Cash Flow Equations Flashcards

Study Notes

Cash Flow From Assets: Definition

Represents the total cash flow to creditors and stockholders.

Cash Flow From Assets: Explained

Comprised of three components:
- Operating Cash Flow (OCF): Cash generated from normal business operations.
- Net Capital Spending (NCS): Cash used for additions to fixed assets.
- Changes in Net Working Capital (ΔNWC): Reflects net changes in current assets and liabilities.

Cash Flow from Assets (CFFA): Equation

CFFA is calculated using the formula: OCF - NCS - ΔNWC.

Operating Cash Flow (OCF)

Calculated with the formula: EBIT + Depreciation - Taxes.

Earnings Before Interest and Taxes (EBIT)

Determined by the equation: EBIT = Sales - Costs - Depreciation.

Net Capital Spending (NCS)

Computed using the formula: NCS = [End Fixed Assets - Beginning Fixed Assets] + Depreciation.

Net Working Capital (NWC)

Calculated as: NWC = Current Assets - Current Liabilities.
Change in NWC is found with: [End NWC - Beginning NWC].

Cash Flow to Creditors

Defined as: Cash Interest Paid - Net New Borrowing.
Net new borrowing calculated as: [End Long-Term Debt - Beginning Long-Term Debt].

Cash Flow to Stockholders

Measured as: Dividends Paid - Net New Equity Raised.
Net new equity calculated as: [End Common Stock and Paid-In Surplus - Beginning Common Stock and Paid-In Surplus].

Description

This quiz focuses on key concepts and definitions related to cash flow from assets. It includes important terms such as Operating Cash Flow, Net Capital Spending, and Changes in Net Working Capital. Perfect for financial students seeking to solidify their understanding of these critical financial metrics.