000 744

2 000
500
1 000 137

0 0
2015 2016 2017 2018 2015 2016 2017 2018

Lufthansa

ØFree cash flow is positive

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Debt Ratio / Operating Cash Flows

Total Debt (LT + ST )

Operating Cash Flows

31

32

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Lufthansa 2018

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