3. Application exercise, vertical modules
Module 3: The Cash-flow statement
You remember that a cash-flow statement is made of 3 parts:
- Funds flows generated by operations
- Investment in the future of the company
- Financial strategy
Here are some data for an unidentified company:
- EBITDA 200
- Depreciation 60
- Financial debt 300
- Interest rate 5%
- Tax rate 40%
- WCR 200
- Growth rate 10%
- Investments (capex) 80
- Acquisition 150
- Distribution 1/3 of net earnings
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Question 1 of 4
1. Question
The objective is to build the income statement (P&L) and calculate the dividend from the net earnings.
Calculate net earnings (EAT) and dividend.
CorrectIncorrectHint
EBITDA is profit before depreciation, interest and taxes. Then, you must deduct…?
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Question 2 of 4
2. Question
We are, now, going to calculate the operating cash-flow deducting the change in WCR from the (gross) cash-flow. The latest is calculated by only considering the cash items of the P&L. The WCR is supposed to grow at the same rate as sales, i.e. 10%.
Calculate the gross cash-flow, the increase in WCR and the operating cash-flow.
CorrectIncorrectHint
The increase in the WCR is a cash consumption.
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Question 3 of 4
3. Question
The ‘available’ (or free) cash-flow is obtained by deducting from the operating cash-flow the funds invested by the company in its organic (investments, capital expenditures) and external (acquisition) growth.
The available cash-flow is?
CorrectIncorrectHint
Remember, you must deduct two cash-outlays!
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Question 4 of 4
4. Question
The last step consist in calculating the change in cash position from the available (or free) cash-flow considering all the elements of the corporate financial strategy.
The change in cash is, then, the free cash-flow less dividend (cash-out, see question1), plus funds from capital increase (respectively, less shares buybacks), plus the increase in financial debt (respectively, less the redemption of the debt).
The firm, considering its cash consumption generated by the acquisition, decides an equity issue of 50 and negotiates an additional bank loan of 100.
The change in cash is?
CorrectIncorrectHint
You deduct the dividend and add the equity issue and debt increase.