each with 5 million shares of stock. B&B currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&B’s financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million.…
CHAPTER 12 Statement of Cash Flows Study Objectives 1. Indicate the usefulness of the statement of cash flows. 2. Distinguish among operating, investing, and financing activities. 3. Explain the impact of the product life cycle on a company’s cash flows. 4. Prepare a statement of cash flows using the indirect method. 5. Use the statement of cash flows to evaluate a company. *6. Prepare a statement of cash flows using the direct method. Summary of Questions by Study Objectives…
over a specific period of time—generally one year. 3. The statement of cash flows shows the firm’s cash flows over a given period of time. This statement reports the amounts of cash that the firm generated and distributed during a particular time period. The bottom line on the statement of cash flows―the difference between cash sources and uses―equals the change in cash on the firm’s balance sheet from the previous year’s cash account balance. 4. The statement of retained earnings provides additional…
the price of the stock divided by the annual net diluted earnings per share of the firm. And the forward P/E is merely the price of the stock divided by next year’s annual net diluted earnings per share of the firm. The P/E is probably the most common measure to help investors compare how cheap or expensive a firm’s shares are, as stock prices for lack of a better term are arbitrary. For example, firms like Warren Buffett’s Berkshire Hathaway (BRKA), which has never split its stock, have traded as…
and financing decisions, and then payout whatever cash is left over. Decision about how much to payout should therefore change over the life cycle of the firm. Many of the market imperfections are also reinforce the life cycle of payout. Younger companies with profitable investment opportunities don’t payout cash and rarely repurchase stock. Growth companies finance investment as much as possible with internally generated cash flow. Retaining cash avoids the cost of issue securities and minimises…
Statement of Cash Flows ANSWERS TO QUESTIONS 1. (a) The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from the operating, investing, and financing activities of a company during a period in a format that reconciles the beginning and ending cash balances. (b) Disagree. The statement of cash flows is required. It is the fourth basic financial statement. 2. The statement of cash flows answers the following questions about cash: (a) Where…
the stock. In my opinion, we buy a stock then get dividend periodically, which like buy a bond. The coupon payment is dividend and the face value is terminal value. The bond value is determined by the terminal value mostly. So the stock price is also determined by terminal value. The concept of going concern can explain that Terminal value is often higher than the present value of near term cash flows, which means that a company's long-term cash-flow capacity is more…
Unlike dividends are the cash flow actually paid to the shareholders, free cash flow is the cash flow available shareholders. Data on free cash flow are not readily available. Stock analysts must interpret financial statements to determine free cash flow. Although free cash flow analysis can prove quite challenging, many analysts consider free cash flow models more relevant than dividend discount models. In this case, firstly, we calculate the GOPAT by the date of value line. MSFT is 22460, IBM…
today. 3-3. a. Stock bonus = 100 × $63 = $6,300 Cash bonus = $5,000 Since you can sell (or buy) the stock for $6,300 in cash today, its value is $6,300 which is better than the cash bonus. b. Because you could buy the stock today for $6,300 if you wanted to, the value of the stock bonus cannot be more than $6,300. But if you are not allowed to sell the company’s stock for the next year, its value to you could be less than $6,300. Its value will depend on what you expect the stock to be worth in…
