OnProjectReport/ReadingsMarketvalue,usenumberofsharesoutstanding,donotuseaveragenumberofsharesoutstandingIdentifysourceofdataorquotesCommonsizeanalysis,showamountsandpercentagesOnlyanalyzenotesthatarerelatedtoourcurrentlectureTaketurntowritethereport,donotleavetoonepersonInfinalexams,Imayprovideyouwithrawmaterialsandasamplearticlefromourreadingsforyoutoanalyzetherawmaterialsandwriteasimilararticle.Sogetfamiliarwithallarticles.Again,understandbutdonotmemorize.OnProjectReport/ReadingsMark1FirmNamesEagleEye:ValuationAnalysisStrategyInvestoriumFirmNamesEagleEye:Valuation2StatementofCashFlowCashflowfromOperatingactivities:（營運活動） cashreceiptsfromcustomers cashdisbursedto: suppliersofmerchandise employeesforsalariesCashflowfrominvestingactivities:（投資活動） purchaseofbuildings,equipments,plants proceeds(進帳）fromsalesoflongtermassetsCashflowfromfinancingactivities:（融資活動） borrowing/repaylongtermdebts issuingnewshares

StatementofCashFlowCashflo3項目報告或讀書英文課件4OverviewoftheStatementofCashFlowsInAOL2000balancesheet,cashandcashequivalentincreasedfrom$936millionsto$2,490millions.How?Thestatementofcashflows…(a)explainsthereasonsforachangeincash.(b)classifiesthereasonsforthechangeasanoperating,investingorfinancingactivity.(c)reconcilesnetincomewithcashflowfromoperations.OverviewoftheStatementofC5MontgomeryWardb.f.bankruptMontgomeryWardb.f.bankrupt6ThedifferencebetweenearningsandcashflowsI/SExplainchangeinretainedearningsI/Sisaccrued-basedI/SrecognizepropertyrightsI/SrequireestimatesI/SisanopinionI/Sisproneto(易于）manipulationFirmscansurvivealongstring（長串）ofnegativeearningsSCFexplainchangeincashandcashequivalentN/ASCFemphasize“actualpossessment”SCFdoesnotSCFisafactSCFissotoamuchlessdegreeFirmsgobankruptwithalongstringofnegativecashflows(outflow)Thedifferencebetweenearning7Cashflowequation

A=L+EΔA=ΔL+ΔEΔcash+Δnon-cashA=ΔL+ΔEΔcash+ΔcurrentA(otherthancash)+Δnon-currentA=ΔcurrentL+Δnon-currentL+ΔEΔcash=ΔcurrentL+Δnon-currentL+ΔE-ΔcurrentA(otherthancash)-Δnon-currentACashflowequationA=L+E8項目報告或讀書英文課件9項目報告或讀書英文課件10CashflowfromoperationCashflowsrelatedtosellinggoodsandservices;thatis,theprinciplebusiness(主營業務)

ofthefirmThemainsourceofpayoffstoshareholdersandcreditorsThereasonforthefirmstoexistIffirmsdonotinthelongrungeneratemorecashfromoperationthanthereturnsoffundstoshareholdersandcreditors,thefirmsgobankruptCashflowfromoperationCashf11Cashflowfromoperation-componentsCashcollectedfromcustomersCashcollectedasinterest(利息）onloanstoothersCashcollectedasdividends（股利）oninvestmentonotherfirms’stocksCashpaidtosuppliersCashpaidtoemployeesCashpaidtootherserviceproviders:landlords,marketingagency,auditors,consultants,…CashpaidtogovernmentCashpaidtocreditorsasinterestonborrowedmoneyCashflowfromoperation-compo12項目報告或讀書英文課件13CashflowfrominvestingactivitiesCashflowsrelatedtotheacquisitionorsaleofnon-currentassets:investment,land,property,plants,equipments…Tomaintainthecurrentproductivityoftheoperation,afirmmustreplaceassetsthattheywearout

(消耗）Togrowitsoperation,afirmmustacquireadditionalassetsOldassetsmaybesoldastheybecomeobsolete

(過時）,orasthefirmchangeproductionInvestingactivitiesthusprovideresourcetogeneratecashflowfromoperationsCashflowfrominvestingactiv14Cashflowfrominvestingactivities-componentsCashreceivedfromsalesofland,investment,property,plantsandequipmentCashpaidtoacquireland,investment,property,plantsandequipmentCashflowfrominvestingactiv15項目報告或讀書英文課件16CashflowfromfinancingactivitiesCashflowsrelatedtolong-termliabilitiesandowners’equityThesourceofcashtobeusedininvestingandoperatingactivitiesTwosources:shareholdersandcreditorsThispartofSCFalsoindicateshowmuchcashthefirmreturnstoitscapitalproviders,i.e.,cashdistributiontoshareholdersandcreditorsNote:short-termliabilitiesgeneratedinoperation,suchasaccountpayable,isnotrelatedtothiscategoryCashflowfromfinancingactiv17Cashflowfromfinancingactivities-componentsCashreceivedfromissuingcorporatedebtsortakinguploansCashreceivedfromissuingcommonsharesorpreferredsharesCashpaidtorepaydebtsorloansCashpaidtorepurchasesharesCashpaidtoshareholdersasdividendsCashflowfromfinancingactiv18項目報告或讀書英文課件19項目報告或讀書英文課件20Relationsamongthecashflowsfromthethreecategoriesofactivities1CFfromFin.Act.CFfromInv.ActCFFromOp.Act.Relationsamongthecashflows21FreeCashFlow=Cashflowfromoperatingactivities +CashflowfrominvestingactivitiesIfpositive,normaloperationgeneratesmorecashthatitconsumes,suchasthecaseofastablefirmIfnegative,normaloperationgeneratesinsufficientamountofcashtobeself-sustaining,suchasagrowingfirmFreeCashFlow=Cashflowfrom22TwomethodstopreparetheoperatingportionofSCFDirectmethodofpresentationcalculatescashflowfromoperationsbysubtractingcashdisbursementstosupplies,employees,andothersfromcashreceiptsfromcustomers.Theindirectmethodcalculatescashflowfromoperationsbyadjustingnetincomefornoncashrevenuesandexpenses.Mostfirmspresenttheircashflowsusingtheindirectmethod.Twomethodstopreparetheope23SCF-DirectmethodThedirectmethodissimpleandstraight:CashcollectedfromcustomersCashcollectedasinterest(利息）onloanstoothersCashcollectedasdividends（股利）oninvestmentonotherfirms’stocksCashpaidtosuppliersCashpaidtoemployeesCashpaidtootherserviceproviders:landlords,marketingagency,auditors,consultants,…CashpaidtogovernmentCashpaidtocreditorsasinterestonborrowedmoneySCF-DirectmethodThedirectme24IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationΔcash=ΔcurrentL+Δnon-currentL+ΔE-ΔcurrentA(otherthancash)-Δnon-currentAΔcash=[ΔcurrentL-ΔcurrentA(otherthancash)]+[Δnon-currentL+ΔE]–[Δnon-currentA]Op.Fin.Inv.IndirectmethodSCFreconciles25IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationNetIncomeisaccrual-based,whenwecalculatenetincome,wedonotcarewhethercashhasbeenreceivedorpaidButcurrentassetsandcurrentliabilitiesaccountsareimpactedwhenwecalculatenetincome,e.g.,wedebitaccountreceivableandcreditrevenuewhenfinishingasalesactivityIndirectmethodSCFreconciles26IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationSointheexampleabove,netincomeishigherthancashflowfromoperationbecausethistransactionincreasesnetincomebyincreasingrevenues,butdoesnotincreasecashbecausewedebitaccountreceivableandnocashiscollectedyet.Therefore,togettothebalanceofcashfromnetincome,wesubtracttheincreaseinaccountreceivableaccount.Thisprocedureconfirmstothecashequationinwhichincrease(positivechange)incurrentassetsotherthancashdecreasecashflowfromoperation.IndirectmethodSCFreconciles27IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationTheindirectmethod:Netincome+depreciationIncreaseincurrentassetsaccounts+decreaseincurrentassetsaccountsdecreaseincurrentliabilitiesaccounts+increaseincurrentliabilitiesaccounts=CashflowfromoperationIndirectmethodSCFreconciles28Notestofinancialstatements-oncashflowsNotestofinancialstatements-29Iscashtheking?CashistheultimatepayoffstocapitalprovidersEstablishedfinancetheorytoldusthethevalueofafirmisthepresentvalueofallitsfuturedividendsIscashtheking?Cashistheu30Iscashtheking?Earningsdonotalwaysgohand-in-handwithcashflows-Operationalreason:agrowingfirmcanhavefastgrowthinearnings,butduetotheexpansion,itisconsistentlyshortofcash;adecliningfirmmayhavedecliningearningsbutthrowoutlargeamountofcashduetolackofinvestingopportunities-Earningsmanagementreason:Afirmmaymanagethenon-cashearningstoincreaseearnings,butnottoincreasecashflow.Iscashtheking?Earningsdon31CashflowpatternfordifferentfirmsCashflowfrom:ABCDOperation$(3)$7$15$8Investing(15)(12)(8)(2)Financing185(7)(6)NetCF0000New,growingfirmGrowinglessrapidlyMature,stablefirmDecliningfirmCashflowpatternfordifferen32

Iscashtheking?-Sloan[1996]AccountingReview

Iscashtheking?-Sloan[199633Iscashtheking?-Sloan[1996]AccountingReviewIscashtheking?-Sloan[1996]34Iscashtheking?-Sloan[1996]AccountingReviewIscashtheking?-Sloan[1996]35Iscashtheking?-Barthelal.(2001)Iscashtheking?-Barthelal.36InvestingMottoYoucanpocketcash,butyoucannotpocketearnings! ---myselfInvestingMotto37OnProjectReport/ReadingsMarketvalue,usenumberofsharesoutstanding,donotuseaveragenumberofsharesoutstandingIdentifysourceofdataorquotesCommonsizeanalysis,showamountsandpercentagesOnlyanalyzenotesthatarerelatedtoourcurrentlectureTaketurntowritethereport,donotleavetoonepersonInfinalexams,Imayprovideyouwithrawmaterialsandasamplearticlefromourreadingsforyoutoanalyzetherawmaterialsandwriteasimilararticle.Sogetfamiliarwithallarticles.Again,understandbutdonotmemorize.OnProjectReport/ReadingsMark38FirmNamesEagleEye:ValuationAnalysisStrategyInvestoriumFirmNamesEagleEye:Valuation39StatementofCashFlowCashflowfromOperatingactivities:（營運活動） cashreceiptsfromcustomers cashdisbursedto: suppliersofmerchandise employeesforsalariesCashflowfrominvestingactivities:（投資活動） purchaseofbuildings,equipments,plants proceeds(進帳）fromsalesoflongtermassetsCashflowfromfinancingactivities:（融資活動） borrowing/repaylongtermdebts issuingnewshares

StatementofCashFlowCashflo40項目報告或讀書英文課件41OverviewoftheStatementofCashFlowsInAOL2000balancesheet,cashandcashequivalentincreasedfrom$936millionsto$2,490millions.How?Thestatementofcashflows…(a)explainsthereasonsforachangeincash.(b)classifiesthereasonsforthechangeasanoperating,investingorfinancingactivity.(c)reconcilesnetincomewithcashflowfromoperations.OverviewoftheStatementofC42MontgomeryWardb.f.bankruptMontgomeryWardb.f.bankrupt43ThedifferencebetweenearningsandcashflowsI/SExplainchangeinretainedearningsI/Sisaccrued-basedI/SrecognizepropertyrightsI/SrequireestimatesI/SisanopinionI/Sisproneto(易于）manipulationFirmscansurvivealongstring（長串）ofnegativeearningsSCFexplainchangeincashandcashequivalentN/ASCFemphasize“actualpossessment”SCFdoesnotSCFisafactSCFissotoamuchlessdegreeFirmsgobankruptwithalongstringofnegativecashflows(outflow)Thedifferencebetweenearning44Cashflowequation

A=L+EΔA=ΔL+ΔEΔcash+Δnon-cashA=ΔL+ΔEΔcash+ΔcurrentA(otherthancash)+Δnon-currentA=ΔcurrentL+Δnon-currentL+ΔEΔcash=ΔcurrentL+Δnon-currentL+ΔE-ΔcurrentA(otherthancash)-Δnon-currentACashflowequationA=L+E45項目報告或讀書英文課件46項目報告或讀書英文課件47CashflowfromoperationCashflowsrelatedtosellinggoodsandservices;thatis,theprinciplebusiness(主營業務)

ofthefirmThemainsourceofpayoffstoshareholdersandcreditorsThereasonforthefirmstoexistIffirmsdonotinthelongrungeneratemorecashfromoperationthanthereturnsoffundstoshareholdersandcreditors,thefirmsgobankruptCashflowfromoperationCashf48Cashflowfromoperation-componentsCashcollectedfromcustomersCashcollectedasinterest(利息）onloanstoothersCashcollectedasdividends（股利）oninvestmentonotherfirms’stocksCashpaidtosuppliersCashpaidtoemployeesCashpaidtootherserviceproviders:landlords,marketingagency,auditors,consultants,…CashpaidtogovernmentCashpaidtocreditorsasinterestonborrowedmoneyCashflowfromoperation-compo49項目報告或讀書英文課件50CashflowfrominvestingactivitiesCashflowsrelatedtotheacquisitionorsaleofnon-currentassets:investment,land,property,plants,equipments…Tomaintainthecurrentproductivityoftheoperation,afirmmustreplaceassetsthattheywearout

(消耗）Togrowitsoperation,afirmmustacquireadditionalassetsOldassetsmaybesoldastheybecomeobsolete

(過時）,orasthefirmchangeproductionInvestingactivitiesthusprovideresourcetogeneratecashflowfromoperationsCashflowfrominvestingactiv51Cashflowfrominvestingactivities-componentsCashreceivedfromsalesofland,investment,property,plantsandequipmentCashpaidtoacquireland,investment,property,plantsandequipmentCashflowfrominvestingactiv52項目報告或讀書英文課件53CashflowfromfinancingactivitiesCashflowsrelatedtolong-termliabilitiesandowners’equityThesourceofcashtobeusedininvestingandoperatingactivitiesTwosources:shareholdersandcreditorsThispartofSCFalsoindicateshowmuchcashthefirmreturnstoitscapitalproviders,i.e.,cashdistributiontoshareholdersandcreditorsNote:short-termliabilitiesgeneratedinoperation,suchasaccountpayable,isnotrelatedtothiscategoryCashflowfromfinancingactiv54Cashflowfromfinancingactivities-componentsCashreceivedfromissuingcorporatedebtsortakinguploansCashreceivedfromissuingcommonsharesorpreferredsharesCashpaidtorepaydebtsorloansCashpaidtorepurchasesharesCashpaidtoshareholdersasdividendsCashflowfromfinancingactiv55項目報告或讀書英文課件56項目報告或讀書英文課件57Relationsamongthecashflowsfromthethreecategoriesofactivities1CFfromFin.Act.CFfromInv.ActCFFromOp.Act.Relationsamongthecashflows58FreeCashFlow=Cashflowfromoperatingactivities +CashflowfrominvestingactivitiesIfpositive,normaloperationgeneratesmorecashthatitconsumes,suchasthecaseofastablefirmIfnegative,normaloperationgeneratesinsufficientamountofcashtobeself-sustaining,suchasagrowingfirmFreeCashFlow=Cashflowfrom59TwomethodstopreparetheoperatingportionofSCFDirectmethodofpresentationcalculatescashflowfromoperationsbysubtractingcashdisbursementstosupplies,employees,andothersfromcashreceiptsfromcustomers.Theindirectmethodcalculatescashflowfromoperationsbyadjustingnetincomefornoncashrevenuesandexpenses.Mostfirmspresenttheircashflowsusingtheindirectmethod.Twomethodstopreparetheope60SCF-DirectmethodThedirectmethodissimpleandstraight:CashcollectedfromcustomersCashcollectedasinterest(利息）onloanstoothersCashcollectedasdividends（股利）oninvestmentonotherfirms’stocksCashpaidtosuppliersCashpaidtoemployeesCashpaidtootherserviceproviders:landlords,marketingagency,auditors,consultants,…CashpaidtogovernmentCashpaidtocreditorsasinterestonborrowedmoneySCF-DirectmethodThedirectme61IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationΔcash=ΔcurrentL+Δnon-currentL+ΔE-ΔcurrentA(otherthancash)-Δnon-currentAΔcash=[ΔcurrentL-ΔcurrentA(otherthancash)]+[Δnon-currentL+ΔE]–[Δnon-currentA]Op.Fin.Inv.IndirectmethodSCFreconciles62IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationNetIncomeisaccrual-based,whenwecalculatenetincome,wedonotcarewhethercashhasbeenreceivedorpaidButcurrentassetsandcurrentliabilitiesaccountsareimpactedwhenwecalculatenetincome,e.g.,wedebitaccountreceivableandcreditrevenuewhenfinishingasalesactivityIndirectmethodSCFreconciles63IndirectmethodSCFreconcilesnetincomewithcashflowfromoperationSointheexampleabove,netincomeishigherthancashflowfromoperationbecausethistransactionincreasesnetincomebyincreasingrevenues,butdoesnotincreasecashbecausewedebitaccountreceivableandnocashiscollectedyet.Therefore,togettothebalanceofcashfromnetincome,wesubtracttheincreaseinaccountreceivableaccount.Thisprocedureconfirmstothecashequationinwhichincrease(positivechange)incurrentassetsotherthanc