(wow) Words Of Wonders Level 2372 Answers – Recently, I wrote to Seeking Alpha readers about how to review a company's balance sheet. Upon request, this follow-up article attempts to provide a similar overview of the cash flow statement.
I compare the cash flow statement to a corporate “checkbook”. Although the income statement is sometimes governed by GAAP accounting rules, the cash flow statement is fundamentally simpler. At its core, it documents how much cash flows in and out of a business.
(wow) Words Of Wonders Level 2372 Answers
I'm not a financial guru; No alphabet soup after my name. My goal is to identify what I believe are fundamental, practical markers of investor due diligence.
Xkcd 2372: Dialect Quiz
For this exercise, I chose Procter & Gamble (NYSE:PG) as a case study. P&G is a global consumer packaged goods company. Procter & Gamble manufactures, distributes and markets its products.
I chose Procter & Gamble because the company represents a business that requires significant capital. The statement of cash flows emphasizes capital expenditures; Integral to Business Analysis. Capex is not available in the income statement.
In addition, PG pays a dividend. Since dividends are paid in cash, we can use the cash flow statement to compare how much is paid out against the net cash flow.
Cash flow statement has many features. However, I try to focus on what I think are the most important drivers of investment. Therefore, our focus will be:
Minimum Eligibility Criteria Based On Cat Score 2022 Iim Rotak.
Listed companies must file a standard SEC cash flow statement. Most companies include an unaudited statement with their quarterly earnings reports. Generally, I prefer to use copies of SEC filings; It is clean, and has all the basics.
In the two panels below, please see the most recent P&G 10-Q Consolidated Statements of Cash Flows Includes data as of March 31, 2016; First 9 months of P&G's fiscal year.
In the first panel, note the accumulation of “Total Operating Activities”, also known as Operating Cash Flow. The starting point is “net income” or profit, then cash or line items for non-cash items are directed to arrive at the bottom line.
As expected, “depreciation and amortization” is the largest non-cash adjustment. D&A is listed as an expense on the income statement, but does not affect cash flow.
Gentlemen Of Leisure: X Amining X Factor #72
P&G management clearly shows working capital adjustments. Changes in working capital reflect movements in short-term balance sheet assets and liabilities.
With the help of the statement, good investors have the opportunity to think and decide whether certain line items are the core of the business. This goes to the heart of sound investing: calls are based on common sense of the business, operations and drivers.
Finally, we see that operating cash flow is positive, and the gross margin has increased year over year. For the nine months ended March 31, 2016, PG recorded OCF of $10.6 billion versus $11.3 billion in the same period in 2015. If we choose to suppress changes in “Other operating assets and liabilities” and “Other”; We see operating cash flow was almost flat. These two items relate to changes in the prepaid marketing balance.
We know this because it was identified in a 10-Q filing under the heading “Management's Discussion and Analysis.”
Future Trance Vol. 67 95
We generated $11.3 billion in cash from operating activities year to date, an increase of $676 million from the prior year. Net income, adjusted for non-cash items (depreciation and amortization, stock-based compensation, deferred income taxes, LOSS/(GAIN) on the sale of businesses and goodwill and intangible asset impairment charges), generated $11.4 billion of operating cash flow. Working capital and other effects used $68 million of cash during the period. The accounts receivable used $129 million of cash mainly due to sales mix. Inventory cost $94 million in cash. Accounts payable, interest and other liabilities used $199 million of cash primarily due to a reduction in taxes payable due to the timing of estimated payments. All other operating activities and liabilities generated $354 million of cash primarily due to a decrease in prepaid marketing balances.
For a trend perspective, see F.A.S.T. Graphics provide the big picture. Please find a post-recession chart showing P&G's annual operating cash flow through the end of fiscal 2015.
Results are consistent. Extrapolating this year's current 9-month OCF gives expectations for another $15 billion in cash flow for the full year.
Free cash flow (also called “owner profits”) is operating cash less routine capital expenditures. For capital-intensive businesses, this is an important metric. Running and maintaining capex is as real as operating costs for the enterprise.
Best Quizzes From 2021 So Far
As of 10-Q, P&G spent more than $2 billion in capital expenditures in the first nine months of the fiscal year. It is slightly less than before.
If we subtract capital expenditures from operating cash flow, we see that FCF increased from $8.2 billion last year to $9.3 billion this year. The results increase significantly year after year.
Astute investors may ask, “Hey, how do we know that all 10-Q capital expenditures are run-and-under variances?” The correct answer is: “We can't.” The SEC does not require companies to separate routine capital from growth capital. If the difference is significant, shareholder-friendly management often provides commentary for this effect, or a secondary table describes it.
I believe that a basic principle of good investing is to make sure that the company makes most of its profits in cash. In fact, profits/income are subject to accounting rules; Some may also argue a bit of management manipulation.
Solid Power Plunges After Surprise Ceo Exit, Da Davidson Downgrade (nasdaq:sldp)
As a result, businesses that generate a cash flow that is comparable to income are more likely to receive this investor's approval.
In fact, P&G not only converts profits into cash, but rather a small subset of businesses where free cash flow and profits are consistent.
Basically, free cash flow is the money left over after paying all of its operating expenses and capital expenditures to operate and maintain a business. Consequently, Procter & Gamble not only generates significant free cash flow, the figure eclipses GAAP or non-GAAP operating EPS.
Traditionally, many investors check dividend sustainability by checking the “payout ratio”. The payout ratio is calculated by dividing dividends by earnings, resulting in a percentage. Payout ratios above 80% or 90% may indicate that cash dividends are at risk.
Santa Barbara Independent 12/15/22 By Sb Independent
However, I contend that the free cash flow payout ratio is a much better metric for determining dividend safety. Especially industries that require significant capital.
Both ratios indicate a reasonably safe yield. However, the free cash flow calculation ensures that the dividend is safe.
In recent years, management has accelerated the use of “adjusted” or “operating” earnings. On the face of it, there is nothing wrong with that. Obviously, the goal was to deduct one-off or non-routine items from reported profit and loss, thereby reflecting a truer and more inclusive picture of core income.
Unfortunately, analysts noted that management adjustments may lean on the wild side. The issue has become enough of a problem to draw the attention of the Securities and Exchange Commission. The commission reviews rules for practice.
Vol 17 Issue 9 By Weekly Link
“Fiddling” with SEC liquidity filings is reportedly becoming more difficult. Effectively, it is a derivative of a corporate checkbook. A simple test is to compare a GAAP or “adjusted” income statement with a cash flow statement.
Basic investment cash flow analysis should include determining and distinguishing operating cash flow from free cash flow, identifying trends, comparing cash flow to earnings and examining the free cash flow dividend payout ratio.
Do your due diligence before making an investment decision. This article is not a recommendation to buy or sell stocks. Good luck with all your investments in 2016.
An individual investor focuses on a limited number of diversified stocks. Look for stocks that sell below fair valuations; In favor of dividends and/or income growth. It recommends fundamental investment analysis supplemented by technical charts. Alternative strategies are mainly used to generate additional income or hedge risk. If you are interested, you can learn more about my investment philosophy at I.S.S. (Investment Strategy Statement) Found in my list of published articles or via this link: Investment Strategy Statement – Ray Merola | Search for Alpha
Star Wars 7×7: The Daily Star Wars Podcast
Disclosure: I/we are PG majors. This article was written by me, and expresses my own opinion. I am not compensated for this (other than seeking alpha). I have no business relationship with any of the companies mentioned in this article.
If you have an ad blocker active, you may be blocked from continuing Deactivate your ad blocker and update.
4 words answers level 3, words of power wow, words of wonders, 4 words answers level 1, wow world of wonders, wow of wonders, 580 words answers level 17, wow wonders of water, words of wonders game, words of wonders online, 4 words answers level 2, words of wonders daily puzzle answers
