analyzing cash flow and other financial information
DESCRIPTION
6-2 Learning Outcomes 6.1 Recognize the fundamental importance of Cash Flow Analysis 6.2 Prepare a Cash Flow Statement and a Budget 6.3 Identify other financial tools Refer to text page 104TRANSCRIPT
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McGraw-Hill © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Six
Analyzing Cash Flow and Other
Financial Information
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McGraw-Hill © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Outcomes6.1 Recognize the fundamental
importance of Cash Flow Analysis6.2 Prepare a Cash Flow Statement
and a Budget6.3 Identify other financial tools
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Cash FlowThe author defines Cash Flow as
“actual cash that flows into the firm, minus the cash that goes out of the
firm.”
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Understanding Cash Flow• The role of the Cash Flow Statement
developed in the due diligence stage of a fledgling venture is substantially different from the financial analysis developed for an ongoing firm.
• The viability of a new business will be determined by Cash Flow.
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Cash Flow Versus BudgetsBudgetexample:
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Cash Flow Versus BudgetsCash Flowexample:
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Finalized Example Cash Flow Statement6-7
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Deviation AnalysisDeviationAnalysis-
analysis of the differences between the predicted and the actual performance.
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Developing Cash Flow Statements: Expenses
• Salaries• Basic Benefits• Taxes/Fees• Cost of Goods Sold• Utilities• Security System• Tools/Machinery• Office Supplies• Travel Expenses
• Insurance• Advertising• Furniture and
Computers• Telephones• Maintenance• Cleaning• Rent/Mortgage
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Developing Cash Flow Statements: Revenues
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Other Financial Tools• Balance Sheet-a summary of the
assets and liabilities of the business• Income Statement-projects the future
income of the organization• Break–Even Analysis-a tool for
estimating when a business’s income exceeds is expenses
• Pro Forma-a term describing estimates of what the balance sheets and income statement will look like
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Break-Even AnalysisClassic Break-Even Diagram
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Break-Even AnalysisEntrepreneurial Break-Even
Diagram
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Summary• Cash Flow Statements-including
inputs and outputs• We examined a Balance Sheet and
an Income Statement• Brief examination of
Entrepreneurial Break-Even Analysis.
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