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FINANCE Cash flows + financial planning

Learn about sources of cash inflow and outflow, cash flow statement, balance sheet equation, financial forecasting, and more. This comprehensive guide includes examples and formulas for financial planning and analysis.

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FINANCE Cash flows + financial planning

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  1. FINANCECash flows + financial planning Solvay Business School Université Libre de Bruxelles Fall 2006

  2. Sources of Cash Inflow and Cash Outflow Operating ActivitiesSales of goods and services Investing ActivitiesSale of fixed assetsSales of LT financial assets Financing ActivitiesIssuance of stocks and bondsLT and ST borrowing ΔCASH Operating ActivitiesPurchase of suppliesSelling, general and administrative expensesTax expenses Investing ActivitiesCapital expenditures and acquisitionsLT financial investments Financing ActivitiesRepurchage of stocks and bondsRepayment of debtDividend payment CF from financing activities CF from operating activities CF from investing activities MBA 2006 Cash flows + financial planning

  3. Exemple numérique Δ MBA 2006 Cash flows + financial planning

  4. Cash flow opérationnel Δ MBA 2006 Cash flows + financial planning

  5. Tableau de financement MBA 2006 Cash flows + financial planning

  6. Income statement REV Revenue CGS Cost of goods sold SGA Selling, general and administrative expenses Dep Depreciation EBIT Earnings before interest and taxes Int Interest expenses TAX Taxes Tc Tax rate NI Net income Balance sheet FA Fixed assets, net AR Accounts receivable INV Inventories CASH Cash & cash equivalents SE Equity capital LTD Long term debt AP Accounts payable STD Short-term borrowing Statement of retained income DIV Dividendes Notations MBA 2006 Cash flows + financial planning

  7. Income statement and balance sheet • Income statement • EBIT = REV - CGS - SGA - Dep • TAX = Tc (EBIT - Int) • NI = EBIT - Int - TAX • Balance sheet equation • FA + AR + INV + CASH = SE + LTD + AP + STD Working capital requirement: WCR  AR + INV - AP =(Current assets - CASH) - (Current liabilities - STD) Summarised balance sheet: FA + WCR + CASH = SE + D (D = LTD + STD) MBA 2006 Cash flows + financial planning

  8. Cash flow statement : indirect method FA + WCR + CASH = SE + D FA = CAPEX - Dep CAPEX = Acquisitions - Disposals (investing & divesting) SE = NI - DIV + K K = New issuance of capital (NI + Dep - WCR) - (CAPEX) + (K + D -DIV) = CASH Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities = + + MBA 2006 Cash flows + financial planning

  9. + Cash collection from customers - Cash payment to suppliers and employees - Cash paid for interest - Cash paid for taxes = Cash flow from operating activities + Cash flow from investing activities + Cash flow from financing activity = CASH REV - AR CGS + INV + SGA - AP Int TAX (REV-CGS-SGA-Int-TAX)- WCR -CAPEX K + D - DIV Statement of cash flows: direct method =NI+Dep-WCR (NI + Dep - WCR) + (-CAPEX) + (K + D - DIV) = CASH MBA 2006 Cash flows + financial planning

  10. Free Cash Flow • Free Cash Flow = Cash flow from operating activities + Cash flow from investing activities Free Cash Flow = DIV - K - D + Cash • Calculating free cash flows of all equity firm: Free Cash Flow = EBIT(1-TC) + Dep - WCR - CAPEX • Statement of cash flows for all-equity firm: Free Cash Flow = DIV - K + Cash MBA 2006 Cash flows + financial planning

  11. Financial Forecasting EBITDA-Depreciation=EBIT -Taxes +Net Income Income Statement Statement ofCash Flows CF from operating activities CF from investing activities CF from financing activities UpdateBalance Sheet MBA 2006 Cash flows + financial planning

  12. Financial Planning • Based on ∆Revenues • Assumptions on key ratios relating Revenues to: • Gross margin: m = EBITDA /Revenues • Working capital requirement: w =  WCR /  Revenues • Net fixed assets: a =  NFA /  Revenues • Financial policy: • Payout ratio p = DIV/Net Income • Depreciation d = Depreciation / Fixed Assets-1 • Environment: • Tax rate TC • Cost of debt i MBA 2006 Cash flows + financial planning

  13. Data Gross margin: m = 30% WCR: w = 20% Net fixed assets: a = 30% Payout ratio p = 50% Depreciation d = 10% Tax rate TC = 40% Cost of debt i = 10% • Revenues year 0: 2,000 • Growth rate year 1: 25% • Balance sheet end year 0 MBA 2006 Cash flows + financial planning

  14. Step 1: Income statement MBA 2006 Cash flows + financial planning

  15. Step 2: Statement of Cash Flows MBA 2006 Cash flows + financial planning

  16. Step 3: Update balance sheet MBA 2006 Cash flows + financial planning

  17. The Full Model MBA 2006 Cash flows + financial planning

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